Property
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Debt Coverage Stress-Tester
See how much income cushion a deal holds before debt coverage gets tight.
Enter your income and debt payments to check coverage.
Enter your numbers above to calculate.
Debt Coverage is NOI divided by annual debt service. NOI is gross rents minus operating expenses, and it excludes the mortgage payment. A Debt Coverage ratio of 1.25 means the property generates 25 percent more income than its debt requires. Below 1.0 means the debt is not covered by income alone.
What is a cap rate?
A cap rate is a property's annual net operating income divided by its value or price. It lets you compare income producing properties on their own merits, independent of how each one is financed.
The math is objective, the rate is a judgment. Net operating income over value is fixed arithmetic. The rate you apply is a market judgment. It reflects what similar buildings are actually trading at in that specific market and asset class, and it moves with location, condition, tenant quality, and the interest rate environment.
It varies by asset class and by market. A stabilized multifamily building can trade at a different cap rate than a single tenant retail space or a value add rehab. Rates also differ by market, for example a primary metro versus a secondary or tertiary market. A rate that fits one deal can be wrong for another, so treat any example as illustrative and subject to your own market.
How to choose one. Ask a local commercial broker or appraiser what similar buildings actually trade at in your market and asset class. This tool never supplies a cap rate for you.
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