Key takeaways
- Conventional is cheapest but limited to 10 properties.
- DSCR scales but costs 75–125 bps more.
- Portfolio loans solve concentration but require relationships.
- Seller financing is underused and often cheapest.
- Match loan term to hold period — always.
Core concepts
Conventional
30-year fixed, 20–25% down, full-income qualification, capped at 10 properties per borrower.
DSCR loans
Underwrite property cash flow, not personal income. 20–25% down, slightly higher rate, unlimited count.
Portfolio loans
Local/regional banks lend on relationship; flexible terms but balloon risk.
Seller financing
Often 5–7% with low or no down, 5–10 year balloon — perfect for cash-flow acquisitions.
Step-by-step framework
- 1Map current debt count and DTI before shopping.
- 2Decide between conventional and DSCR based on count and income.
- 3Get pre-qual letters from 2 lenders for negotiating leverage.
- 4Compare APR not rate — fees move APR 25–50 bps.
- 5Negotiate prepayment penalties down or out.
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Common mistakes to avoid
- Choosing the lowest rate without comparing terms.
- Accepting a balloon without a refinance plan.
- Maxing conventional count before considering DSCR.
- Ignoring seller financing on owner-aged listings.
Frequently asked questions
DSCR vs conventional — which first?
Conventional first for cheaper rate; DSCR after property 4–5 to preserve count.
Are commercial loans worth it?
For 5+ unit assets, yes. Under 5 units, residential is cheaper.
How do I avoid prepay penalties?
Negotiate a step-down (5/4/3/2/1) and refuse the yield-maintenance variant.
Can I get 100% financing?
Rarely cleanly — combinations of seller financing + DSCR can approach it.
Action checklist
- ☐Debt count and DTI mapped.
- ☐Two pre-qual letters in hand.
- ☐APR (not just rate) compared.
- ☐Prepayment terms reviewed.
- ☐Loan term matches hold period.
- ☐Refinance plan if balloon exists.
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