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HomeLife/Cimerman Real Estate Ltd., Brokerage Kam Ghatan, Broker Industrial · Commercial · Investment

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DSCR & Financing

Debt service coverage, max loan, LTV and cash-on-cash return.

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Guide

Using DSCR & Financing well

Sizes the mortgage a lender is likely to offer and tests whether the income carries it. It works out the most you can borrow under the loan-to-value limit and under the lender's debt service coverage minimum, tells you which one binds, and what that leaves you to invest.

How to use it

  1. Enter the price and the NOI (from NOI & Cap Rate).
  2. LTV: the lender's maximum, commonly 55%–75% for GTA industrial depending on the lender and tenancy.
  3. Interest rate and amortization: 25 years is typical. Canadian fixed rates compound semi-annually — the tool does this for you.
  4. Lender minimum DSCR: 1.20×–1.35× is common; ask your lender for theirs.

Reading the result

  • Max loan (binding) is the lower of the two limits. When the DSCR loan is smaller than the LTV loan, the income — not the value — is setting your leverage.
  • Cash-on-cash below the cap rate means debt is costing more than the property yields (negative leverage). It can still make sense for long-term holders or owner-users, but you should see it before you commit.
  • A DSCR of exactly the lender's minimum leaves no room: a small vacancy or rate change can break the covenant.

Case studies

01

Why the lender stops at 55%

The Mississauga building above: $17.9M price, $965,484 NOI. Lender: 65% LTV maximum, 1.30× minimum DSCR, 5.75% rate, 25-year amortization.

  1. By value, 65% LTV allows $11,635,000.
  2. By income, the debt service can be at most $965,484 ÷ 1.30 = $742,680 a year — which carries a loan of $9,902,047.
  3. The DSCR test binds: the loan is $9.90M, only 55.3% of the price. Equity required: $7,997,953.
  4. Cash flow after debt service is $222,804, a 2.79% cash-on-cash return — below the 5.39% cap rate.

The lessonAt today's rates many GTA industrial deals are income-constrained, not value-constrained. Budget equity on the DSCR loan, not the headline LTV.

02

What one rate move does to the loan

The Brampton single-tenant building at $14.32M with $752,000 NOI, 1.25× minimum DSCR, 65% LTV, 25 years.

  1. At 5.00%: the DSCR loan is $8,619,825; equity $5.70M.
  2. At 5.75%: $8,021,049; equity $6.30M.
  3. At 6.50%: $7,484,556; equity $6.84M.
  4. The annual debt service is the same $601,600 in each case — the lender sizes the loan to the income, so a higher rate simply means a smaller loan and more of your cash.

The lessonGet a rate hold before you firm up. A 75 basis point move between offer and funding can add $600,000 or more to the cash you need at closing.

Common mistakes

  • Assuming 75% LTV without checking DSCR
  • Using monthly compounding for Canadian fixed rates
  • Sizing on pro-forma NOI the lender will not accept
  • Forgetting closing costs and reserves in the equity budget

Case studies are illustrative. Properties and figures are composites built to show the method; they are not offers or appraisals. Talk to Kam before relying on any number for a transaction.

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