Screening a Rental Deal in 15 Minutes: The Lender's Quick Test
Most rental deals can be ruled in or out in about 15 minutes. Here's the quick test, plus the costs that turn a DSCR into real cash flow.
Short answer
Screen a rental in four steps: estimate market rent from comparables, estimate the full payment including taxes and insurance, divide to get the DSCR, then subtract vacancy, repairs and management to see real cash flow. A deal can pass the lender's DSCR test and still barely cash-flow, so check both.
Key points
- Rent ÷ full payment = DSCR.
- Then subtract vacancy, repairs and management.
- A passing DSCR doesn't guarantee cash flow.
The four-step screen
- Rent. Pull three to five comparable rentals nearby.
- Payment. Estimate principal and interest at your down payment, plus taxes, insurance and any HOA.
- DSCR. Divide rent by the payment. Around 1.0 or better is in range for many programs; see what DSCR you need.
- Cash flow. Subtract vacancy, repairs and management from what's left.
Deal sheet: Quick screen, illustrative
| Amount | |
|---|---|
| Market rent | $2,400 |
| Total payment (PITIA) | −$1,950 |
| DSCR | 1.23 |
| Vacancy, 5% of rent | −$120 |
| Repairs, 5% of rent | −$120 |
| Management, 8% of rent | −$192 |
| Monthly cash flow | $18 |
This deal passes the DSCR test at 1.23 but cash-flows just $18 a month after realistic costs. That's a thin margin for a long hold.
Ready to start? Send your scenario and a KREC loan advisor will walk you through the next step. Talk to an advisor
Quick fixes when a deal is close
- Negotiate the price, which lowers the payment
- Put more down or buy down the rate; see what half a point does to your payment
- Self-manage, if you're local and willing
- Pass, and keep looking
Buying remotely? Use local costs; see out-of-state rentals.
Frequently asked questions
How do you quickly analyze a rental property?
Estimate market rent, estimate the full monthly payment, divide to get the DSCR, then subtract vacancy, repairs and management to see true cash flow.
What is good cash flow for a rental property?
It depends on your goals, but you want enough monthly cushion to absorb vacancies and repairs without covering the property from your own pocket.
Is a 1.2 DSCR good?
A 1.2 DSCR clears many lenders' requirements, but check cash flow after vacancy, repairs and management, which can be much thinner.
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