Real Estate Metrics 101: Issue 3

Buying with leverage? Then you’ll want to understand how well a property supports its debt. This issue is all about cash flow safety, lender metrics, and risk management.

🏦 Debt Service Coverage Ratio (DSCR)

DSCR tells you how comfortably a property’s income can cover its debt payments.

Why it matters:

• Lenders want DSCR > 1.25.

• A DSCR < 1 means the property doesn’t fully cover its debt - risky territory.

💡 Higher DSCR = more breathing room.

📉 Break-Even Ratio

This ratio tells you what occupancy or income level you need to avoid losing money.

Why it matters:

• The lower the break-even point, the more cushion you have.

• Useful for stress-testing your investment.

⏳ Payback Period

How long it takes to recover your initial investment through cash flow.

Why it matters:

• A basic but effective risk metric.

• Shorter payback = faster recovery = less exposure.

⚠️ It doesn’t account for appreciation or long-term return, so use it alongside IRR and Equity Multiple.

Next issue: We’re wrapping up with a look at long-term performance and exit strategy metrics. You won't want to miss it.

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