<--Back to Wiki Home

Define Debt Coverage Ratio (DCR) in Real Estate

Debt Coverage Ratio (DCR): 

The "Debt Coverage Ratio" is a number that helps people understand if a property makes enough money to pay off its loans. It's calculated by dividing the property's Net Operating Income (the money the property makes after paying its expenses) by the Annual Debt Service (the total amount of loan payments due each year).

Formula: 

DCR-formula.png

Example: 

Maria owns an apartment building and wants to know if it makes enough money to cover its loan payments. She calculates the Debt Coverage Ratio by dividing the building's Net Operating Income ($50,000 per year) by its Annual Debt Service ($40,000 per year). The result is 1.25, which means the building makes enough money to pay off the loans and still has some money left over.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

Debt Coverage Ratio, what's the fuss?
It's a number that helps all of us.
Net Operating Income, you see,
Divided by debt, as easy as can be.
A ratio that tells us, oh so clear,
If loans can be paid off, without fear.
When property's making money, oh so fine,
Debt Coverage Ratio, a helpful sign!