Cam Appleton | Debt service coverage ratio (DSCR): Vancouver Commercial Real Estate Encyclopedia

For example: A lender says a building's income doesn't support the loan amount the buyer wanted, so the buyer needs more cash down. (Illustration only, not a real deal.)

This is a general industry term with no single official definition. Your lease or contract wording controls.

Example only, not a real client. Say you want to buy a small apartment building with a mortgage. The lender divides the building’s net operating income by the yearly loan payments, and your numbers fall just short of its minimum. A slightly larger down payment lowers the payments enough to bring the ratio where the lender needs it.

What I’d tell a friend

Run the lender’s math before you make an offer, so financing does not surprise you during your subject period.

Why it matters to you

It often decides how much a lender will lend. If income is lower than expected, the loan can shrink and you'll need more cash to close.

DSCR is current income over debt service

Debt service coverage ratio (DSCR) is net operating income divided by annual debt service. Lenders use it to size and renew loans. Soft vacancy assumptions that “will fill next quarter” often fail a credit committee.

Example only: $27,200 of net operating income against $24,000 of debt service is about 1.13. If the floor is higher, you need more durable income or less debt.

Bring the current rent roll, not a brochure pro forma.

How to use it in your deal

Borrowers should ask lenders for their minimum DSCR and how they calculate NOI and debt service; lenders often use stressed rates or longer amortizations. Higher rates reduce DSCR for the same loan, so a property that qualified a few years ago may not qualify for the same loan now. Buyers should calculate DSCR early.

Owners should track it, since many loans have DSCR covenants, and falling below can trigger defaults or cash sweeps. Improve DSCR by raising NOI, lowering debt or extending amortization. Canada Mortgage and Housing Corporation (CMHC)-insured multifamily loans have their own DSCR requirements. Compare lenders. Report income accurately; lenders verify with leases and statements.

Before you write an offer, run the numbers at a rate above today's quote to see whether the loan still works. If DSCR is tight, ask the lender about a smaller loan with an interest-only period, or a holdback released once a vacant unit is leased. Lenders also look at the borrower's other debts and cash, so have a clear personal net worth statement ready.

Mistakes I see

Using seller NOI. Ignoring stressed rates. Missing loan covenants.

In BC and Vancouver

Loan terms govern; CMHC publishes multifamily underwriting criteria.

Official sources: Canada Mortgage and Housing Corporation · Bank of Canada: key interest rates

What the ratio shows

The ratio compares a property’s yearly net operating income with its yearly loan payments. A ratio above one means the income covers the payments, and a higher ratio means more cushion if income drops.

Lenders set their own minimums, which vary by property type, lender and market conditions.

Using it in your plan

Lenders use their own view of income and costs, often more conservative than a seller’s, with vacancy and management allowances added. Build your numbers the same way.

If your ratio is tight, options include a larger down payment, a longer amortization, a seller loan for part of the price or a plan to raise income. Talk with a mortgage professional early.

Questions to ask before you sign

What DSCR is required?
How is NOI calculated?
What rate is used?
Are there covenants?

Related guide: How BC lenders size a commercial loan in 2027.
Keep reading

Working through this right now? Questions are free. Book a 15-minute call or call or text 604 256 2002, and I’ll give you a straight answer.

Back to the A–Z index · common questions · tactics to watch for · the shorter glossary

General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.