Build a rental portfolio with DSCR loans

What is a DSCR loan?

A DSCR loan is investment-property financing that focuses on the rental income instead of your paycheck. Many 1–4-unit programs calculate DSCR as qualifying monthly rent ÷ principal, interest, property taxes, insurance and any HOA dues (PITIA). A 1.00 ratio means rent covers that payment, before other operating costs. The lender decides which rent and minimum ratio qualify.

Purchase: a Milwaukee duplex

Say you buy a duplex for $240,000, with each unit renting for $1,300 a month.

• Down payment: 25%, or $60,000; loan: $180,000 (75% LTV). Closing costs and required reserves are extra.
• Monthly principal and interest: about $1,259. Add $450 in taxes and $150 in insurance; no HOA. Total: about $1,859.
• DSCR: $2,600 ÷ $1,859 = 1.40. The remaining $741 is before repairs, vacancies, management and owner-paid utilities, not take-home profit.

Cash-out: a Waukesha duplex

Suppose a rental appraises for $360,000 and the mortgage payoff is $210,000. A lender allowing 75% LTV would cap the new loan at $270,000 before its other limits.

• $270,000 new loan − $210,000 payoff − $8,000 assumed closing costs = about $52,000 cash out. Prepaid taxes, escrow funding or an existing prepayment penalty could reduce it further.
• At the same hypothetical rate, principal and interest are about $1,888. Add $400 in taxes and $160 in insurance; no HOA. Total: about $2,448.
• With two units at $1,600 each, DSCR is $3,200 ÷ $2,448 = 1.31. Keep reserves, then consider the remaining cash toward another purchase.

Build the portfolio, keep the cushion

Cash-out replaces the old mortgage; it is new debt, not free equity. A higher rate applies to the entire refinanced balance, and missed payments can put the property at risk. Compare keeping your existing loan before refinancing.

Check these before moving forward

Ask a lender about credit, reserves, appraisal and rent documentation, ownership seasoning, fees and prepayment penalties. DSCR and LTV limits vary; these ratios do not guarantee approval. These examples assume non-owner-occupied rentals. For a duplex you plan to live in, ask about owner-occupied financing instead.

Use the actual local numbers

Verify the property’s leases, nearby comparable rents, municipal tax bill and insurance quote. In older Milwaukee and Waukesha rentals, budget separately for roofs, furnaces, water/sewer bills and vacancy. Buy the next property only if the numbers still work after those costs.