Debt Service Coverage Ratio (DSCR)

Debt service coverage ratio is net operating income divided by annual debt service, the lender's test of whether a property's income covers its loan payments. Gross rent multiplier does not reflect it: two properties with the same GRM can have DSCRs on opposite sides of 1.0 depending on their expenses and financing.

Commercial lenders want 1.20 to 1.25. Residential DSCR lenders divide gross rent by the full monthly payment and accept 1.0 or higher. Under typical expenses a GRM of 8 tends to clear a 75% loan at 7% rates with room; a GRM of 10 tends to land near 1.0 on the NOI basis; a GRM of 12 usually does not cover the payment.

The mapping is rough because DSCR depends on the expenses GRM ignores and on the loan GRM knows nothing about. A property with a GRM of 9 and high property taxes can fail a lender's test while one with a GRM of 10 and low taxes passes. GRM tells you whether a property is worth underwriting; DSCR is part of the underwriting.

Further reading: Debt Service Coverage Ratio (DSCR) on Wikipedia.