Debt service coverage ratio (DSCR) is net operating income divided by annual debt payments, and lenders use it to judge whether income can support the loan.
Lenders typically require a minimum DSCR, which varies by lender and property type, and many look for at least 1.20x to 1.30x. A DSCR of 1.25x means NOI covers the loan payment 1.25 times. For NNN properties, the strength of the tenant and the remaining lease term often influence the ratio a lender will accept. A higher DSCR can lead to better loan terms, while a lower one may reduce how much a buyer can borrow.