What Metrics Matter Most When Structuring DSCR Loans?

Question

For those using DSCR financing, which factors are you prioritizing most right now — rent assumptions, expense buffers, or exit flexibility? Curious how others are stress-testing deals.

Paul Garwol · Answer

Tracy,

From what we’re seeing across DSCR deals, exit flexibility is the priority — with rent assumptions a very close second.

Most investors get in trouble not on the buy… but on the refinance.

How we’re stress-testing deals right now:• Underwriting rents at today’s market, not pro forma or “once stabilized” numbers• Building in larger expense buffers (insurance, taxes, management, CapEx) so the DSCR still clears at higher rates• Modeling the take-out lender before closing, not after rehab, to avoid being over-capitalized in the deal

A deal can cash flow and still be a bad DSCR exit if the loan sizing doesn’t work at refi terms.

The strongest deals we’re seeing are the ones where investors reverse-engineer the exit first — then decide what purchase price and rehab the deal can actually support.

That mindset alone has saved investors six figures more than once.

Kiernan LaFaver · Answer

When I run pro formas for clients, I prioritize actual rents for first run of things, then venture into market rents. If the property doesn't work at current day, non-market rents, you're going to have to eat the lower rents until you can get to market rent. I also factor in an extra 15% monthly budget for CapEx and routine maintenance, just to be prepared for when things do go wrong and you have that buffer planned.

Kyle Hendricks · Answer

I do a lot of DSCR loans for clients and I notice the biggest thing lately is being very conservative on rents if we are going off appraisal for rental income, as well as values (if refis). I have seen this make or break a lot of deals lately.

Kenneth Garrett · Answer

@Tracy Thielman

I’ve completed many BRRRR projects.  There are a few things that you have to pay attention to that occur simultaneously, but using realistic numbers are critical.

1. Being conservative with rents.  As part of the BRRRR strategy you are placing a tenant in the unit/building prior to refinancing.  That rent number can be below market at market or above.  The higher the better.

2. The rehab is to force the equity for the refinance.  You need to make sure the property will appraise at the number you projected before the project started.  This is critical for the DSCR ratio.  Your minimum goal should be 1.25.  I always want it to be 1.50 or better.  The higher number the better.  Some lenders allow 1.0, but your rate will be higher.

3. Keeping your rehab in budget and getting it done quickly is also critical.  Of course this depends on the extent of the rehab.

4. Principle, interest, taxes, insurance = PITI

Example $1900 PITI and divide by rent $2400

$2400/$1900 =1.263 this works, but the higher rent or lower PITI or both makes it work.  Refinancing all your money out is the goal.  This is not always possible, but if you can get your money in the next 18-24 months that is a delayed great BRRRR.

That’s my take on the critical components.

What Metrics Matter Most When Structuring DSCR Loans?

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