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What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures, Updated Edition, 2nd Edition by Frank Gallinelli

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CHAPTER 29Calculation 23: Debt Coverage Ratio

What It Means

Debt coverage ratio (DCR) is the ratio between the property’s net operating income (NOI) for the year and the annual debt service (ADS).

If your NOI and ADS are exactly the same (say $10,000), then the ratio is 10,000 divided by 10,000, or exactly 1.00. A DCR of 1.00 implies that you have exactly enough net income from the property to make your mortgage payments, not a nickel more or less. If your DCR is less than 1.00, it means the property does not generate enough income to pay the mortgage. If your DCR is greater than 1.00, then the property does generate enough, with some left over.

As you might expect, one person with reason to look at the DCR carefully is the mortgage lender. When ...

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