Definition
Debt service
Debt service is the total of principal and interest paid on the loan over a year. It sits below NOI in the statement, never inside it. Only the interest portion is deductible; the principal portion is not an expense at all, it is a transfer from cash into equity.
Annual debt service = monthly principal and interest × 12
Worked example
A $198,750 loan at 6.75% over 30 years pays $1,289 a month, or $15,469 a year, of which $13,351 is interest in year one.
Every example in this glossary uses the same deal: a $265,000 duplex renting for $2,650 a month, bought with 25% down at 6.75% over 30 years, producing $19,310 of net operating income.
The mistake to avoid
Where this is calculated
The rental property calculator computes this from your own numbers and shows the arithmetic expanded. The full underwriting model: NOI, cap rate, cash-on-cash, DSCR, amortisation, a 30-year projection and a printable deal report.
Related terms
- Debt service coverage ratioDSCR is net operating income divided by annual debt service.
- Loan-to-valueLoan-to-value is the loan balance divided by the property's appraised value.
- Seller financingSeller financing is when the seller acts as the bank: you pay a down payment and sign a promissory note secured by the property, then pay the seller monthly.
Back to the full glossary — 20 terms with formulas and worked examples.