Where DSCR deals break
Every assumption flows straight into the loan amount. An insurance quote $1,800 a year higher than planned can shrink the loan at closing.
On commercial property, it’s the leases. A building can be fully occupied and still size poorly if two tenants roll in the next 18 months.
When DSCR is the right tool
- Your tax returns understate what you earn. The depreciation and write-offs that save you taxes can sink a bank loan. DSCR underwriting looks at the property’s income, not your personal returns.
- You’ve hit the conventional ceiling. Agency financing caps how many financed properties you can hold. DSCR doesn’t.
- You hold in an LLC. Most DSCR lenders close in the entity’s name.
- The asset is commercial. On office, retail, and mixed-use refinances, the lease schedule carries the loan, not your personal income.
What it costs you
DSCR isn’t cheap money. Expect a higher rate than agency debt, a prepayment penalty on most loans, and lower proceeds on a cash-out than on a purchase. On commercial property, lenders may also hold back reserves for tenant improvements and leasing commissions.
The question isn’t whether DSCR costs more. It’s whether it’s the right trade for your hold plan.
The decisions I structure
- Purchases. The rent the lender will use, not the rent you expect. Vacant units get the appraiser’s market rent; occupied ones get the actual lease. Size the offer to the loan, not the other way around.
- Getting off bridge debt. Timing, seasoning, and whether the appraised value covers the payoff. Bridge Loans
- Commercial refinances. On office, retail, and mixed-use, the lender underwrites the lease schedule, not today’s occupancy.
- One loan or several. A portfolio loan simplifies payments but ties the properties together, which makes selling one later harder.
- Cash-out against rate. More cash today means lower coverage, and sometimes a higher rate.
- Prepayment penalty. It should match how long you actually plan to hold.
The pattern I see most
Operators shop the rate and accept whatever prepayment penalty comes with it. A 5-year penalty on a property you’ll sell or refinance in 2 years can cost more than the rate saved. Your hold plan should pick the penalty, not the other way around.
Who this is for
- Buyers of income property: single-family, multifamily, or commercial (office, retail, mixed-use)
- Owners refinancing stabilized property, or moving completed projects into long-term holds
- Loan amounts of $500K and up, single property or portfolio
- Properties in most of the U.S., through a nationwide network of capital sources
Not a fit: properties without rent history or a realistic rent estimate, or loans under $500K.
What I control
I’m not the lender. They set the rate, coverage requirements, and approval. I make sure the numbers they underwrite are the real ones, before closing rather than during it.
Buying an income property, sitting on bridge debt, or holding financing that no longer fits your plan? Send it over, and I’ll tell you where I see friction.
