A Texas investor purchases a property for $380,000, with 25% down and a 6.5% mortgage on the balance. If the annual debt service (P&I) is approximately $22,800, what is the debt service coverage ratio (DSCR) if the NOI is $30,000?

Explanation

DSCR = NOI / Annual Debt Service = $30,000 / $22,800 = 1.316 ≈ 1.32. A DSCR above 1.0 means the property generates enough income to cover its debt service. Lenders typically require a minimum DSCR of 1.20 to 1.25 for commercial loans.