A DSCR loan is real estate financing that qualifies you mainly on the property's income instead of your personal income. Lenders measure that income with the debt service coverage ratio (DSCR): how much the property earns compared with what the loan payments cost. It's popular for investors buying income-producing property like self storage facilities.
How do you calculate DSCR?
DSCR = the property's net operating income ÷ its annual debt payments.
- Net operating income (NOI) is the property's income (rent plus any other income) minus its operating expenses.
- Annual debt service is the total of a year's loan payments, principal and interest.
For illustration only, with round numbers: if a property brings in $125,000 a year after operating expenses, and the loan payments total $100,000 a year, the DSCR is 1.25.
What's a good DSCR?
- Above 1.0: the property earns more than enough to cover the loan payments.
- Exactly 1.0: income just covers the payments, with nothing left over.
- Below 1.0: income doesn't cover the payments, which is a red flag for lenders.
Many commercial lenders look for a DSCR of at least 1.25, though the minimum varies by lender, property type and market conditions.
Who are DSCR loans for?
DSCR loans fit investors and owners buying or refinancing property that produces income, especially when their personal income is harder to document. Examples include:
- Self storage facilities
- Truck parking and outdoor storage lots
- Rental and other income-producing commercial property
How is a DSCR loan different from a traditional loan?
| Compare | DSCR loan | Traditional loan |
|---|---|---|
| Main thing lenders review | The property's income | Your personal or business income |
| Paperwork | Focused on the property: rent rolls, leases, operating statements | Tax returns, pay history and more |
| Best for | Income-producing property | Owner-occupied property and general business needs |
Lenders still consider things like your credit, the property's value and your down payment.
What do you need to apply?
- Property details: address, type, size and purchase price or current value
- The property's income history, such as rent rolls or operating statements
- Its operating expenses: taxes, insurance, utilities, repairs and management
- Basic information about you and any entity buying the property
In our experience, many owners think a bank loan is their only option. For income-producing property, a DSCR loan is often worth a look. See all funding options
Frequently asked questions
What does DSCR stand for?
Debt service coverage ratio. It compares a property's net operating income with its annual loan payments.
How do you calculate DSCR?
Divide the property's net operating income by its annual debt service. For example, $125,000 of net operating income and $100,000 of annual loan payments gives a DSCR of 1.25.
What DSCR do lenders require?
Many commercial lenders look for at least 1.25, but the minimum varies by lender, property type and market conditions.
Can I get a DSCR loan for a self storage facility?
Self storage is a common use for DSCR financing because facilities produce steady rental income. We connect investors with funding partners for storage and truck parking properties. All funding is subject to approval.
Does BRIDGEVANTI charge a fee to help with a DSCR loan?
No. BRIDGEVANTI doesn't charge any fees for funding. We connect you with funding partners and may be compensated by them for referrals.