DSCR Loan Case Study: Two Duplexes on One Lot (Cleveland, Ohio) – From Quote to Closing

DSCR Loan Case Study Analysis

I’ve purchased over 120 rental properties in the U.S., and I’ve used DSCR loan financing to purchase and/or refinance all of my deals. Today, a big part of my real estate business involves helping other non-US residents build and finance their own rental property portfolios in the United States. Let me tell you, your financing strategy deserves as much consideration as market and property selection!

This client came to me with around $120,000 USD, and wanted to buy a single family rental. We put together a financing strategy that allowed them to use the same capital to purchase 2 turnkey duplex buildings in Cleveland, Ohio. I’ll walk you through the entire process we used to plan, choose, and stress test our DSCR loan strategy for this client.

Deal Snapshot: Two Duplexes (Cleveland, Ohio)

Estimated day-one DSCR ≈ 1.82× based on $3,320/mo rent and ~$1,825.75/mo PITIA.

Financing Strategy & Game Plan

This was a turnkey investment property which had been fully-renovated, and all 4 units were occupied on 12-month lease agreements. Our approach was simple: choose a conservative loan structure that maximizes pre-approval odds, smooths cash flow, and holds up if interest rates wobble in the future. With that in mind, we chose a fixed rate vs ARM DSCR loan for this client. Here’s what we locked in:

• Leverage: 70% LTV to keep pricing sharp and DSCR strong on day one.
• Term: 30-year fixed, fully amortizing for stability.
• Rate: 6.75% after a modest buydown (from ~7.00%). See: DSCR Loan Rates.
• Escrows: Taxes & insurance escrowed to reduce monthly variance.
• Operations: Tenants pay utilities; we budget lawn care and route 100% of early cash flow to reserves.

Note: We skipped interest-only to avoid a future payment jump and prepay tradeoffs, prioritizing durable coverage and simpler asset management.

Acquisition Economics & Capital Stack

Notes: Closing costs include $2,550 in points (rate buydown), $2,300 origination, $1,500 legal, $600 appraisal, and $2,550 lender’s title. Taxes/insurance are escrowed.

Year-1 Pro Forma: Income, Expenses & Cash Flow (Monthly)

Underwriting & DSCR Qualification

DSCR lenders will verify all of the pertinent information relating to the property and borrower. We structured the file to clear the lender’s DSCR coverage and leverage tests with room to spare. All units were leased at closing, so we qualified on actual rent roll (no 1007 appraisal needed). Taxes and insurance were escrowed, and we selected a 30-year fixed term to keep cash flow predictable.

Notes: LTV was set at 70% for pricing and coverage strength. Program reserve requirements were met; actual amounts vary by lender and file specifics.

Sensitivity: What If Rates/Rents/Expenses Shift?

Before we locked in, we stress-tested the deal against rate, rent, and expense moves. The base file still clears common DSCR tiers with cushion, but this table shows how coverage and cash flow react to typical shocks.

Method: Cash flow shown before lawn care; management and maintenance reserves modeled at 10% of collected rent each.

Operational Plan & Risk Controls (First 90 Days)

Day-one operations were set up for low friction and relatively passive day-to-day involvement for our investor. Tenants pay all utilities; we handle lawn care and route 100% of net cash flow to reserves for the first five years. Professional management runs rent, turns, notices, and reporting.

Note: Add your local lawn contract cost to refine monthly surplus; we intentionally budgeted this outside the table and saved all remaining cash to reserves.

First-90-Days Checklist

• Property management: PM agreement executed. Ongoing PM oversight (monthly statements, delinquency, renewals).

• Collections & turns: Verify leases on file, deposits recorded, renewal schedule, and turnover SOPs.

• Vendors: Yard workers, handyman, plumber, electrician, HVAC. We have rate cards on file, response SLAs are set.

• Insurance: Landlord policy bound; replacement-cost confirmed; add PM as additional insured if needed.

• Compliance: Local rental/lead-safe/licensing status verified; calendar any inspections.

• Banking: Dedicated operating account; escrow matches lender statements; reserve sub-account funded monthly. Don’t comingle funds!

• Bookkeeping: Classify by unit/building; record accurate cost basis, retain invoices, statements, and wire receipts. The best ‘tax hack’ is good record keeping and a knowledgeable CPA/EA.

KPI Watchlist (Quarterly)

• Delinquency: <3% of gross; action plan at day 5 / day 10. Know the process at county level!

• Maintenance: Keep <10% of rent on average; watch repeat tickets by unit. Audit expenses on a case-by-case basis.

• Vacancy/turn time: Aim <30 days; pre-market renewals 60 days out.

Cash at Close, Reserves & True Cost

Here’s the final wire at closing, the required lender reserves (6 months PITIA), and the total liquid capital needed to document for approval. Note that reserves are not paid to the lender; they must be verifiable funds pre-close.

Note: We elected to send 100% of Yr-1 surplus to reserves (no owner draws) to build reserves and absorb unknowns.

Sensitivity, What-Ifs & Exit Plan

Before we closed, we modeled a few what-if scenarios around rate moves, rents, and taxes/insurance. The goal was simple: confirm the deal still works if conditions change. Baseline assumptions are the final loan terms (6.75% fixed, fully amortizing) and current leases.

Exit & Hold Plan

• Primary plan: 30-year hold with no owner draws in the first 5 years; direct all surplus to reserves and targeted capex.
• Refi triggers: Consider refi if a net rate drop (after points & fees) shortens buydown breakeven to < 48–60 months and prepay terms allow.
• Prepay awareness: Many DSCR programs include step-down prepay (e.g., 5-4-3-2-1). Match any exit to the prepay calendar; verify curtailment allowances.
• Risk controls: Maintain ≥ 6–9 months of actual PITIA in reserves, annual insurance shop, appeal tax reassessments if warranted, and schedule proactive unit turns on vacancy.

Lessons Learned & Playbook You Can Reuse

This deal worked because we controlled the four levers that move DSCR: rent reality, PITIA accuracy, reserves, and timelines. Here’s exactly what I’d repeat (and avoid) next time.

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