Buying a Duplex, Fourplex or Small Apartment With DSCR Financing

Yes. Many debt service coverage ratio (DSCR) programs cover small multifamily properties, especially 2 to 4 unit buildings. The lender adds up the rent from all units and compares it with the total payment. Buildings with five or more units are treated as commercial, so some DSCR lenders cover them under separate rules and others do not. RSC Private Lending's DSCR Rental program covers 1 to 4 unit rentals.

2 to 4 units vs. 5 and up

In lending, properties with up to four units are residential. They are appraised much like a house, using comparable sales and market rents.

Five or more units cross into commercial territory. Appraisals lean more on the building's income and expenses, and underwriting can look more like a commercial loan. RSC's DSCR Rental program covers 1 to 4 units. If you are shopping for a larger building, confirm eligibility early.

How rent is counted

The lender totals income across every unit:

• Lease rent for every unit that is occupied
• Market rent, often from the appraisal, on vacant units

Some lenders apply a vacancy factor, reducing gross rent by a percentage before calculating DSCR. Policies differ, so ask.

Example (illustrative only): A fourplex has three units leased at $1,200 each and one vacant unit with a market rent of $1,250. Gross monthly rent used: $4,850. If the proposed total payment, including taxes and insurance, is $3,900, the DSCR is about 1.24x. If the lender instead applied a 5% vacancy factor, usable rent drops to about $4,610 and the ratio to about 1.18x.

Ratio and leverage

Minimum DSCR for small multifamily is often similar to single-family, though some lenders ask for more on larger buildings. Maximum loan-to-value (LTV) may be a bit lower than on a single-family rental, and reserve requirements may be higher because there is more to manage. RSC's DSCR Rental program, which includes 2 to 4 unit rentals, has a minimum DSCR of 0.75x and goes up to 80% LTV on a purchase.

Condition and the appraisal

The building needs to be rentable. Lenders look at:

• The condition of each unit, not just the exterior
• The legal unit count, which must match what the appraiser and local records show
• Any illegal conversions, such as a basement unit without permits
• For larger buildings, an operating statement showing income and expenses

If the appraisal counts fewer legal units or lower rents than you expected, your DSCR and loan size can change.

Why investors like DSCR for multifamily

• Qualification based on property income, not personal tax returns
• Borrowing in an LLC is common
• Multiple rent streams can support a stronger ratio
• One vacancy hurts less than on a single-family home

What this means for you

Confirm the legal unit count, gather every lease, get realistic market rents for vacant units, and run the ratio with and without a vacancy factor before you make an offer.

Looking at a small multifamily property? Send RSC Private Lending your scenario for a term sheet in 24 hours. All loans are business-purpose and subject to underwriting.