What is DSCR?
The Debt Service Coverage Ratio (DSCR) tells you whether your rental income covers your loan payments. It's the metric lenders care about most — most want a DSCR of at least 1.0 (some as high as 1.25).
DSCR Formula
Example: $24,000 NOI ÷ $20,000 annual debt service = 1.20 DSCR
What is Cash-on-Cash Return?
Cash-on-cash return measures the return on the actual cash you've invested (down payment + closing costs), not the total deal value. It's the metric that tells you how productive your capital is.
Cash-on-Cash Return Formula
Example: $8,000 annual cash flow ÷ $50,000 cash invested = 16% CoC return
DSCR vs. Cash-on-Cash: Key Differences
| Dimension | DSCR | Cash-on-Cash Return |
|---|---|---|
| Who uses it | Lenders (loan approval) | Investors (performance) |
| Purpose | Can you service the debt? | How productive is your cash? |
| Considers vacancy | Yes (in NOI) | Yes (in cash flow) |
| Considers your financing | Only debt service | Down payment + closing costs |
| Lender minimum | 1.0–1.25 (varies) | No minimum — your choice |
When to Use Each Metric
Use DSCR when:
- Applying for a DSCR loan (most common for investment properties)
- Comparing properties on the same financing terms
- You need lender approval and want to pre-qualify yourself
- Running the BRRRR strategy (refinance after renovations)
Use Cash-on-Cash Return when:
- Comparing deals with different down payments or financing structures
- Deciding how to allocate your available capital
- Evaluating a cash purchase vs. financed purchase
- Reporting to partners or investors on actual return on cash deployed
The Bottom Line
Use DSCR to get the loan. Use Cash-on-Cash to decide if the deal is worth taking. A deal can have a great DSCR (1.25+) but a mediocre CoC return if you put 50% down — and vice versa. Run both before committing.
Calculate Both Free
Use QuikCalc's free calculators to run both metrics on any deal in minutes: