Dictionary of Business Terms: debt coverage ratio
debt coverage ratio
mathematical relationship of Net Operating Income (NOI) divided by annual debt service; often used as underwriting criterion for income property mortgage loans.
Dictionary of Real Estate Terms: debt coverage ratio
debt coverage ratio
the relationship between Net Operating Income (NOI) and annualdebt service (ADS). Often used as an underwriting criterion for income property mortgage loans.
Example: Annual debt service for a mortgage loan on a certain office building is $10,000. The property generates $25,000 in annual gross rent, and requires $7,000 for expenses of operation, leaving $18,000 net operating income. The debt coverage ratio is 1.80, calculated by the following formula:
| NOI ADS | = | $18,000 $10,000 | = | 1.8 |
