How Much Weight Do You Put on DSCR?

Question

For investors using financing on rental properties, how heavily does DSCR influence your buying decision?

Is it something you check early during deal analysis, or only once you're seriously considering the property?

Curious how others incorporate it into their underwriting process.

Jim Johnson · Answer

I look at DSCR pretty early, especially if the deal depends heavily on financing. It’s a good quick check on whether the property can comfortably carry the debt, but I wouldn’t use it as the deciding factor. A deal can have an acceptable DSCR and still have weak cash flow once you account for realistic vacancy, maintenance, taxes, insurance, and other expenses. For me, it’s one part of the underwriting, not the number that makes or breaks the deal.

Alan T. · Answer

I was gonna say I looked at it, then realized, who am I kidding -  I  mostly ignore it.

Couple of reaosns a) lender definition doesn' t match what I think DSCR is actually supposed to entail, so its not really useful when you're thinking of financing and b) it ignores cost of capital

How Much Weight Do You Put on DSCR?

2 Replies