A single-point DSCR calculation tells you whether a deal works today. DSCR sensitivity tells you whether it survives a bad year. The difference matters.
Properties that look good at 1.20x DSCR under best-case rent may fall to 0.85x DSCR if rent drops 10% and vacancy doubles. That's the difference between a stable rental and a negative-cash-flow property requiring monthly out-of-pocket support.
| DSCR Range | Risk Level | Lender Treatment |
|---|---|---|
| 1.50x+ | Very strong | Best rates, highest LTV allowed |
| 1.20x-1.49x | Strong | Standard rates, full LTV |
| 1.00x-1.19x | Acceptable | Higher rates, LTV adjusted |
| 0.75x-0.99x | Below standard | Specialty programs only, higher rates |
| Below 0.75x | Negative cash flow | Most lenders decline |
Best practice: target deals that maintain 1.0x+ DSCR in the worst-case scenario, not just baseline.
If your sensitivity analysis shows DSCR falling below 1.0x in adverse scenarios, you have several options:
Standard programs require 1.0x minimum DSCR; preferred programs want 1.20x+. Sub-1.0 DSCR programs exist (down to 0.75x) but with higher rates and tighter underwriting. Through our marketplace, we place sub-1.0 deals with specialty capital sources.
For new acquisitions, use market-average vacancy (often 5-7%) for baseline but stress to 15% for worst-case. Also stress rent down to lowest comparable rent in the area, not your pro forma rent.
Lender DSCR calculations typically don't include capex reserves. Your personal stress test SHOULD include reserves of 5-10% of gross rent. A property that cash flows at 1.10x DSCR with no reserves may be break-even or negative once reserves are funded.
Annual rent growth (typically 3-5% nationally) improves DSCR over time, all else equal. If property taxes grow at the same rate, DSCR may stay flat. If taxes grow faster than rent (common in hot markets), DSCR can decline over time.
Lenders may consider pro forma rent if you have signed leases or strong market comps. Most don't — they underwrite to actual rent. If you can't close on actual rent, you may need bridge financing while you raise rents, then refinance to DSCR at the higher rent level.