DSCR loan profitability (buy&hold)

[Charles Granja]

Hello everyone,

I reached out to 4-5 lenders regarding DSCR loans and found it difficult to make a deal work, even in areas meeting 1% rule.

Here’s a recent scenario: 

Purchase price: 244k duplex, good condition

25% down 63.5k

Current rents: 2200, cannot raise 

Rate: 7.25%

Mortgage- 1570

Lender fees- 7500$ Origination/underwriting 

5 year prepayment penalty

This didn’t include discount points. I found a lender who would do 6.5% interest with 40% down, but it would come at a cost of 3 points so I ended up walking away. 

It seems that DSCR lending is better for situations where you can significantly improve the property or where you don't mind paying 10k more for a loan + 15-20% increase in mortgage costs each month.

For those that use DSCR loans how have you made it work? Do you balance cash/conventional properties with DSCR so that you are at least cash flow neutral? Are we just at a state in the market where it is difficult for deals to work? Do you use a different form of lending?