Underwrite the property the way a lender will — including the reserves that turn a “cash-flowing” rental negative.
Debt service coverage ratio is net operating income divided by the mortgage payment. Above 1.00 the property covers its own debt; at 1.20 — the common lender threshold — it covers it with twenty percent to spare. Below 1.00 you are subsidizing the property every month whether the spreadsheet said so or not.
Net operating income includes every operating cost but not the mortgage. Three lines are omitted constantly, and each one is a real cost spread across years rather than an optional one:
DSCR asks whether the property carries its debt. Cash flow asks what lands in your account. Cash-on-cash measures return on the money you actually invested. Cap rate ignores financing entirely, which makes it the right tool for comparing properties against each other and the wrong tool for deciding whether you can afford one.
Most rental lenders look for at least 1.20, meaning net operating income covers debt service 1.2 times. Some programs accept 1.00 or slightly below with pricing adjustments and more equity; below 1.00 the property does not pay for itself.
No. NOI is income minus operating expenses only. Debt service is excluded, because NOI measures the property's performance independently of how it was financed. Mixing them produces a number no lender will recognize.
Capital expenditure reserves, vacancy, and management. Each is a certainty spread over time rather than a surprise, and omitting them produces a number that looks like cash flow but is really deferred cost.
Send the address, the budget, and the timeline — you will get a straight answer, not a maybe.
Submit a ProjectProjected profit, cash needed, and your 70%-rule maximum offer
Ground-up budget, contingency, and cost per finished square foot
How much cash comes back at refinance, and how much stays in
These interactive calculators are made available to you as self-help tools for your independent use. They are provided for general informational and illustrative purposes only and are not intended to provide financial, legal, tax, or investment advice. All examples are hypothetical. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances, and results are estimates only — not a rate quote, a loan offer, an approval, or a commitment to lend. Actual terms, costs, and outcomes vary by borrower, property, and transaction, and all financing is subject to underwriting. We encourage you to seek personalized advice from qualified professionals regarding your project and your finances.