Real estate investors sometimes run into deals that make perfect financial sense but fall outside the comfort zones of traditional lenders. That’s exactly what happened in a recent duplex transaction where most lenders declined the loan due to zoning concerns.
At Barrington Capital, we helped the borrower secure commercial real estate funding with a creative approach. Our solution? DSCR financing. We identified a lender willing to grant a loan based on the property’s ability to generate income that would cover the debt.
Learn how a DSCR loan for rental property investments provided the ideal option for this client.
What Is DSCR Financing?
A debt service coverage ratio (DSCR) loan for rental properties is based primarily on the income a property generates instead of the borrower’s personal finances or traditional underwriting ratios. If the cash flow is there, it's possible to get deals done.
The DSCR is a comparison of the property’s rental income to the cost of servicing the loan. Lenders use this ratio to determine whether the property will generate enough income to comfortably cover the mortgage payments. In this case, the duplex offered a DSCR that the lender was comfortable with, so it approved the deal.
The Duplex Challenge
Our client found a duplex that was operating more like a rooming house. The property was generating consistent lease income. However, many lenders declined the deal out of concerns about zoning.
Traditional lenders rely on strict underwriting guidelines. They flag uncommon uses like rooming houses, disqualifying them outright even when the numbers make sense.
Why DSCR Made Sense for This Client
By structuring the deal as DSCR financing, we found a lender who focused on the most important factor: income.
Instead of relying primarily on traditional underwriting regulations, the lender considered whether the income ratio was adequate to service the loan. It was, which allowed us to get the deal done using terms that made sense for everyone.
Let’s Find a Path to Funding
Barrington Commercial Capital is committed to getting deals done for our clients. DSCR loans allow us to close loans that no one else will touch, as was the case on this duplex deal when our team found a lender willing to focus on cash flow instead of traditional underwriting.
Want to explore alternative funding options for your property? Connect with BCC and let’s see if DSCR financing is the right fit for you.
