What is the minimum benchmark for a viable Debt Service Coverage Ratio (DSCR)?

The minimum benchmark for a viable Debt Service Coverage Ratio (DSCR) is typically considered to be greater than or equal to 1.2x. A DSCR of 1.2x indicates that a property generates sufficient income to cover its debt obligations with a 20% buffer. This margin is crucial for lenders as it reflects the ability of a property to generate income above its debt service requirements, thus reducing the risk associated with lending.

A ratio below this level (for example, a DSCR of 1.0) would indicate that the income generated is barely sufficient to meet debt obligations and does not provide any additional safety margin, which could raise concerns during the underwriting process. Similarly, a much higher ratio such as 1.5x or 2.0x would signify an even healthier financial position but is often not set as the minimum threshold for viability, as it may be overly conservative and exclude some viable investments. Therefore, setting the benchmark at ≥1.2x creates a balance between risk management for lenders and the accessibility of financing for borrowers.