DSCR for Conservative RE Expansion

[Michael Needle]

Hopefully this is the right thread for this question and thank you in advance.

TL;DR - own a few rentals, DSCR is 1.05, could take out a bigger loan against a property to get more cash for next purchase, DSCR would go to about 0.90 before next purchase is renovated/rented, RE is side gig and job is stable to can put additional W-2 wages to cover RE, want to remain somewhat conservative with potential long term COVID economic fallout, how conservative is too conservative?

Currently own a few rental units. Looking to expand to another property. BRRR or flip and SFR or 4plex, depending on availability and numbers, but preference is 4plex BRRR. Plan is to partner with a few folks for the downpayment/liquidity requirement (planning on a hard money loan).

All properties in the DC market, so rents should not soften too much due to federal government as main employer (one hopes), but I still want to stay on the conservative side given the unknown economic impacts of COVID-19. No non-real estate debt. Currently in temporary housing due to COVID-19.

So, here is the question. My current DSCR is roughly 1.05. I have a property that I could take a loan out against in order to increase the cash on hand for the next deal. My guess is it would drop my DSCR down to about 0.9. It would, of course, improve after the renovation is complete and renters are in it. RE is a side gig, so I could cover some of the payments from my W-2 income. I know it's subjective, but how risky is too risky with this? I'm not so risk adverse that I don't want to buy something in the next 12 months, but I don't want to gamble it all away by being over leveraged.

[Greg Scott]

Even a DSCR of 1.05 is effectively de-capitalizing your business because you do not have enough funding to cover basic repairs and maintenance. In commercial properties, most banks require a 1.25 DSCR. At 1.05 you are banking on appreciation of either rent or value. That is a speculative bet, the same as buying a stock.