Case Study: How to Structure a DSCR Refinance Without Tax Returns (Real Numbers & Les
Hey BP Community! 👋
I see a lot of investors in the forums asking how to pull cash out of a stabilized rental without running into the strict debt-to-income (DTI) walls of conventional underwriting.
I wanted to break down a recent DSCR (Debt Service Coverage Ratio) refinance scenario we worked through to show the actual mechanics, numbers, and key takeaways for landlords looking to scale.
📊 The Deal Breakdown
- Property Type: Single-Family Residence (SFR)
- Appraised Value: $350,000
- Current Gross Monthly Rent: $2,800/month
- Loan Strategy: DSCR Cash-Out Refinance
🔢 How the DSCR Calculation Worked
DSCR looks strictly at the property's cash flow rather than personal income, tax returns, or W-2s. The core formula is:
$$\text{DSCR} = \frac{\text{Gross Monthly Rent}}{\text{Total Monthly Debt Service (PITIA)}}$$
Here is how the numbers played out:
- 75% LTV Loan Amount: $262,500
- Estimated PITIA (Principal, Interest, Taxes, Insurance, HOA): ~$2,150/month
- Calculation: $\$2,800 \div \$2,150 = \mathbf{1.30\text{ DSCR}}$
Since the DSCR came in well above 1.0, the property fully qualified on its own cash flow, allowing the investor to pull out equity to fund their next purchase.
💡 Key Takeaways for Investors
- No Personal Income Verification: The underwriting focus was entirely on the lease agreement, market rent appraisal (Form 1007), and credit score.
- Entity Funding: The loan was closed under the investor's LLC, keeping their personal credit clear for future leverage.
- Appraisal Matters: Always make sure your projected rent matches realistic market comps—if the rent comes in too low on the appraisal, it can push your DSCR below target thresholds.
I’d love to hear from other landlords on BP: What DSCR ratios or leverage caps are you seeing work best in your local market right now?
Feel free to drop any questions below about how DSCR underwriting works behind the scenes!
Best,
James Gregotski