In one sentence
Net operating income divided by debt service, the standard measure of whether a property's cash flow covers its loan payments.
The longer version
A DSCR of 1.25x means the property produces a quarter more income than the loan requires. Lenders size loans to minimum DSCRs, underwrite them on stressed assumptions, and often carry them forward as ongoing covenants tested from the borrower's financial reporting.
The ratio is only as honest as its inputs. Underwritten NOI definitions, actual versus pro forma, and the treatment of reserves and management fees all move the number, which is why loan agreements define the calculation precisely.
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