Debt Coverage Ratio allows you to see how many times the net operating income will cover the mortgage. This calculation is very important to understanding if the property can produce enough income to cover the debt.
Remember that anything above the mortgage is profit. Typically a lender would want to see a debt coverage ratio of about 1.2 to 1.3. This calculation allows you to see if the property is healthy.
Debt Coverage Ratio = Net Operating Income / Debt Services