Glossary · UNDERWRITING

Debt Service

The total annual principal and interest payments required on all loans secured by a property.

Debt service is the sum of all loan payments - principal plus interest - on every debt obligation tied to a property in a given year. For a property with a $2,500/month bank mortgage and a $1,200/month seller-carry note, annual debt service is ($2,500 + $1,200) x 12 = $44,400. Debt service is subtracted from NOI to arrive at cash flow before taxes. Lenders use the DSCR ratio (NOI / Debt Service) to determine how much debt a property can support. Track institutional debt and seller-carry notes separately in your reporting to maintain visibility on each obligation's balance, rate, and balloon date.

Related Terms

Amortization

The schedule by which a loan principal is paid down over time, with each payment split between inter

DSCR

Debt Service Coverage Ratio - the ratio of NOI (or rent) to annual debt service, used by lenders to

Mortgage

A legal instrument that pledges real property as collateral for a loan, used primarily in eastern US

NOI

Net Operating Income - gross revenue minus operating expenses, before debt service and capital expen

Seller Financing

A transaction where the property seller provides the loan directly, eliminating the need for a tradi

Apply this in real deals

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