What a 5-10 unit DSCR loan actually is
DSCR stands for debt service coverage ratio: how many times the building's income covers its loan payment. On a single-family rental or a fourplex, lenders usually compare gross rent with the monthly payment including taxes and insurance. On a five- to ten-unit building, many programs go one step further and look at net operating income: rent collected, minus a vacancy allowance, taxes, insurance, utilities the owner pays, repairs, management and reserves.
This is the lane between residential investor loans and full commercial bank loans. It exists because a 6-plex in Waco or an 8-unit walk-up in East Dallas is too big for residential guidelines but often too small for a bank's commercial desk to want. A handful of wholesale lenders build programs for exactly this size, and their rules differ. Some top out below ten units; some want a minimum loan size; some treat a building with a laundry room and a small office differently from one with ten identical apartments.
How the coverage math works on a small apartment building
Here is an illustration with user-style numbers, not a loan offer. An 8-unit building rents each unit for $1,150, so gross monthly rent is $9,200. Your quote produces a principal and interest payment of $5,300. Taxes are $21,000 a year ($1,750 a month) and insurance is $4,200 a year ($350 a month).
- Residential-style DSCR: $9,200 ÷ ($5,300 + $1,750 + $350) = $9,200 ÷ $7,400 = about 1.24.
- Commercial-style DSCR: annual rent $110,400, minus a vacancy allowance of $5,500, taxes $21,000, insurance $4,200, owner-paid water $4,800, repairs and turnover $6,000, management $8,800 and reserves $2,400 = NOI of $57,700. Annual P&I is $63,600. Coverage is $57,700 ÷ $63,600 = about 0.91.
Same building, two very different answers. That gap is why we run both versions before we talk about programs, and why the 5-10 unit DSCR calculator shows a second NOI-based line when you enter operating costs.
What lenders check besides the ratio
- The rent roll and leases. Unit-by-unit rents, lease dates, deposits and any concessions. Read how to read a Texas rent roll.
- The trailing 12 months. Underwriters normalize it; see normalizing a T-12.
- The appraisal. An income approach plus sales of comparable small apartment buildings, which can be thin in smaller Texas towns.
- Condition. Roof, foundation, HVAC, plumbing, parking and life-safety items.
- You. Credit, reserves and your track record owning or managing rentals. First-time owners of a 5+ unit building are accepted by some programs and not others.
Purchase, refinance or bridge first?
Most files fall into one of four paths. Buying a stabilized building: small apartment purchase loans. Pulling equity out of a building you already own: 5-10 unit cash-out refinance. Replacing a balloon or a bridge loan without taking cash: 5-10 unit rate/term refinance. Buying something that is not stabilized yet: bridge-to-DSCR.
If the building has four units or fewer, it belongs on our Texas home site, dscrloanstexas.com, not here.
Common questions
What is the smallest building this site covers?
Five residential units. Duplexes, triplexes and fourplexes are underwritten as residential 2-4 unit loans and are covered on dscrloanstexas.com.
Do 5-10 unit DSCR loans require personal tax returns?
Usually not to qualify. The building qualifies on its rents and operating statement. Lenders still review credit, reserves and experience.
Is the ratio calculated on gross rent or NOI?
It depends on the program. Some use gross rent against the full monthly payment, and many small-balance programs use net operating income against principal and interest. Run both.
Business-purpose financing for non-owner-occupied 5-10 unit buildings only. Programs, terms and eligibility vary by wholesale lender and change over time. Nothing here is a commitment to lend.