Question 1

What is a good DSCR ratio for a rental property investment loan?

Accepted Answer

Most US DSCR (Debt Service Coverage Ratio) mortgage lenders require a minimum DSCR of 1.20x to 1.25x for their best interest rates, meaning the property's gross monthly rent is at least 120% to 125% of the monthly PITIA (Principal, Interest, Taxes, Insurance, and HOA) payment.

Question 2

How do you calculate Cap Rate vs. Cash-on-Cash Return?

Accepted Answer

Cap Rate equals annual Net Operating Income (NOI) divided by the property's purchase price, measuring unleveraged yield. Cash-on-Cash Return equals annual pre-tax cash flow (after mortgage payments) divided by your total out-of-pocket cash invested (down payment plus closing and rehab costs).

Question 3

Why are property taxes higher on rental properties in some states?

Accepted Answer

Many US states reserve homestead exemptions and assessment caps strictly for owner-occupied primary residences. Investment and rental properties are taxed at higher non-homestead assessment ratios and require specialized DP-3 landlord insurance.

Alabama (AL) Rental Property ROI, Cap Rate & DSCR Calculator