1. What is Net Servicing Ratio (NSR)?

Definition: NSR measures a rental property's ability to cover its debt obligations from its net operating income.

Purpose: It helps investors and lenders assess the financial health and risk of a rental 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: A ratio of 1.0 means NOI exactly covers debt service. Higher values indicate better coverage.

3. Importance of NSR Calculation

Details: Lenders typically require NSR ≥ 1.2-1.3 to ensure sufficient income coverage. Higher ratios indicate lower risk.

4. Using the Calculator

Tips: Enter your property's annual NOI (rental income minus operating expenses) and annual debt service (mortgage payments). Both values must be > 0.

5. Frequently Asked Questions (FAQ)

Q1: What's a good NSR value?
A: Generally, 1.2-1.5 is acceptable, with higher values preferred. Below 1.0 indicates insufficient income to cover debt.

Q2: How is NOI different from gross income?
A: NOI is gross rental income minus operating expenses (taxes, insurance, maintenance) but before mortgage payments.

Q3: Does NSR include principal payments?
A: Yes, debt service includes both principal and interest payments on the mortgage.

Q4: Can NSR be used for commercial properties?
A: Yes, NSR is commonly used for all income-producing properties including residential and commercial rentals.

Q5: How often should I calculate NSR?
A: Regularly monitor NSR, especially before refinancing or when market conditions change significantly.