I’m currently preparing to purchase my first investment property and would appreciate some perspective from those with experience scaling portfolios.
I’m evaluating whether it makes more sense to start with a DSCR loan or go the traditional financing route. My primary goal is to build a portfolio of single-family rentals that produce consistent cash flow and can be scaled over time.
From what I understand:
DSCR loans offer flexibility and are income-based, which seems ideal for long-term investing.
Traditional financing may offer better rates but requires stronger personal income positioning and down payment considerations.
For those who have been in this position before:
Which route did you choose for your first few properties, and why?
Did you find DSCR loans to be a better long-term scaling tool, or did starting with conventional financing provide a stronger foundation?
How did you approach the down payment challenge early on?
I’m focused on making a disciplined first move that sets me up for sustainable growth, so I value any insight you’re willing to share.
I'm not sure you are asking the right question. You are worried about scaling and haven't bought your first deal yet. That is like worrying about what to study in college while you are in elementary school. (I'm not trying belittle; it just seemed like a relevant metaphor)
I would ask which financing is most likely to make your first deal a success. If your first deal is a success, then you will be in a better position to do the second and third. At that point positioning yourself for scaling becomes more relevant. In my mind traditional financing is a no-brainer.
Why?
- Usually better interest rates, so more cashflow
- 30 year term (most DSCR have a shorter term and if that term expires during a recession, you can be screwed)
- Standardized contracts and terms
Hopefully you and the property qualify for both types of loans. In many respects, scaling is a non-issue on this first deal because, you could always refi the property and get out of the initial loan.