Are you looking to finance a property with DSCR (Debt Service Coverage Ratio) but got turned down due to low rental income? This can be a frustrating situation for real estate investors. However, there are still options available to get your property financed. In this blog post, we will discuss two solutions that can help you get the funding you need.

Understanding DSCR Financing

First, let's quickly go over what DSCR financing is. DSCR is a ratio used by lenders to determine the property's ability to generate income to cover its debt. Ideally, the DSCR should be 1.25 or higher, indicating that the property's income can cover its debt and expenses with some extra cushion.

The Problem: Low Rental Income

As Luca mentioned in the video, he got turned down for a DSCR loan due to low rental income. The lender only looked at the rental survey and appraisal report, which put his DSCR under 1%. This means that the property's income is not enough to cover its debt, and the lender sees it as a high-risk investment.

Solution 1: Stabilized Bridge Loan

One option for Luca and other investors facing similar situations is to get a stabilized bridge loan. With a stabilized bridge loan, you can borrow up to 75% of the purchase price, furnish the property, get it running, and then refinance in 12 to 18 months down the road. This allows you to get the property up and running, generate income, and increase the DSCR before refinancing.

However, it's important to note that this option may come with a lower loan-to-value ratio (LTV), usually around 60-65%, which means you may need to put up more cash upfront.

Solution 2: Actual Projection Based DSCR Lender

Another option is to find an actual projection based DSCR lender. These lenders will use an algorithm similar to AirDNA to analyze the property's projected gross revenue instead of just relying on the rental survey and appraisal report. As long as your projected revenue can cover the property's debt, you can qualify for the loan.

However, it's important to note that not all lenders offer this type of financing, and you may need to do some research to find the right one.

Conclusion

In conclusion, getting turned down for a DSCR loan due to low rental income can be discouraging, but it's not the end of the road. With a stabilized bridge loan or an actual projection based DSCR lender, you can still finance your property and generate income. As always, it's important to do your research and find the best option that fits your needs and goals.