Debt Coverage Ratio (DCR)
Net operating income divided by annual debt service. Lenders require cushion — a 1.25 DCR means income exceeds mortgage payments by 25%. DCR also feeds band-of-investment cap rate derivations.
Related Terms
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
Mortgage
A loan secured by real property, giving the lender a lien and the right to foreclose on default.
More in Income Approach
View allGross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Effective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..
Vacancy Rate
The percentage of available rental units or space that is unoccupied at a given time.