Definition
A building's net operating income divided by its annual mortgage payments: below 1, the rents aren't enough to pay the mortgage.
The formula
DSCR = net operating income ÷ annual mortgage payments (principal and interest).
Example: $36,000 of NOI and $28,000 of payments a year give a DSCR of 1.29. That leaves $8,000 of cash flow a year, before tax.
Why lenders look at it
The DSCR tells you whether the building can carry its debt. Below 1, you have to add money every month to pay the mortgage. Lenders often require a DSCR of at least 1.20 for a rental building, but requirements vary, as does the way lenders estimate income and expenses. If the ratio is too low, a larger down payment shrinks the loan and the payments.
In Canada, a fixed mortgage rate is compounded semi-annually, not monthly (Interest Act, s. 6), which changes the payment slightly. The plex return calculator accounts for this and gives the DSCR, the cap rate and the cash flow.
Learn more
Glossary terms
Official sources
General information, not legal advice
This page summarizes the rules in force in Québec on the update date shown, for information only. It does not replace advice from a lawyer, notary or accountant, nor the official texts: when in doubt, rely on the sources above and on the Tribunal administratif du logement.