All Forum Posts by: Coty B Lunn

Great point! Yes, it's something a lot of investors overlook when first considering DSCR loans. While the interest-only period and easy qualification can be attractive, the prepayment penalties (often structured as step-downs or yield maintenance) can really cut into your profits if you're not careful about timing your exit.

That’s why it’s crucial to know everything upfront with the lender — not just rate and terms, but the full prepayment structure, balloon timeline, and any hidden fees. Understanding all the fine print is key to making an informed decision and avoiding surprises down the road.

Whether those penalties outweigh the benefits depends on your strategy. If you're planning a short hold or refinance within a year or two, it's crucial to run the numbers and see how much those penalties will eat into your equity or cash-out. On the flip side, for longer holds or if the property's cash flowing well, the flexibility and speed of DSCR lending can still make sense.

Hey everyone,

DSCR loans (Debt Service Coverage Ratio loans) have been gaining a lot of attention lately and I wanted to share some thoughts and open up the discussion. These loans are based primarily on the property's ability to generate enough rental income to cover its debt, rather than on the borrower's personal income or debt-to-income ratio. That makes them very different from conventional financing.

Here is a breakdown of the pros and cons as I see them:

Pros of DSCR Loans

Property-based qualification
The loan is underwritten on the property's rental income compared to the monthly mortgage payment (PITI). If the DSCR ratio meets the lender's requirement (often 1.0–1.25+), you can qualify without traditional income verification.

No personal income checks
You do not need W2s, tax returns, or pay stubs. For self-employed investors or those with heavy write-offs, this can be a game changer.

Scalability
Because the loan focuses on the property and not your personal DTI, you can keep adding properties without hitting a personal income ceiling. This is especially useful for portfolio growth.

Flexibility in ownership
Many DSCR lenders allow loans in LLCs or business entities, which can make structuring your portfolio easier.

Attractive for STR operators
Short-term rental investors often use DSCR loans since high gross rental income helps qualify even if personal income is inconsistent.

Lower down payment options
Some lenders allow DSCR loans with as little as 15% down, making them more accessible for investors who want to conserve capital.

Closing costs covered
You can often roll in up to 6% toward closing costs into the loan, which reduces upfront cash needed at the table.

Cons of DSCR Loans

Higher rates and fees
Rates are usually one to two percentage points higher than conventional loans, and fees can also be steeper.

Reserve requirements
Lenders often want six to twelve months of reserves, which can tie up a lot of capital.

Credit still matters
While DTI is not considered, credit score usually still plays a role. Minimums can range from 620–680+, and better credit usually gets better pricing.

Prepayment penalties
Many DSCR loans come with penalties if you refinance or sell within the first few years. That can limit exit flexibility.

Documentation still needed
They are not truly “no-doc” loans. Lenders still want leases or market rent estimates, appraisals with rent schedules, and proof of reserves.

Final Thoughts

It is easy to see why DSCR loans have become so popular. They give investors a way to keep scaling when conventional financing is not an option. At the same time, they do come with trade-offs like higher rates and prepayment restrictions.

Who here has closed a DSCR loan recently? How did your experience compare with conventional financing? Would you recommend your lender?

I would recommend Turbo Tenant.  I use it personally for all my rentals and as someone who handles dozens of rental transactions every year, I’ve tried a variety of platforms to streamline the leasing process and TurboTenant has consistently proven to be one of the most effective tools out there for independent landlords and property managers.

Here’s why I think TurboTenant is a great program to use when renting to tenants:

1. Easy and Professional Listings
TurboTenant allows you to create a polished rental listing quickly and syndicate it to dozens of rental sites (like Zillow, Apartments.com, and Realtor.com) with just one click. This maximizes exposure and cuts down on time spent manually posting across platforms.

2. Online Applications & Screening
You can collect rental applications and screen tenants all within the platform. TurboTenant provides credit reports, criminal background checks, and eviction history—all paid by the applicant. This makes screening thorough, consistent, and cost-free for the landlord.

3. Streamlined Communication
The messaging feature allows you to communicate with applicants easily and keep all conversations organized in one place. No more juggling texts, emails, or missed calls.

4. Document Management & E-Signatures
You can upload your own lease or use one of TurboTenant’s state-specific templates. All lease agreements can be signed electronically—no printer or scanner required, which is great for both landlords and tenants.

5. Rent Collection Made Easy
Tenants can pay rent online, and you’ll receive funds directly in your bank account. You can also set up automatic late fees and reminders, making it easier to enforce lease terms and encourage on-time payments.

6. Expense & Maintenance Tracking
The platform allows you to log expenses and track maintenance requests. This is especially helpful at tax time and for staying on top of property upkeep.

7. It's Free for Landlords
Most features are free for landlords—TurboTenant makes money by charging tenants for applications and reports. Optional premium upgrades are available, but the core functionality works great without added cost.

Bottom Line:
TurboTenant simplifies and professionalizes the entire rental process. Whether you manage one property or a dozen, it’s an efficient tool to keep your business organized, compliant, and competitive.

I personally use and recommend TurboTenant. 

There are free and paid versions depending on what you want it to do, but it's not that expensive if you go for it. 

What it does: 

• Online tenant screening & applications: Tenants apply digitally; ordering credit, criminal, eviction checks via TransUnion. Fees are generally tenant‑paid, or landlords on paid tiers pay less 

• Listing syndication: Post listings once, and TurboTenant distributes them to Zillow, Apartments.com, Craigslist, and others 

• Digital leases & e‑sign: Use state‑specific lease templates. Paid tiers allow unlimited agreements and signing.

• Rent collection & accounting: Supports ACH and card payments; automatic reminders, late fees, receipts, and optional autopay. ACH fees waived on Premium 

• Resource tools: Message inbox, maintenance tickets, condition reports, expense tracking, document storage, and an owner portal

As a general rule, I aim to achieve a net return of $800–$1,000+ per month for every $100,000 invested. This is calculated after accounting for all expenses, including taxes, insurance, utilities (water, sewer, garbage, electric, gas), and an allowance for maintenance costs (typically 5% of gross rent, adjustable based on the building's condition), as well as management fees.

I invest in the Binghamton, NY area both as an investor and as a realtor. Binghamton was recently recognized as one of the fastest-rising markets for local home prices. This market now offers not only excellent cash flow but also strong appreciation, creating well-rounded investment opportunities.

The 60 strongest housing markets heading into 2025 - Fast Company

I completely agree with you Steph!  I attended the City of Binghamton Council meeting to try and defend why good cause eviction is not the way to go!  Unfortunately, after speaking with City Council Members, it appears they are heavily leaning towards creating this new law.

It's great that you're considering your options for attracting a broader range of tenants! I’d recommend checking your local and state laws regarding upfront non-refundable deposits, as these can vary significantly. For instance, in New York State, it's not permitted to collect last month's rent, additional security deposits beyond one month's rent, or pet deposits.

Regarding the carpet issue, even tenants without pets can sometimes leave carpets in less-than-ideal condition after a couple of years. If you're concerned about potential damage, installing laminate flooring could be a smart move. Pergo is known for its durability and ease of installation, which could give you a clean finish and reduce maintenance costs in the long run.

It's wise to consider all these factors as you make your decisions. Good luck!

Hi Kris,

The NAR settlement finalized on August 17, 2024, introduced important changes to how real estate commissions are handled. While sellers are not obligated to pay the buyer's agent's commission, they can still choose to do so if it is negotiated during the transaction. Buyers are now responsible for ensuring their agent’s compensation up front before showings take place.

When you meet your next agent, consider suggesting a meeting to determine if you’re a good fit for each other. This allows both parties to discuss expectations and ensure alignment. You can also negotiate the buyer's agent commission and sign a buyer-broker agreement, which ensures they represent you and assist in finding properties that meet your criteria.

Best of luck!

Hi Rene,

I typically focus on cap rates rather than just cash flow numbers when evaluating properties. A quick rule of thumb I use is that I aim for a minimum profit of $1,000 per month for every $100,000 invested. This is after factoring in all expenses, including taxes, insurance, vacancy, management fees, maintenance, and utilities (gas, electric, water, sewer, and garbage).

Regarding cap rates, I typically target between 15-18% as a minimum for a deal to make sense. Keep in mind, I’m based in the Binghamton, NY area, which is more of a cash flow market with slower appreciation compared to other areas. While our home prices do tend to rise, the growth is generally at a more gradual pace.  Hope this helps!

Hi Emanuele,

I actually did neither. I bought it strictly as an investment property. 10% down, conventional, no PMI.