DSCR: the number your lender already runs, and you probably don't

Ask most investors what their portfolio’s DSCR is and you’ll get a blank look. Ask a lender’s credit team, and it’s one of the first things they check.

What DSCR actually measures

Debt Service Coverage Ratio compares the income a property generates against what it costs to service the debt on it:

DSCR = Net Operating Income / Annual Debt Service

Net Operating Income is rent minus operating expenses (rates, insurance, management fees, maintenance) before mortgage payments. Annual Debt Service is the principal and interest you actually pay over a year.

A worked example

A property renting for $650 a week brings in $33,800 a year. Operating expenses run $9,000 a year, so Net Operating Income is $24,800.

The mortgage repayment is $1,850 a month, or $22,200 a year.

DSCR = 24,800 / 22,200 = 1.12

A DSCR of 1.12 means the property generates 12% more income than it needs to cover the loan. Most lenders want to see at least 1.0, and many set their comfort threshold closer to 1.20 to 1.25 before they’ll approve a refinance or a new facility without extra income verification.

Why it matters more than yield on its own

Gross yield tells you what a property earns relative to its price. It says nothing about whether that income actually covers the debt sitting against it. A property can post a respectable 5% gross yield and still carry a DSCR under 1.0 once real operating costs and current interest rates are applied, meaning the rent literally doesn’t cover the loan without a top-up from somewhere else.

DSCR forces the two numbers that actually threaten a hold, income and debt cost, into the same ratio.

What a rate rise does to it

Take the same property and add a 1 percentage point rate increase. The mortgage payment moves to roughly $2,010 a month, $24,120 a year.

DSCR = 24,800 / 24,120 = 1.03

The property was comfortably above 1.0. One rate rise and it’s sitting at 1.03, with almost no room left before it tips negative. That’s the number a lender is looking at when deciding whether to approve your next application, and it’s the number worth stress-testing on your own portfolio before a lender does it for you.

Tracking it alongside LVR and yield

None of these ratios tell the full story alone. LVR tells you how leveraged you are. Yield tells you the headline return. DSCR tells you whether the income actually covers what you owe, today and under a rate stress test. A property can look fine on any one of these and still be the weak point in a portfolio once you check the other two.

The insight report in prop-insights.app shows all three for each property you add — so you can find the weak point in your own portfolio before a lender finds it for you.