What is DSCR and why does it matter for investment property loans?

DSCR (Debt Service Coverage Ratio) measures a property's ability to cover its debt payments with rental income. It's calculated by dividing the property's annual net operating income by its annual debt service (mortgage payments). Lenders typically require a DSCR of 1.0 or higher, meaning the property generates enough income to cover the loan payments. A DSCR of 1.25 means the property generates 25% more income than needed to pay the mortgage, providing a safety cushion for lenders.

What is a good DSCR ratio for investment properties?

A good DSCR ratio for investment properties is typically 1.25 or higher. Most lenders require a minimum DSCR of 1.0 to 1.25, with higher ratios qualifying for better interest rates. A DSCR of 1.0 means the property breaks even on debt payments, 1.25 provides a 25% cushion, and 1.5 or higher is considered excellent. Higher DSCR ratios indicate lower risk and may qualify you for lower rates and better loan terms.

How do you calculate cap rate for a rental property?

Cap rate (capitalization rate) is calculated by dividing the property's annual net operating income (NOI) by its current market value or purchase price, then multiplying by 100 to get a percentage. The formula is: Cap Rate = (Annual NOI / Property Value) × 100. For example, if a property generates $50,000 in annual NOI and costs $500,000, the cap rate is 10%. Cap rate helps investors compare different properties and determine if a property is priced fairly based on its income potential.

What is a good cap rate for commercial real estate?

A good cap rate for commercial real estate typically ranges from 4% to 10%, depending on the property type, location, and market conditions. Class A properties in prime locations often have cap rates of 4-6%, while Class B and C properties may range from 6-10% or higher. Higher cap rates indicate higher potential returns but also higher risk. A cap rate above 10% may signal a distressed property or challenging market, while rates below 4% suggest premium properties in highly desirable areas.

What is cash-on-cash return and how is it calculated?

Cash-on-cash return measures the annual return on the actual cash invested in a property. It's calculated by dividing the annual pre-tax cash flow by the total cash invested (down payment, closing costs, and initial repairs), then multiplying by 100. The formula is: Cash-on-Cash Return = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100. For example, if you invest $100,000 cash and receive $12,000 in annual cash flow, your cash-on-cash return is 12%. This metric helps investors understand the actual return on their out-of-pocket investment.

What is a good cash-on-cash return for rental properties?

A good cash-on-cash return for rental properties typically ranges from 8% to 12% or higher. Returns below 8% may indicate a property isn't generating sufficient cash flow relative to the investment, while returns above 12% are considered excellent. However, acceptable returns vary by market, property type, and investor goals. Conservative investors may accept 6-8% in stable markets, while value-add investors may target 15%+ returns. Always compare cash-on-cash returns to alternative investments and consider factors like appreciation potential and tax benefits.

Do DSCR loans require income verification?

No, DSCR loans do not require personal income verification such as W-2s, tax returns, or pay stubs. Instead, lenders qualify borrowers based solely on the property's rental income and debt service coverage ratio. This makes DSCR loans ideal for self-employed investors, those with complex tax returns, or investors who want to avoid traditional income documentation. Lenders focus on the property's ability to generate sufficient rental income to cover the mortgage payment, typically requiring a DSCR of 1.0 or higher.

What's the difference between cap rate and cash-on-cash return?

Cap rate and cash-on-cash return measure different aspects of investment performance. Cap rate measures the property's overall return based on its value and net operating income, regardless of financing. It's useful for comparing properties and determining fair market value. Cash-on-cash return measures the actual return on your invested cash, accounting for leverage and financing. A property might have a 6% cap rate but a 12% cash-on-cash return due to favorable financing. Investors use cap rate for property valuation and cash-on-cash return to evaluate actual investment performance.

What is the 70% rule in house flipping?

The 70% rule states that investors should pay no more than 70% of a property's After Repair Value (ARV) minus repair costs. Formula: Maximum Offer = (ARV × 0.70) - Rehab Cost. This rule provides a safety margin for profit, holding costs, and unexpected expenses.

What is LTC in fix and flip financing?

LTC (Loan-to-Cost) is the percentage of total project cost (purchase + rehab) that a lender will finance. Typical LTC ranges from 70-90% based on credit score and experience. Higher LTC means less cash required upfront but higher interest costs.

How much profit should I make on a flip?

Target minimum 15-20% net profit margin on ARV. For a $300K ARV property, aim for $45K-$60K profit after all costs. This accounts for risk, time investment, and unexpected expenses. Experienced flippers may accept 10-15% on larger projects.

What is the difference between LTC and LTV?

LTC (Loan-to-Cost) is based on total project cost (purchase + rehab). LTV (Loan-to-Value) is based on current or after-repair property value. Hard money lenders typically cap loans at 75% LTV of ARV to protect their investment, even if LTC would allow more.

Bridge & Fix-and-Flip Calculator

Analyze your fix-and-flip deals with accurate LTC, LTV, and profit projections

Property Details

Purchase Price

Estimated Rehab Cost

100% LTC on renovation up to $250k

Search Property Address (Auto-populate ARV)

Search for a property to automatically populate the After Repair Value (ARV) from market data

After Repair Value (ARV)

Credit Score (FICO)

Minimum 600 for experienced investors (3+ properties)

Number of Properties Flipped

3+ properties = 90% LTC with 600+ credit. Strong deals may qualify for 100% LTC.

Holding Period (Months)

12, 18, or 24 month terms available

Monthly Holding Costs (Optional)

Property Taxes (Monthly)

Insurance (Monthly)

HOA Dues (Monthly)

Utilities (Monthly)

Maintenance (Monthly)

Total Monthly Holding Costs: $0

Total for 6 months: $0

Advanced Financing Parameters (Optional)

Override default values for scenario analysis. Leave blank to use calculated defaults.

Interest Rate (%)

Origination Fee (%)

Service Fee ($)

LTC - Loan-to-Cost (%)

LTV ARV - Loan-to-Value (%)

Selling Costs (% of ARV)

Realtor Commission (%)

Typical: 5-6%

Buyer's Agent Fee (%)

Often included in realtor commission

Transfer Tax (%)

Varies by location

Closing Costs (%)

Typical: 1-3%

Total Selling Costs Rate: 9.00%

Total Amount: $31,500

Program Highlights

✓Up to 90% LTC based on credit score
✓100% LTC on renovation up to $250k
✓Up to 75% LTV ARV on purchases with rehab
✓Loan amounts $100K to $1.5M (up to $2M in some states)
✓Interest-only payments during hold period
✓No bank statements or income verification
✓Close in as little as 10 days
✓Property types: SFR, 2-4 units, PUDs, Condos

Loan Details

Total Project Cost$300,000

Max Loan Amount

(85% LTC)

$255,000

LTV ARV72.9%

Interest Rate11.00%

Monthly Payment$2,338/mo

Fees Breakdown

Origination Fee (1%)$2,550

Service Fee$1,495

Total Fees$4,045

Cash Requirements

Down Payment Required$45,000

Total Interest (6 months)$14,025

Total Cash Needed$49,045

Total Cost to Complete$63,070

View Cost Breakdown

Purchase Price:$250,000

Renovation Budget:$50,000

Down Payment (15.0%):$45,000

Origination Fee (1%):$2,550

Service Fee:$1,495

Interest (6 months @ 11%):$14,025

Total Out-of-Pocket:$63,070

Investment Analysis

Gross Profit

$31,930

Before holding & selling costs

Net Profit

$430

After all costs

Gross ROI

65.1%

Return on investment (gross)

Net ROI

0.9%

Return on investment (net)

Cash-on-Cash Return

1.8%

Annualized return on cash invested

Internal Rate of Return

1.8%

Time-adjusted return (IRR)

❌ Below Target

Net ROI below 15% - consider negotiating better terms or passing

Sensitivity Analysis

See how changes in key assumptions affect your profit and ROI

ARV Variation (%)

Conservative

ARV: $315,000

$30,201.25

-44.7% ROI

Base Case

ARV: $350,000

$430

0.9% ROI

Optimistic

ARV: $385,000

$32,280

65.8% ROI

Rehab Cost Variation (%)

Under Budget

Rehab: $45,000

$5,706.25

11.8% ROI

Base Case

Rehab: $50,000

$430

0.9% ROI

Over Budget

Rehab: $55,000

$4,846.25

-9.7% ROI

Holding Period Variation (%)

Faster Exit

5 months

$2,767.5

5.6% ROI

Base Case

6 months

$430

0.9% ROI

Delayed Exit

7 months

$1,907.5

-3.9% ROI

Custom Sale Price (Optional)

Model a specific sale price different from ARV

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Calculation Methodology

Understanding how our calculator works helps you make informed investment decisions. Below are the methods and formulas used in our calculations.

Data Sources: Our calculations use industry-standard formulas, current market data, and underwriting guidelines from major lenders. Rates and requirements are updated regularly to reflect market conditions.

Fix & Flip Calculator Disclaimer

This calculator provides estimates for fix-and-flip investments based on standard industry assumptions. Actual costs, timelines, and profits may vary significantly based on market conditions, contractor performance, unexpected repairs, and property-specific factors. LTC/LTV percentages and interest rates are typical ranges and vary by lender. Always conduct thorough due diligence and consult with real estate professionals before making investment decisions.

Not financial advice. For educational and estimation purposes only.

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Property Details

Monthly Holding Costs (Optional)

Advanced Financing Parameters (Optional)

Selling Costs (% of ARV)

Program Highlights

Loan Details

Fees Breakdown

Cash Requirements

Investment Analysis

Sensitivity Analysis

Ready to Fund Your Fix-and-Flip?

Calculation Methodology

LTC (Loan-to-Cost) Calculation

LTV ARV Cap at 75%

Interest Rate Determination

Profit Calculation Method

Fix & Flip Calculator Disclaimer

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