| Loan amount | — |
| Monthly P&I payment | — |
| Monthly PITIA | — |
| Net operating income (NOI, monthly) | — |
| Monthly cash flow (after everything) | — |
| Cash-on-cash return | — |
| Cap rate | — |
| 1% rule check (rent ÷ price) | — |
| Breakeven rent for DSCR 1.00 | — |
| Breakeven rent for DSCR 1.25 | — |
Worked Example
Using the default inputs: a $250,000 purchase with $2,200/mo rent, 20% down, a 7.25% 30-year (360-month) loan, $6,000 in points and closing costs, taxes $250/mo, insurance $120/mo, no HOA, management 8% of rent, maintenance 5%, and vacancy 5%.
Step 1 — Loan and payment. Down payment = 20% × $250,000 = $50,000, so the loan is $200,000. The monthly rate is 7.25% ÷ 12 = 0.604167%. Plugging into the payment formula:
P = 200,000 × 0.00604167 / (1 − 1.00604167−360) = $1,364.35
Step 2 — PITIA. Add taxes, insurance, and HOA to the loan payment: $1,364.35 + $250 + $120 + $0 = $1,734.35.
Step 3 — Lender DSCR. Gross rent ÷ PITIA = $2,200 ÷ $1,734.35 = 1.27. That clears the common 1.25 threshold, so most DSCR lenders would treat this as a qualifying deal at standard pricing.
Step 4 — True (underwritten) DSCR. Now count the operating costs lenders skip:
| Line item | Monthly |
|---|---|
| Gross rent | $2,200.00 |
| − Vacancy (5% of rent) | −$110.00 |
| = Effective gross income | $2,090.00 |
| − Taxes | −$250.00 |
| − Insurance | −$120.00 |
| − Management (8% of rent) | −$176.00 |
| − Maintenance (5% of rent) | −$110.00 |
| = Net operating income (NOI) | $1,434.00 |
True DSCR = NOI ÷ debt service = $1,434.00 ÷ $1,364.35 = 1.05. The same deal that looks comfortable to a lender (1.27) is only barely covering its payment once real-world expenses are counted.
Step 5 — Cash flow and returns. Monthly cash flow = NOI − P&I = $1,434.00 − $1,364.35 = $69.65/mo ($835.77/yr). Total cash invested = $50,000 down + $6,000 closing = $56,000, so cash-on-cash = $835.77 ÷ $56,000 = 1.49%. Cap rate = ($1,434.00 × 12) ÷ $250,000 = 6.88%. The 1% rule check: $2,200 ÷ $250,000 = 0.88% — below the 1% screen.
Step 6 — Breakeven rents. For lender DSCR 1.00, rent must equal PITIA: $1,734.35. For DSCR 1.25: 1.25 × $1,734.35 = $2,167.94. At $2,200 actual rent, there is only about $32/mo of cushion above the 1.25 bar.
How the Math Works
The key distinction: lender DSCR vs. true DSCR. Most articles use "DSCR" for two different ratios and never tell you which. This tool computes both, because they answer different questions.
Lender-style DSCR is what DSCR loan programs actually underwrite:
Lender DSCR = Gross monthly rent ÷ PITIA
PITIA = Principal + Interest + Taxes + Insurance + Association (HOA) dues. Lenders deliberately ignore vacancy, property management, and maintenance — they use gross scheduled rent (typically the lower of the lease rent or the appraiser's market rent on Form 1007) against the full housing payment. This answers the lender's question: does the rent cover the payment?
True (underwritten) DSCR is what a commercial underwriter or careful investor computes:
True DSCR = NOI ÷ Debt service
where NOI (net operating income) = rent − vacancy + other income − all operating expenses (taxes, insurance, HOA, management, maintenance), and debt service is the P&I payment only (taxes and insurance are already in NOI, so they are not double-counted in the denominator). This answers the investor's question: does the property actually carry itself? True DSCR is always lower than lender DSCR for the same deal, often by 0.15–0.30.
Loan payment. Monthly periodic math throughout: the monthly rate is i = annual rate ÷ 12, and the payment is
P = L × i / (1 − (1 + i)−n)
where L is the loan amount and n the term in months. If the rate is 0, the payment is simply L ÷ n.
Cash flow and return metrics.
Monthly cash flow = NOI − P&I(income after vacancy and all operating expenses, minus the loan payment).Cash-on-cash = (monthly cash flow × 12) ÷ (down payment + points/closing costs)— your year-one cash yield on cash invested.Cap rate = (NOI × 12) ÷ purchase price— the unlevered yield; it ignores the loan entirely.1% rule = monthly rent ÷ purchase price— a quick screen; at or above 1% historically suggested likely positive cash flow, though it is a blunt instrument in today's rate environment.
Breakeven rents. Because PITIA does not depend on rent, the lender-style breakevens are direct: rent for DSCR 1.00 = PITIA and rent for DSCR 1.25 = 1.25 × PITIA. These tell you the minimum appraised market rent needed to qualify.
Assumptions and limitations. Intermediate values are never rounded — only the display is. The tool assumes a fully amortizing fixed-rate loan (many DSCR programs also offer interest-only periods, which raise the qualifying DSCR). It does not model rent growth, capital expenditures beyond the maintenance percentage, income taxes, or depreciation. Lender guidelines vary: confirm the exact DSCR formula, rent source, and minimum ratio with your lender. Educational use only.
Frequently Asked Questions
How do DSCR lenders calculate DSCR?
Most DSCR lenders calculate DSCR as gross monthly rent divided by PITIA — the monthly principal, interest, property taxes, insurance, and HOA dues. They do not subtract property management, maintenance, or vacancy. Rent is typically the lower of the lease rent or the market rent from the appraiser's rent schedule (Form 1007). A property renting for $2,200 with a $1,734.35 PITIA has a lender DSCR of about 1.27.
What DSCR do I need for a rental loan?
Most DSCR lenders require a ratio of at least 1.0 to 1.25, with 1.25 being a common threshold for the best pricing. Some lenders go below 1.0 (down to roughly 0.75) with larger down payments and higher rates, and a few offer no-ratio programs. A DSCR of 1.25 or higher generally qualifies for the widest range of programs and the lowest rate add-ons.
What is the difference between DSCR and cash-on-cash return?
DSCR measures whether the property's income covers the loan payment — it is a lender's risk metric and ignores how much cash you invested. Cash-on-cash return measures the annual cash flow you keep as a percentage of the cash you put in (down payment plus closing costs) — it is an investor's return metric. A deal can have a strong DSCR and a weak cash-on-cash return at the same time, especially with a large down payment.
What is a good cash-on-cash return on a rental property?
Many buy-and-hold investors target 6–10% cash-on-cash in normal markets, and 4–6% is common in higher-priced, lower-cap-rate markets. At today's rates, leveraged rentals frequently pencil at 0–3% cash-on-cash in year one, with the return improving over time through rent growth and principal paydown. What counts as good depends on your alternatives — compare it to what the same cash earns in notes or other investments.
Does vacancy count in DSCR?
Not in the lender's calculation. Lender-style DSCR uses gross rent divided by PITIA, with no deduction for vacancy, management, or maintenance. Vacancy does count in the true (underwritten) DSCR, which divides net operating income by debt service. That is why a property can show a lender DSCR of 1.27 but a true DSCR of only 1.05 — and why you should compute both before buying.
What is PITIA in a DSCR loan?
PITIA stands for Principal, Interest, Taxes, Insurance, and Association dues (HOA). It is the full monthly housing payment a DSCR lender divides the rent by. If the loan payment is $1,364.35, taxes are $250 per month, insurance is $120 per month, and there is no HOA, PITIA is $1,734.35.
Can I get a DSCR loan if the DSCR is below 1.0?
Sometimes. A number of DSCR lenders allow ratios down to roughly 0.75, but expect a lower maximum loan-to-value (often 65–70%), a rate premium, and stricter reserve requirements. A sub-1.0 DSCR means the rent does not cover the full payment, so you are feeding the property each month — make sure your reserves and your reason for buying justify that.