What is DCR?
Debt Coverage Ratio measures a property's ability to cover its debt service with net income.
Formula: DCR = NOI ÷ Annual Debt Service
Why 1.25x?
A DCR of 1.25x means NOI is 25% above debt service. Conventional banks typically require 1.20–1.30x. CMHC can accept 1.10x for insured loans.
Impact on Your Financing
If your DCR is below 1.0x, the property has negative cashflow. Below 1.1x, institutional lenders will generally refuse financing.