Property Valuation
A Washington commercial real estate investor uses a 'debt coverage ratio' (DCR) to evaluate a property. A DCR of 1.25 means the NOI is:
A25% less than the annual debt service
B1.25 times the annual debt service, providing a 25% cushion✓ Correct
C25% of the property's value
DEqual to the debt service plus 25% operating expenses
Explanation
DCR = NOI ÷ Annual Debt Service. A DCR of 1.25 means the NOI is 1.25× the annual debt service — the property generates 25% more income than is needed to cover the mortgage payments. Lenders typically require a minimum DCR of 1.20–1.25.
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