How do lenders evaluate investors with large portfolios, LLCs, and K-1 income?

Lenders focus on liquidity, leverage, experience, and access to funds. Depreciation and write-offs typically do not hurt DSCR qualification.

When should an investor use DSCR instead of traditional financing?

DSCR loans are useful when taxable income is low due to write-offs, or when investors want faster, simpler underwriting to scale their portfolios.

How do lenders calculate DSCR for high-rent properties?

DSCR equals gross rent divided by PITIA. Higher DSCR improves pricing, reduces reserves, and strengthens approval.

How do traditional lenders view rental income?

Traditional underwriting often limits usable rental income to 75% and factors in Schedule E losses even if cash flow is strong.

How does investor experience affect approval?

Investors with a history of managing multiple properties may receive more flexible reserve and DSCR requirements.

What down payment do investors need?

Traditional loans typically require 15–25% down; DSCR loans often require 20–25%, sometimes lower with strong DSCR.

How do reserves work for investors?

Reserve requirements scale with portfolio size. DSCR loans often require 6–12 months of PITIA, with more for larger portfolios.

Can investors use Airbnb or STR income?

Yes. Many lenders allow 12–24 months of STR history or use market rent when STR documentation isn’t available.

Should investors choose DSCR or traditional loans?

DSCR is best for speed and flexibility; traditional loans provide better pricing when taxable income supports it.

Investors — Tetra Home Loans

Investor Mortgage FAQs

Investment Property Mortgage FAQs (Conventional Financing & Smart Portfolio Strategy)

This guide focuses on conventional investment property financing — the loans you can actually use in Michigan without commercial or DSCR licensing. These FAQs explain how lenders evaluate rental income, how tax strategies impact approval, how many properties you can finance, and how to structure your portfolio so financing supports long‑term wealth building.

1. How do lenders calculate rental income for investment properties?

Conventional lenders only allow a portion of rental income to qualify. They apply a vacancy factor and compare rental income to the mortgage payment.

Typically only 75% of gross rent counts as qualifying income.
Negative Schedule E rental income reduces your qualifying income.
Positive rental income helps offset the new mortgage payment.
Rent from leases or appraiser market rent can be used.

2. How do tax write‑offs and depreciation affect loan approval?

Depreciation is added back (it doesn’t hurt you), but other write‑offs can reduce your qualifying income.

Depreciation is a non‑cash loss — lenders add it back.
Large write‑offs can reduce your usable income even if the property cash flows well.
Underwriting is based on your tax return’s net rental income — not actual cash flow.
Keeping cleaner books makes future loans easier.

3. How many financed properties can I have with conventional loans?

You can finance up to ten properties with Fannie Mae or Freddie Mac, but the guidelines get stricter as you add more.

1–4 financed properties: standard requirements.
5–6 properties: higher reserves often required.
7–10 properties: full documentation, strong credit, and strong liquidity are required.
Lenders review your entire portfolio’s performance.

4. Should I buy investment properties in my personal name or an LLC?

Conventional loans must close in your personal name. After closing, you can transfer to an LLC, but there are risks.

Lenders require personal ownership at closing.
Transferring to an LLC after closing may violate the mortgage terms (due‑on‑sale clause), even though many lenders don't enforce it.
Financing is easier and cheaper in your personal name.
Asset protection strategies require coordination with an attorney.

6. How should investors structure financing to avoid bottlenecks?

Most financing problems come from poor portfolio structure, not lack of income. A strategic approach keeps future deals possible.

Stagger purchases so new properties boost income before adding more debt.
Keep reserves strong — big portfolios require more.
Avoid stacking too many variable write‑offs in one year.
Use cash‑out refinances intentionally, not reactively.

5. How does equity from my existing properties help me qualify for future purchases?

Equity strengthens your financing profile even if your taxable income is limited. Lenders see equity as protection against risk and as a source of liquidity for future deals.

Cash‑out refinances can improve your down payment position for the next property.
Higher equity reduces your payment, which helps future debt‑to‑income calculations.
Strong equity across your portfolio shows lenders you manage leverage responsibly.
Using equity strategically helps you scale without relying solely on income growth.

Why this matters: Investors are approved based on tax‑return income, leverage, liquidity, and how well their portfolio performs on paper — not how profitable it actually is. Structuring properties correctly helps you:

Qualify for more properties without hitting underwriting roadblocks
Avoid Schedule E losses that reduce income on paper
Decide when to use second‑home financing instead of investment loans
Protect your debt‑to‑income ratio while still expanding
Set up each property so future financing is easier, not harder

Smart financing is part of your long‑term wealth strategy. Proper structuring improves scalability, borrowing power, and overall portfolio efficiency.