DSCR Due Diligence Checklist: 25 Items Before Closing

You've found a property with strong DSCR numbers. The deal looks good on paper. Before you wire $60,000+ to the title company, verify everything on this checklist. One missed item can turn a good deal into a $50,000 mistake.

Property Condition (Items 1–7)

1. Professional Home Inspection

Cost: $350–$500. Non-negotiable.

The inspector checks:

• Foundation and structural integrity
• Roof condition and estimated remaining life
• HVAC age and functionality
• Plumbing (water heater, supply lines, drainage)
• Electrical (panel, wiring, outlets)
• Windows and doors
• Insulation and ventilation
• Pest damage (termites, carpenter ants)

Deal-killer findings: Foundation cracks, galvanized plumbing, Federal Pacific panels, active termites, roof at end of life.

2. Roof Age and Condition

Why separate from general inspection? The roof is the #1 CapEx expense ($8,000–$15,000+ replacement).

• How old is it? Ask for installation date or look for permits.
• What material? Asphalt shingles (20–25 years), metal (40–60 years), tile (50+ years)
• Any active leaks? Check attic for water stains.
• Insurance impact: Roofs over 15 years may increase insurance or reduce coverage.

3. HVAC System

Second-largest CapEx expense ($5,000–$12,000 replacement):

• Age (life expectancy: 15–20 years)
• Service history (regular maintenance extends life)
• Capacity matches home size
• Type: central air, heat pump, mini-split, window units

4. Plumbing

• Supply lines: Copper (good), PEX (good), polybutylene (replace), galvanized (replace)
• Sewer line: Scope with a camera ($150–$300) for older homes
• Water heater: Age, type, capacity (budget $1,000–$2,000 if near end of life)

5. Electrical

• Panel: 200 amp (good), 100 amp (adequate), 60 amp (upgrade needed)
• Wiring: Copper (good), aluminum (fire risk, needs remediation), knob-and-tube (uninsurable)
• GFCI outlets in kitchens, bathrooms, exterior

6. Pest/Termite Inspection

Cost: $75–$150 (sometimes included with general inspection). Active termite damage can cost $3,000–$30,000 to remediate. Required by some DSCR lenders in southern states.

7. Environmental Concerns

• Lead paint (homes built before 1978)
• Asbestos (older homes, especially in siding, flooring, pipe insulation)
• Radon (test recommended in Midwest and Northeast)
• Mold (check basements, crawlspaces, around windows)
• Flood zone status (check FEMA maps)

Financial Verification (Items 8–14)

8. Rent Verification

Don't trust the listing agent's rent estimate. Verify:

• Rentometer (online comp tool)
• Zillow Rent Zestimate (cross-reference)
• Call 2 local property managers and ask what it would rent for
• Check active rental listings for comparable properties
• If currently rented: Request copies of existing leases

9. Property Tax Verification

• Current annual tax amount (county assessor website)
• Will taxes increase after purchase? (many states reassess at sale)
• Homestead exemption currently applied? (removed for investment properties)
• Any tax liens or delinquencies?

10. Insurance Quote

Get actual quotes — don't estimate:

• Contact 3 insurance carriers or use an independent agent
• Specify rental/investment property (not owner-occupied)
• Check for flood zone classification (FEMA map)
• Ask about wind/hail, sewer backup endorsements
• Verify the roof age doesn't disqualify coverage

11. HOA Review (If Applicable)

• Monthly dues amount and history of increases
• Reserve fund balance (should be 10%+ of annual budget)
• Special assessment history (any recent or planned)
• Rental restrictions (some HOAs limit investor ownership)
• Meeting minutes from last 2 years (reveals upcoming issues)
• Warrantability for DSCR condo financing

12. Utility Costs

For landlord-paid utilities:

• Request 12 months of utility bills from the seller
• Check average monthly water, electric, gas costs
• Verify sewer/trash billing structure
• Factor into cash flow analysis

13. Actual DSCR Calculation

With verified numbers (not estimates):

• Verified rent
• Actual DSCR loan payment (from lender's rate lock)
• Actual property taxes (post-reassessment estimate)
• Actual insurance quote
• Actual HOA (if applicable)
• Recalculate DSCR with real numbers

14. Cash Flow Analysis

Full operating expenses:

• PITIA (verified above)
• Property management (8–10%)
• Maintenance (8–10% of rent)
• Vacancy (5–10% depending on market)
• CapEx reserves ($150–$300/month)
• Net cash flow must be acceptable — don't close on negative cash flow unless you have a specific value-add plan.

Legal and Title (Items 15–20)

15. Title Search

Title company verifies:

• Clear ownership chain
• No outstanding liens
• No judgments against the property
• No encroachments
• No unrecorded easements

16. Survey

A property survey ($300–$500) confirms:

• Property boundaries match the legal description
• No encroachments from neighbors
• Building setbacks are met
• Easements are properly located

17. Zoning Verification

Confirm the property is zoned for your intended use:

• Residential rental permitted
• Short-term rental allowed (if that's your strategy)
• ADU potential (if planned)
• Number of unrelated tenants allowed

18. Lease Review (If Tenant in Place)

If buying with an existing tenant:

• Review the current lease terms
• Verify rent amount matches what was represented
• Check lease expiration date
• Verify security deposit amount and location
• Review any addendums or special terms
• Are there any rent concessions or side agreements?

19. Permits and Code Compliance

• Were renovations done with permits? (check county records)
• Is the bedroom count accurate? (bedrooms need egress windows and closets)
• Any code violations on record?
• Certificate of occupancy current?

20. Entity Setup

Before closing:

• LLC formed in the property's state (or your home state)
• Operating agreement drafted
• EIN obtained
• Business bank account opened
• Insurance in the LLC's name

Market and Neighborhood (Items 21–25)

21. Crime Data

• Check CrimeMapping.com or local police statistics
• Drive (or Google Street View) the neighborhood at different times
• Talk to neighbors if possible
• Check sex offender registry for nearby addresses

22. School Ratings

Even for rentals, school quality affects:

• Tenant demand (families with children)
• Property values
• Neighborhood stability
• Rent levels

23. Employment Drivers

• What are the major employers within 15 miles?
• Are any major employers expanding or contracting?
• Is the local economy diversified or single-industry?
• Unemployment rate vs. national average

24. Comparable Sales

• Review 5+ recent sales within 0.5 miles
• Is the purchase price in line with comps?
• Are values trending up, flat, or down?
• Days on market for comparable listings

25. Future Development

• Check city planning department for planned projects
• Any new highways, commercial developments, or transit?
• Any negative developments (landfill, industrial, power plant)?
• Gentrification trends (positive for appreciation, may increase taxes)

Frequently Asked Questions

How long does due diligence take?

2–3 weeks for most DSCR deals. Inspections take 1 week to schedule and complete. Title search takes 1–2 weeks. Financial verification can happen simultaneously.

What's the most commonly missed item?

Post-purchase property tax reassessment. Many investors use the current tax amount without adjusting for the reassessment that happens after sale. Taxes can increase 20–50%.

Should I do all 25 items on every deal?

Yes for your first 3–5 deals. After that, you'll develop judgment about which items to prioritize and which can be abbreviated. Never skip inspection, title, or financial verification.

What if I find a problem during due diligence?

Options: negotiate a price reduction, request seller repair, increase your reserves to cover the issue, or walk away. The inspection contingency exists for exactly this purpose.

The Bottom Line

Due diligence isn't optional — it's the difference between informed investing and gambling. This 25-item checklist catches 95% of problems before they become your problems. The 2–3 weeks and $1,000–$2,000 you spend on inspections and verification is the best insurance money can buy.

Do your due diligence, then invest with confidence at HonestCasa.