A DSCR refinance at 1.02 coverage is a loan that only works if nothing happens

Total beginner question but what does 1.02 actually mean in dollars? Is it that rent is 2% more than the loan payment or something wider than that?

Rigging, the ratio is net operating income divided by the debt service, so it includes taxes and insurance on the income side, but it usually does not include capex, vacancy, or management. Which is why fathom's 40 dollars a month is 40 dollars before the roof. The lender is measuring something narrower than the actual health of the property. The exact definition can vary by lender, so it's worth confirming.

Vellum has it and yes it varies. I've had two lenders compute DSCR off gross rent with no vacancy deduction at all, which is a fantasy number. Get the formula in writing and run their formula and yours side by side.

Fathom, my floor is 1.25 and I got there the same way you did, by going too thin once. What I'd push back on is calling it a loan file mistake. You wanted 80% back because you had a deal four you wanted to fund. The pressure came from the pipeline, not the term sheet.

Water heater then roof then a skip in year one is rough luck stacked on a thin margin. Was the roof something the rehab should have caught?

Looking at this from where the money comes from rather than where it goes, the thing that stands out is the absence of a second source of liquidity. Four properties, one reserve pot, and that pot was doing double duty as rehab float and as emergency capex. A line of credit against one of the seasoned properties would have separated those two jobs, assuming you could qualify for one, which depends on the lender and on how much equity survived the cash out. Availability and terms on those lines change constantly, so confirm in writing rather than assuming what was offered last year is still on the table. The structural point stands regardless. When the same dollar is both growth capital and defense, the first surprise stops the growth.

Twenty-two months without buying is not the failure you're framing it as. I'm at three deals and finding the same wall, and I've come around to thinking the wall is what the current refinance environment does to everybody running this. When the cash-out returns less than it used to, the cycle just runs slower. You can either accept the slower cycle or push the leverage up to force the old speed, and you tried the second thing.

Where I'd differ from flint: pipeline pressure is real but it's a decision you make. Deal four existed because you wanted it to.

The line worth keeping from this is do not use the lender's minimum as your target. A 1.02 coverage passes underwriting and leaves no room for the first vacancy, and it is exactly the trap a first refinance walks straight into.

Solder asked the right question and the answer matters here. A roof that fails in year one after a full rehab usually means somebody scoped it as five to seven years left off a ground level look when it was actually two. A roof inspection runs about 400 dollars, and that one line would have shifted the whole deal. Fathom, was the roof in the scope as deferred, or was it never looked at?

The reserve doing two jobs is the part to fix first, and tender is right about that. The complication is that most operators at four doors do not yet have the balance sheet to hold two separate pots. The honest constraint is that the strategy needs more capital than the marketing suggests, and a refinance shortfall in a higher rate market makes that gap wider.

Starting from zero over here so I'm mostly reading, but I want to make sure I understand the shape. The strategy is supposed to give you your money back so you can buy again. Right now the refinance gives back less, so you either buy slower or borrow more per deal. Is that the whole tension, or is there a third option people use?

Ember, the third option most people land on is putting more of your own money in permanently and accepting that each deal keeps some of your capital. You end up with a portfolio that grows slower and carries less debt, which is a different business than the one the method is usually sold as, but it is not a worse one.

Fathom, the line I'd steal from your post is the comparison between 80% back on a bleeder and 55% back on something that clears 300. I'm still deciding where to put capital and I'd been ranking these deals by cash-back percentage because that's the number everybody quotes. Ranking them by post-refi coverage instead would have changed my ordering on two of the three I've been looking at.