The DSCR, or Debt Service Coverage Ratio is used to determine how well the cash flow of an apartment project will cover the debt, or mortgage payments. It is expressed as a multiple, with 1.25 meaning that the cash flow is 25% more than the mortgage payments. Most lenders want to see at least a 1.25 DSCR, but higher is better. Here's how to calculate DSCR.
The Break-even Ratio
The break-even ratio determines at what point the income overcomes expenses of operation. It's usually expressed as a percentage, and the lower the number the better. In other words, if an apartment project breaks even at 80%, it means that the expenses are 80% of income. At 75%, it would look better to a lender. Here's how to calculate the Break-even Ratio.
Of course, the lender is also doing a great deal of other due diligence in the apartment investing financing process, but these two ratios can give a buyer an idea of how the lender will look at the project in mortgage decisions.
