Debt Service
Debt service is the scheduled principal and interest a borrower pays on a loan. In real estate analysis it is the line cap rate and NOI deliberately exclude. Cash-on-cash return and DSCR are built around it.
Whether a metric includes debt service is the single most useful question to ask about it. Net operating income and cap rate exclude it on purpose, so they describe the property independent of any particular buyer’s financing. Cash-on-cash return and the debt service coverage ratio include it, so they describe the deal as actually financed.
That split is why one property can carry a respectable cap rate and still lose money every month for a leveraged buyer: the unlevered metrics never saw the mortgage payment. Reading any rental analysis starts with checking which side of the debt-service line each quoted number sits on.
Used in these calculators
Guides that put this term to work
Related terms: Net Operating Income (NOI) , Capitalization Rate (Cap Rate) , DSCR (Debt Service Coverage Ratio) , Cash-on-Cash Return
Last updated . Part of the FinExplained finance glossary .