Why owning a commercial property can be better than renting
Owning a commercial real estate (CRE) property can be a smarter long-term move than renting because it turns your monthly payment into an asset instead of an expense. When you rent, you’re building your landlord’s equity and often facing rent increases and lease renewals that you can’t fully control. When you own, you gain stability, more control over occupancy costs, the ability to customize the space to fit your operation, and the potential to build equity as you pay down the loan. Over time, ownership may also offer tax advantages (such as depreciation and certain deductible expenses, depending on your situation) and the opportunity to benefit from property appreciation. In short, owning CRE can strengthen your balance sheet, reduce uncertainty, and create a wealth-building strategy tied directly to the business you’re growing.
Understanding DSCR: Why it matters and how this calculator helps you make better decisions
When evaluating an income-producing property, one of the most important questions lenders and investors ask is simple:
Can the property generate enough income to cover its debt?
That question is answered by the Debt Service Coverage Ratio (DSCR).
This article explains:
What DSCR is and why it matters
How lenders use DSCR in real-world decisions
What Capitalization Rate (Cap Rate) tells you
How this DSCR calculator works step by step
What is DSCR?
Debt Service Coverage Ratio (DSCR) measures how well a property’s income covers its loan payments.
The formula is:
DSCR = Net Operating Income (NOI) ÷ Annual Debt Service
Net Operating Income (NOI) is the property’s income after vacancy and operating expenses.
Annual Debt Service is the total loan payments made in a year.
Example:
NOI: $120,000
Annual loan payments: $100,000
DSCR = 1.20
This means the property produces 20% more income than required to pay the loan.
Why DSCR is so important
DSCR is one of the primary risk metrics used by banks, credit unions, and commercial lenders.
From a lender’s perspective:
A higher DSCR = lower risk
A lower DSCR = higher chance of default
Most lenders require a minimum DSCR to approve financing.
Common DSCR benchmarks:
Below 1.20 → High risk
1.20 – 1.29 → Moderate risk
1.30 and above → Strong, financeable deal
A DSCR under 1.00 means the property cannot fully cover its debt, which is typically a deal-breaker.
What is capitalization rate (Cap Rate)?
Cap Rate measures the property’s return without financing.
The formula is:
Cap Rate = NOI ÷ Property Price
Cap Rate helps investors compare properties regardless of loan structure. While DSCR focuses on loan safety, Cap Rate focuses on investment performance.
How this DSCR calculator works
This calculator walks through the same steps a lender uses during underwriting.
1. Property selling price
The purchase price of the property.
2. Loan-to-Value (LTV)
Determines how much of the purchase price is financed.
Example: 75% LTV on a $400,000 property = $300,000 loan
3. Gross scheduled income
The total annual rental income before vacancies.
4. Vacancy percentage
Accounts for real-world conditions where units are not always occupied.
Effective Gross Income (EGI) is calculated as:
Gross Income × (1 − Vacancy Rate)
5. Operating expenses percentage
Covers expenses such as:
Property management
Maintenance
Insurance
Taxes (if applicable)
Operating expenses are calculated as a percentage of EGI.
6. Net operating income (NOI)
NOI = EGI − Operating Expenses
This is the income available to pay debt.
Loan calculations
7. Loan APR and term
The calculator computes:
Monthly loan payment
Annual debt service
Using standard amortization formulas.
DSCR and risk color coding
To make interpretation easier, the calculator applies a risk classification:
DSCR ≤ 1.20
High risk. Income cushion is thin or insufficient.
DSCR 1.20 – 1.29
Moderate risk. May be acceptable with strong compensating factors.
DSCR ≥ 1.30
Strong. Indicates solid cash flow and lender comfort.
This same color logic appears on screen and in the PDF report.
PDF report: why it matters
The downloadable PDF is designed to mirror a professional underwriting summary. It includes:
Key inputs
NOI calculation
DSCR and Cap Rate
Clear assumptions written in plain language
Color-coded DSCR for quick risk review
This makes it useful for:
Loan applications
Investor presentations
Internal deal analysis
Discussions with lenders or partners
Who should use this calculator?
Real estate investors
Commercial borrowers
Loan officers and underwriters
Property managers evaluating refinancing options
Anyone analyzing income-producing real estate
Final thoughts
DSCR is more than a number; it’s a financial safety margin. Understanding it helps you:
Avoid over-leveraged deals
Structure smarter loans
Speak the same language as lenders
Make confident investment decisions
This calculator brings lender-level analysis into a simple, transparent tool; so you can evaluate deals before submitting them for approval.
