Investor Deal Math: Where Your Analysis Meets the Lender

Deal analysis tools have gotten very good. In the video above I walk through one that spits out cash flow, cap rate, cash-on-cash and a deal score on any listing in about the time it takes to pull comps. What those tools don't do is tell you how a lender will underwrite the same property, and that's where a lot of otherwise fine deals fall apart in week two of the contract.

So this is the other half of the conversation: what the numbers mean, which ones underwriting actually cares about, and what you need to have lined up before you write the offer.

Three numbers that get mixed up constantly

Investors use these interchangeably in conversation and they measure completely different things.

Cap rate is useful for comparing two buildings against each other. Cash-on-cash tells you what the money you actually wrote a check for is doing. DSCR is the one an underwriter looks at on a rental-qualified loan, and it's calculated on the mortgage payment including taxes, insurance, and any condo fee. On a Lawrence or Lynn three-family with a high tax bill and older-building insurance pricing, taxes and insurance can be what pushes a 1.15 DSCR down to a 0.98.

Where the lender's math will differ from the calculator

Two places, usually.

First, gross rent versus qualifying rent. On a conventional financed rental, underwriting typically applies a 25% vacancy and maintenance factor to market rent from the appraiser's rent schedule (Form 1007 or 1025) before using it. So $3,000 in gross rent supports qualifying with about $2,250. Your analysis tool showing $3,000 against a $2,600 payment looks like cash flow. The underwriter sees $2,250 against $2,600 and adds the shortfall to your debt-to-income ratio. Fannie Mae publishes the rental income rules in its Selling Guide if you want the exact treatment.

Second, market rent versus lease rent. On a tenant-occupied building, most lenders use the lower of the appraiser's market rent or the actual lease. Below-market rents are extremely common in Lawrence, Haverhill and Lynn, where a long-term tenant might be $700 under market. Your pro forma says one thing, the underwriter uses the lease.

DSCR loans work differently. Those qualify on the property, not your tax returns, and typically use gross rent against PITIA without the 25% haircut. That's why a deal that fails conventional DTI can still work as a DSCR file. The tradeoff is pricing and down payment.

What you actually have to bring

Down payment minimums for investment property, conventional:

• Single-family rental: 15% down is possible, though pricing improves meaningfully at 20% and 25%
• 2-4 unit rental (not owner-occupied): 25% down
• Owner-occupied 2-4 unit: much lower, which is a separate conversation entirely

DSCR programs usually start around 20-25% down, sometimes more depending on the DSCR ratio and credit score.

Then there are reserves, which is the line item that surprises people. Financed rental properties generally require reserves in the bank after closing, commonly measured in months of PITIA on the subject property, plus additional reserves for each other financed rental you own. If you own four rentals and you're buying a fifth, the reserve requirement is not trivial.

Add closing costs and reserves on top of those figures. Also worth knowing: investment property pricing carries risk-based adjustments that get worse at higher loan-to-value and lower credit scores, so the 15% option is rarely the cheapest option over a holding period even though it's the smallest check up front.

Short-term rental projections need a caveat

Analysis tools that compare short-term versus long-term rental income are genuinely useful for deciding what to do with a property. They are not proof of income to a lender.

For a conventional loan, projected Airbnb revenue on a property you don't own yet generally doesn't count. Some DSCR lenders will use short-term rental data or a 12-month trailing revenue history from the seller, and some won't touch it. If your client is buying in Maine, on the Cape, or in Florida with a short-term rental plan, ask the financing question before the offer, because the answer changes the down payment and the program.

Local rules matter too. Several Massachusetts municipalities have registration requirements and restrictions on short-term rentals, and Massachusetts applies a room occupancy excise to short-term rentals. Condo association documents frequently ban rentals under 30 days regardless of what the town allows.

Condos and the extra layer

If the deal is a condo, the building gets underwritten alongside the borrower. Investor concentration, budget reserves, delinquent HOA dues, and pending litigation all come into play, and a building that's mostly rentals can be non-warrantable, meaning conventional financing is off the table and you're looking at portfolio or DSCR options. This is a very common issue on smaller conversions around Lynn, Methuen and the Merrimack Valley. A great-looking cash-on-cash number means nothing if the building can't be financed conventionally, so questions about owner-occupancy percentage and HOA finances belong at the front of the process, not at the appraisal stage.

Practical next steps

If you're an agent working with investors, or an investor building a buy box:

1. Get the financing structure decided before the offer, not after. Conventional versus DSCR changes the down payment, the reserves, and the timeline.
2. Ask for the rent roll and actual leases early, not just the listing's stated rents. The gap between the two is where deals die.
3. On any condo, ask for the HOA budget, the master insurance certificate, and the owner-occupancy percentage.
4. Check the current conforming loan limit for the county. Essex County, Rockingham County and Florida counties all differ, and the numbers reset annually at FHFA.
5. Line up reserves in a documentable account 60 days ahead. Money that shows up two weeks before closing requires sourcing.
6. If the plan involves tax treatment of rental income or depreciation, get a CPA in the room. The IRS rules on rental property expenses are their own topic and I'm not the right person to advise on them.

A deal analysis takes minutes now. The financing side takes a little longer, and running both at the same time is what keeps a good-looking spreadsheet from turning into a lost deposit.