Break-Even Point

The break-even point is the level of sales or income at which revenue exactly equals costs, with no profit or loss. For a DSCR loan, break-even is a ratio of 1.00: the rent exactly covers the monthly payment including taxes, insurance and dues.

On the $500,000 example the payment is about $3,330, so break-even rent is about $3,330 a month. At $4,000 rent rent runs about 20% above break-even, which is what a DSCR of 1.20 means in practice.

Some lenders make loans at or even below 1.00, usually with more down payment or a higher rate. A ratio at break-even leaves nothing for repairs, vacancy or management, so the owner covers any shortfall out of pocket.

Further reading: Break-Even Point on Wikipedia.