Calculating DSCR for Austin Rental Properties
To determine if you’re eligible for a DSCR loan, calculate the Debt Service Coverage Ratio (DSCR) of your rental properties in Austin. Divide the total yearly rent generated from those properties by the annual debt obligations. Consider vacancy and giving yourself some room for extra property expenses.
The NOI (Net Operating Income) needed to run the ratio can be affected by maintenance costs, taxes and insurance premiums. Vacancy rates are another key factor which has direct influence on cash flow. If occupancy levels drop, so does potential income.
Example of DSCR Calculation
Let’s say an Austin property has a yearly income of $50,000. The total debt payments including principal, interest payments, insurance premiums and HOA fees sums up to $40,000. Divide the annual income by the expenses, meaning $50,000/$40,000. We get a DSCR ratio of 1.25.
1.25 tells us that this investment property produces 25% more than what it needs. So therefore, the property is self-sustaining and can pay its monthly debt obligations. Lenders normally look for larger numbers since those signal less risk against default. However, lower DSCR loans can still be approved with higher interest rates to balance out the risk.