I know loans are up one day and down the next due to the economy stabalizing, so what would you say is a min and max for DCSR?; And does a DCSR thats too high mean something may be wrong with the property?
It depends on the type of property, the sources of income, norms for the market and strength of borrower
What Does Debt-Service Coverage Ratio - DSCR Mean?
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In corporate finance, it is the amount of cash flow available to meet annual interest and principal payments on debt, including sinking fund payments.
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In personal finance, it is a ratio used by bank loan officers in determining income property loans. This ratio should ideally be over 1. That would mean the property is generating enough income to pay its debt obligations.
In general, it is calculated by: net operating income / total debt service expense
A DSCR of less than 1 would mean a negative cash flow. A DSCR of less than 1, say .95, would mean that there is only enough net operating income to cover 95% of annual debt payments. For example, in the context of personal finance, this would mean that the borrower would have to delve into his or her personal funds every month to keep the project afloat. Generally, lenders frown on a negative cash flow, but some allow it if the borrower has strong outside income.
It is not out of the norm these days to see banks asking for 1.5.
So, whatever your debt service on the property is proposed to be multiply that by 1.5 and that is the minimum NOI can be to qualify for a loan on that property. In the good ol’ days is was typically 1.1 to 1.2.
A DCR of 1 would be very very risky to the lien holder. The DCR is simply padding the cash flow in the event of a downturn in CF.
I agree…I do two DCRs…A hi and lo… Hi meaning GOI/debt service and lo meaning NOI/debt service…