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What Is Debt Service?

Debt service is the total amount of principal and interest owed on a loan over a given period, most often expressed as an annual figure in real estate investment analysis.

Most useful for: Real Estate Investor · Rental Property Investor
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At a Glance
Debt Service
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Definition
Plain-English meaning
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Why It Matters
Practical impact
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Related Terms
3 connected concepts

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DSCR stress test

Debt service coverage ratio compares NOI with the yearly mortgage payments. Lenders often want 1.25× or more; the test shows how fast it drops when rent, vacancy, expenses or the rate move.

DSCR
1.26×
At or above 1.25×
NOI per year
$23,454
Debt service per year
$18,680
Rent
  • Rent -15%1.02× · Covers the debt, below 1.25×
  • Rent -10%1.10× · Covers the debt, below 1.25×
  • Current rent1.26× · At or above 1.25×
  • Rent +5%1.34× · At or above 1.25×
Vacancy
  • 0%1.34× · At or above 1.25×
  • 5%1.26× · At or above 1.25×
  • 10%1.17× · Covers the debt, below 1.25×
  • 15%1.09× · Covers the debt, below 1.25×
Expenses
  • Current expenses1.26× · At or above 1.25×
  • Expenses +15%1.17× · Covers the debt, below 1.25×
  • Expenses +30%1.08× · Covers the debt, below 1.25×
Interest rate
  • 6.75% (current)1.26× · At or above 1.25×
  • 7.75%1.14× · Covers the debt, below 1.25×
  • 8.75%1.04× · Covers the debt, below 1.25×
Reference line: 1.25×, a common lender minimum. Below 1.00× the property cannot pay its mortgage from NOI.
Show the numbers as a table
DSCR sensitivity
ChangeScenarioDSCRCash flow / month
RentRent -15%1.02×−$95
RentRent -10%1.10×$22
RentCurrent rent1.26×$255
RentRent +5%1.34×$372
Vacancy0%1.34×$378
Vacancy5%1.26×$255
Vacancy10%1.17×$132
Vacancy15%1.09×$9
ExpensesCurrent expenses1.26×$255
ExpensesExpenses +15%1.17×$121
ExpensesExpenses +30%1.08×−$13
Interest rate6.75% (current)1.26×$255
Interest rate7.75%1.14×$93
Interest rate8.75%1.04×−$76

Formula

DSCR = NOI ÷ Annual debt service (principal and interest)

Assumptions

  • 30-year fixed loan, no points; one unit with no other income, HOA or utilities.
  • Vacancy is taken off gross rent; management, maintenance and the capital-expenditure reserve are a share of collected rent.
  • Each scenario changes one input and keeps the rest; real stress usually comes in combinations.
  • Lender DSCR minimums vary from about 1.00× to 1.40×.
Open the full Rental Cash Flow Calculator →

Why it matters

It's the denominator in DSCR and the figure subtracted from NOI to arrive at cash flow — getting it right (including any required reserve payments) is essential to an accurate return analysis.

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This definition is provided for general educational purposes and is not financial, legal, tax, or real estate advice. Verify important decisions with appropriately qualified professionals.

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