Debt Coverage Ratio (DCR)

A ratio that measures ability to pay the mortgage amount using the net operating income of a property. Lenders often use this ratio to determine loan approval.
Example: An office building's Net Operating Income (NOI) is $25,000 and the Annual Debt Service (ADS) is $13,000.

NOI        $25,000
-----   =   -----------   =  1.92
ADS       $13,000

Debt Service

The periodic payments of interest and principal on a loan. See Annual Debt Service.
Example: Monthly mortgage payments are debt service.

Debt to Equity Ratio

Another method used to measure the ability to repay a loan, through the ratio of debt and equity in a property.
Example: A property has a $200,000 mortgage and $50,000 equity. The debt-to-equity ratio is 4:1.

Debt to Income Ratio

Compares a borrower's debt payments to the property's gross monthly income. This is a method for lenders to measure the likelihood of receiving payments from the borrower.

Depreciation

The loss of value of an asset, listed as a non-cash expense, which can be calculated in a number of ways.

Due Diligence

The investigation of a potential asset, prior to its purchase, to confirm the physical, financial, legal and social characteristics of the property.
Example: Before purchasing a property, ABC Company researches a property to determine that it is as the seller has represented it and ensure it is a sound investment.

DYNA Software

Real estate investment analysis software.