Great breakdown, Frank. Totally agree with the guardrails you laid out. DSCR deals get dangerous fast when investors underwrite with best-case rents and today's unrealistically low expense assumptions.
A couple things we’ve been doing in Memphis that line up with your approach:
• We stress-test at 1.20–1.25 DSCR using actual operating data from our portfolio, not just pro forma. If it only pencils at 1.05 with rosy assumptions, we don't touch it.
• On small multis, keeping rehab in that $50K–$60K range has been the sweet spot for financing and timeline predictability just like you mentioned. Anything above that tends to break the BRRRR.
• Rent comps matter more than spreadsheets. We cross-check BP + Zillow + our PM's actual leased units before we underwrite a single number. Removing the guesswork keeps our exit DSCR honest.
Curious what you're seeing in Indy on DSCR floors. Most of our lenders are sitting around the 1.15–1.20 requirement right now depending on seasoning and rent stability.
Always appreciate posts like this. Real numbers, not theory.
James, this is spot on. Love seeing someone actually backing it up with real portfolio data instead of spreadsheet fantasy.
In Indy I'm seeing very similar things to what you're describing in Memphis. Most DSCR lenders on my end are landing in that 1.15–1.20 floor range right now, depending on whether it's a purchase vs. cash-out, seasoning, and how stable the rent history is. That said, I am seeing some programs go under a 1.0 DSCR in very specific cases — usually when you've got really strong credit, low leverage in that 65–70% LTV band, and substantial reserves. Those are more "exception-worthy" deals than anything I'd ever want an investor to underwrite as their baseline.
Where I see people get into trouble is exactly what you called out: pro forma rents and today's taxes/insurance instead of where those numbers are actually headed. One tax reassessment or insurance bump and that "1.20" can turn into 1.05 overnight. I'm also with you on that $50K–$60K rehab lane being the BRRRR sweet spot on small multis. Once you're pushing much above that, you're in light/medium reposition territory and need to treat it like a true value-add play, not a simple BRRRR.
Really appreciate you sharing what’s working in Memphis. It’s super helpful to compare notes market-to-market when we’re all trying to run real numbers, not wishful thinking.
