All Forum Posts by: Alex Bekeza

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@Ned Carey I see what you're saying but I think it's also worth mentioning that it's not like the majority of DSCR loans close below a 1.25 DSCR (while of course some do). The greatest demand for these loans is in markets with relatively high rent to price ratios, rents increase over time while the rate is fixed for 30 years, etc. The actual default rates on these sort of speak for themselves and that's why there's still more capital chasing this type of debt then there are borrowers to even give it to.

It's also not as if the majority of these loans are going to people with ZERO personal income even though we're not calculating DTI. Quite the opposite, I'd say our average borrower is a self employed business owner who has developed a significant income and then uses it to get into real estate investing. 

You are absolutely right about a tight DSCR only using RENT/PITI is a negative cash flow deal. To your point, it's great when savvy borrowers opt to take less than their maximum allowable LTV to lower their debt service and make it a stronger cash flowing deal as opposed to always maxing things out.

@Andy Yeoman The 5 year step down is going to be where you find the lowest DSCR rates for sure. It's always going to be a give and take between PPP length vs. rate with these so I wouldn't spend much time shopping for that 0 PPP on DSCR because you will be paying for it somewhere else (rate, origination, etc). You need to quantify the TRUE likelihood of needing to refi or sell in the next few years. If you can land something in the mid 6s today (which you easily can with strong FICO) it's unlikely rates will fall SO much lower in the next few years that you'd NEED to refi. Keep in mind a future refi will come with it's own set of closing costs so the savings would need to be significant.

The 3,2,1 for a reasonable fee or rate adjustment might be a good fit if you'd like more wiggle room in the next few years.  

I would say 99% of my clients right now flirt with the lower PPP options and then ultimately chose to close with the 5 year for the big savings in rate/cost + general acceptance that rates will probably remain "sticky". 

@Ned Carey the HUGE difference between 2008 and the DSCR loans in servicing now is EQUITY among other things. Here's a list of the key distinctions to make in this comparison.

1. Loan Underwriting Standards

• 2008-era subprime loans: Many were issued with little to no documentation (aka “stated income” or “no-doc” loans), teaser rates, negative amortization, or balloon structures. Borrowers often qualified based on speculative future appreciation, not real repayment ability.

• DSCR loans today: Underwriting is based on property-level cash flow (rents vs. PITI), not borrower wages. Even though DSCR loans are "no personal income" loans, the property itself must generate sufficient income to cover debt service. Most lenders require a minimum DSCR of 1.0–1.25, creating a built-in buffer against default.

2. Borrower Profile

• 2008 crash borrowers: Many were retail, first-time homebuyers with low credit scores, little equity, and no investing experience. A job loss or rate reset often pushed them into foreclosure.

• DSCR borrowers today: Typically investors purchasing or refinancing rental properties. They often buy through LLCs, have larger down payments (commonly 20–25%), and understand real estate cash flow. They’re not counting on living wage income to cover the mortgage — the property must sustain itself.

3. Skin in the Game (Equity)

• 2000s subprime pools: Some products allowed 0–5% down, with layered risks (piggyback HELOCs, silent seconds, etc.). Borrowers could (and did) walk away with little to lose when values fell.

• DSCR loans today: Typically require 20–25% down, sometimes more depending on leverage and market. This equity cushion means both the borrower and the lender have protection if property values dip.

4. Collateral Characteristics

• 2008 crash collateral: A lot of loans were made in overheated housing markets to speculative buyers banking on appreciation, not cash flow. Once values dropped, the collateral couldn’t support the loan.

• DSCR collateral: Properties are underwritten primarily for income generation. Even if values fluctuate, a well-performing rental continues to cover payments. The loan is less dependent on rising home values and more tied to durable rent streams.

5. Market Dynamics

• 2008 systemic risk: Mortgage-backed securities were packed with risky subprime loans and resold globally. When defaults rose, the entire system froze, amplifying the collapse.

• DSCR market today: Still a small niche compared to conforming Fannie/Freddie loans. While securitization exists (Wall Street does buy DSCR loans), the scale is much smaller and the credit boxes tighter. Risk is more contained than in 2008.

6. Interest Rate Structures

• 2008 crash loans: Many were 2/28 ARMs with low teaser rates that reset sharply upward, instantly doubling payments.

• DSCR loans today: Often 30-year fixed or 5/7/10-year ARMs with caps. While rates are higher than conforming, the structure is more stable. Borrowers also qualify based on today’s higher rates, not an artificially low teaser.

Bottom Line

DSCR loans aren't risk-free — defaults can still occur if rents fall, vacancies spike, or property expenses rise. But compared to the "toxic" mortgages of the mid-2000s, they:

• Require real cash flow at underwriting,

• Involve more investor equity,

• Are issued to savvier borrowers, and

• Represent a smaller, more controlled market.

That combination makes the DSCR loan space structurally less vulnerable to the kind of broad-based default crisis we saw in 2008.

Lenders who call trigger leads to get business don't surf. LOL.  Luckily, there is legislation moving forward to eliminate or reduce this "bottom of the barrel" business practice. 

A bipartisan bill known as the Homebuyers Privacy Protection Act (House version: H.R. 2808; Senate version: S. 1467) has passed both chambers of Congress and is now headed to the President’s desk for signing

This Amends the Fair Credit Reporting Act (FCRA): Credit reporting agencies (CRAs) are prohibited from selling "trigger lead" information to third parties—unless one of the following conditions is met:

1. The recipient is the consumer’s existing mortgage lender or servicer.

2. The recipient is a bank or credit union with which the consumer has an existing account.

3. The consumer has explicitly consented to receive the offer.

4. While waiting for the law to take effect, you can reduce unwanted mortgage offers now by:

   • Opting out of prescreened credit offers via OptOutPrescreen.com.

   • Registering with the National Do‑Not‑Call Registry (via donotcall.gov)

Too much capital chasing too few deals and I think lenders are sticking their necks out a bit to be more competitive and already building their pricing around expectations of market improvement 

DSCR loan default rates are extremely low despite all of the market turbulence over the last few years. Data suggests something in the 2% range from 2019 (when originations exploded) to present

It sounds like you have a pretty good grip of your options and it really just depends on the opportunity cost is in terms of whether cashing out now would allow you to put another BRRRR in motion but on the other hand I'd imagine your lady would prefer your undivided attention over the next few months! (haha speaking as BRRRR investor who has had to answer deal emails from the delivery room)

@Kristi Miller Maggie Norton at Real Protect insures all of my rentals and she just helped my friend on an old 10 unit in Los Angeles that was notoriously difficult to insure after the fires recently. I'd recommend looking her up and reaching out or message me and I'll provide her contact info. 

Google Reviews and Bigger Pockets References are a great place to start. There are a handful of DSCR lenders here on BP with hundreds of reviews.