How Investors Are Financing Rentals Without Using Their Personal Income

Question

I’ve been seeing a lot of questions lately about hitting income limits when scaling rental portfolios.
One option many investors explore is DSCR-based financing, where the property’s cash flow is the primary focus rather than personal income.

For those who’ve used DSCR loans:

• What were the biggest pros and cons for you?
• Any lessons learned the hard way?

What were the biggest pros and cons for you?

Any lessons learned the hard way?

Would love to hear real-world experiences from the group.

Nicholas Mann · Answer

Definitely a good loan product. Easy process. I got stuck with a 5 year prepay penalty and now can't refinance into better terms or don't want to because of the amount it would cost me. Rates are at a better rate nowadays so getting a new DSCR won't be as hard as when it was 8-9%.

Jay S. · Answer

Hi Melinda. The biggest pros and cons we have seen for our clients getting DSCR loans are usually the below. Pros: No tax returns/DTI checks, infinite scalability, and easy closing in an LLC. An unemployed borrower can get this Loan (not recommended off course :) )

Cons: Pre payment penalties (0-5 years), the DSCR Ratio is very important and Lenders qualify Loan based on this, higher credit scores needed (You can get Low Credit DSCR Loans but rates will be high;) and it's costs.

Pro Tip: Run the numbers before you choosing a term length for pre payment penalty. We have seen many investors choosing 5 Years PPP for lower rates but couldn't Refinance due to high PPP Fees.