📘 What is Debt Service?

Debt Service refers to the total amount of money required to repay the principal and interest on a loan over a specific period, usually annually. For real estate investors, it typically includes all mortgage-related payments made toward a property’s financing.

This metric is crucial for evaluating whether a property’s income can support its financing obligations.

📌 When and Why It’s Used

Debt Service is used whenever a real estate investor or lender assesses a property's ability to cover its loan payments using rental income. It's a key component in calculating the Debt Service Coverage Ratio (DSCR), which helps determine financing risk.

By understanding debt service obligations, investors can better forecast cash flow, evaluate financial feasibility, and maintain healthy leverage.

🧮 How It’s Calculated or Applied

Debt Service is calculated by adding the total principal and interest payments due over a specified time—commonly a year. It does not include taxes, insurance, or maintenance costs.

This calculation plays a major role in financial analysis, especially when paired with Net Operating Income (NOI) to evaluate investment performance.

✅ Pros

• Helps assess a property’s financing burden accurately
• Essential for calculating DSCR and assessing loan eligibility
• Aids in long-term planning for mortgage and investment strategy

⚠️ Cons

• Doesn’t include other costs like property taxes or insurance
• May mask affordability issues if income projections are overly optimistic
• Can become unmanageable if interest rates rise or cash flow drops