Maximum # of DSCR Loans Lenders Will Give?

Question

As a person with an average salary, I was wondering what the maximum amount of DSCR loans a lender would give out would look like? I have one conventional mortgage and am looking for turnkey rentals, which there are many of in the midwest. How do I get to 5, 10, 20 properties with DSCR? And do they care if I do rent by the room strategies?

Originally, I felt limited by conventional lending DTI.

The downpayment and closing costs would be one large hurdle in order to repeat this, I'm not sure how willing lenders are to allow 3 properties a year. Still learning the DSCR ins and outs. Thanks!

Miller McSwain · Answer

Hey @John Friendas

I have purchased 4 of my Co-Living (rent by room) properties with DSCR, 1 of them within the last few months.

Not that I necessarily recommend this, but there are short-term-rental DSCR products. From my understanding, as long as you intend on doing a STR when you close, there are no rules against changing your strategy after closing, especially if you find that something else is more profitable.

So in our case, the lender determined an STR would bring in ~$3500/month (with all of their conservative factors), but now that we operate it as a huge 3300 sqft Co-Living property, it actually brings in $7000/month. MUCHHHH better and of course that leaves us with plenty of room to pay the mortgage payment so the lender is happy.

Btw, I just wrote the Co-Living book for BP that comes out in Spring, you can sign up for it here! CoLivingBook.com

Caleb Marks · Answer

It is correct that there is no limit, but some of the aggregators and securitizers who purchase these loans post-close have exposure limits, such as $10 million in unpaid principal balance. If you are working with a lender who securitizes their own loans, they will likely have a similar requirement. That being said, there are enough lenders out there that this won't ever be a problem for you. We work with some sponsors who do 10+ transactions a year, and some even more.

On the rent-by-room question: that is correct, about 18-24 months ago, rent-by-the-room was okay in the DSCR space, but those times are behind us. However, if it is a purchase transaction, the deal can still get done, the deal would just need to qualify as a standard rental (lender won't know you are renting by room post-close). Refinances, it is more obvious as there will be modifications to the property that are evident on the appraisal. Lenders stopped allowing rent by the room due to modifications done to the property resulting in functional obsolescence and significant cost to cure in the event there was a default and they needed to foreclose on the home and resell it, given that the main buyer pool for single-family homes are primary occupants.

John Friendas · Answer

It seems like there is no catch, would they let me buy a property this month and a property the next month for instance if I have the 25% down+closing costs and can prove that it rents for a decent amount more than the mortgage?

John Friendas · Answer

I could do it 2-3 based off cash savings. I have a long rennovation project I bought in the summer that I am currently working on and am looking to get a few turnkeys on top of that. I don't want to wait another 6 months to get more property through conventional.

Brandon Beardt · Answer

Hi John,

No cap on the amount of DSCR loans you can get. If you and the property qualify, you can get unlimited amount of DSCR loans. Most institutional DSCR lenders prefer one lease per property/unit, however, I've seen programs allowing rent by room strategies. Just depends on the situation/scenario. Best of luck.

Jacqueline Wright · Answer

Hi John,

Great question! The number of DSCR (Debt Service Coverage Ratio) loans a lender will offer can vary depending on the lender, your financial situation, and the property cash flow. However, there are some general guidelines and strategies to help you scale up to 5, 10, or even 20 properties. For most DSCR loans, down payments are typically around 20-25%, depending on the lender and the property type. As you grow your portfolio, keep an eye out for lenders who offer low down payment options for investors or those that allow leveraging the equity from your existing properties to fund new ones. Since you’re focusing on turnkey rentals, DSCR loans are often ideal because they focus more on property income rather than your personal income. But be mindful of the debt service requirements and ensure your rental income is sufficient to cover the loan payments.

It’s definitely possible to scale up with DSCR loans—many investors use them to build large rental portfolios. I’d recommend shopping around with different DSCR lenders and considering lenders who specialize in investment properties for more flexible terms and options.

Good luck with your investing journey!

Brittany Minocchi · Answer

I've seen some lenders place limits on the number of loans a borrower can hold, but most don't. As for by-the-room rentals, many lenders won't allow that and if they do, they qualify you off of the long term market rents (which, as I'm sure you can imagine, would be considerably lower than the actual per-room rents). I have been able to find a couple of options for this setup though, they just require separate leases for each room and sometimes 2-3 months of rental receipts as well.

Ryan Stuckey · Answer

As others noted, there is no limit to DSCR funding other than your ability to produce enough liquidity for down payments, closing costs, and the required reserves post-closing. Each property qualifies on its own economic merits (i.e. rental income covering PITI payments)

This is one of the main advantages for DSCR financing, i.e. the ability to scale without any kind of DTI limit imposed by conventional financing.

Brandon Beardt · Answer

100%. These are business purpose loans so there isn't any sort of red tape when purchasing multiple properties at once or one after another. Each DSCR loan is separate and qualifies separately, so one doesn't necessarily affect the other except for the liquidity needed to close since you'll have multiple down payments/closing costs for each transaction.

Brandon Croucier · Answer

You can have as many DSCR loans as you like as long as you meet the requirements for the product, there is no ceiling to your growth.