1. What is Net Servicing Ratio?

Definition: The Net Servicing Ratio (NSR) measures a property's ability to cover its debt obligations with its net operating income.

Purpose: It helps lenders and investors assess the financial health and risk of a property investment.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( NSR \) — Net Servicing Ratio (dimensionless)
• \( NOI \) — Net Operating Income (currency, e.g., USD)
• \( DS \) — Debt Service (currency, e.g., USD)

Explanation: The ratio shows how many times the property's income covers its debt payments.

3. Importance of Net Servicing Ratio

Details: A higher ratio indicates better financial health. Lenders typically require minimum NSR values (often 1.2-1.5) for loan approval.

4. Using the Calculator

Tips: Enter the property's annual Net Operating Income and annual Debt Service amounts. Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What is a good NSR value?
A: Typically 1.2 or higher is acceptable, with 1.5+ considered strong. Below 1.0 indicates insufficient income to cover debt.

Q2: How is NOI calculated?
A: NOI = Gross Income - Operating Expenses (excluding debt service and capital expenditures).

Q3: What's included in Debt Service?
A: All principal and interest payments on property loans for the period.

Q4: How often should NSR be calculated?
A: Typically annually, but can be done quarterly for active monitoring.

Q5: How does NSR differ from DSCR?
A: They're similar, but DSCR may include taxes and insurance in debt service, while NSR focuses purely on loan payments.