DSCR Loans for 20-Unit Apartment Buildings

A 20-unit apartment building is a serious asset. You're looking at $1.5M–$5M+ in value, $15,000–$40,000/month in gross rent, and enough operational complexity to require professional management. It's also the size where financing decisions start to have six-figure consequences.

DSCR loans work well for 20-unit buildings, but the underwriting is more rigorous than what you'll see on a 6-unit or even a 10-unit. Here's what to expect — and how to structure a deal that actually closes.

Why DSCR Loans Make Sense at 20 Units

At this scale, traditional bank financing comes with strings:

• Full personal financial disclosure
• Personal guarantees with teeth (full recourse)
• Global debt service coverage across your entire portfolio
• Relationship requirements (existing deposits, business accounts)
• Loan committees and 60–90 day timelines

DSCR loans simplify all of this. The property qualifies based on its own income. You still sign a personal guarantee on most DSCR loans, but underwriting doesn't require proving your personal income, producing tax returns, or opening a relationship account.

For investors managing multiple properties, this is a significant advantage. Your 20-unit deal doesn't get slowed down because your tax returns show a loss from depreciation on other properties. The building stands on its own.

DSCR Calculation for a 20-Unit Property

At 20 units, lenders expect detailed financials. Here's how the DSCR gets calculated:

Income Side

• Gross potential rent: All 20 units at current lease rates (or appraised market rent)
• Other income: Laundry ($200–$500/month), parking ($50–$150/unit in urban areas), storage units, pet fees, application fees
• Vacancy and credit loss: Lenders typically deduct 5–7% for stabilized properties, 10%+ for properties with turnover issues
• Effective gross income: Gross potential rent + other income – vacancy

Expense Side

Lenders scrutinize expenses on a 20-unit more carefully:

• Property management: 5–7% of effective gross income
• Property taxes: Actual current amount (and projected reassessment if it's a purchase)
• Insurance: $3,500–$8,000+ depending on location, construction, and claims history
• Repairs and maintenance: $400–$700/unit/year
• Capital replacement reserves: $250–$350/unit/year
• Utilities (owner-paid): Water/sewer/trash often owner-paid at 20 units; budget $1,200–$2,400/unit/year
• Common area expenses: Lighting, cleaning, landscaping, elevator maintenance (if applicable)
• Administrative: Legal, accounting, advertising, tenant screening

Total operating expense ratio for a 20-unit: 40–50% of gross income is typical. Urban properties with owner-paid utilities and higher taxes often run 48–52%.

Worked Example

A 20-unit building priced at $2,800,000:

• 20 units averaging $1,500/month = $360,000 gross annual rent
• Other income (laundry, parking): $12,000/year
• Vacancy at 5%: –$18,600
• Effective gross income: $353,400
• Operating expenses at 45%: $159,030
• NOI: $194,370
• Loan amount: $2,100,000 (75% LTV)
• Rate: 7.50%, 30-year amortization
• Annual debt service: $176,232
• DSCR: $194,370 ÷ $176,232 = 1.10

A 1.10 DSCR is thin. Most lenders want 1.20+ for a 20-unit. This deal either needs a lower purchase price, better rates, or higher rents to work. That's the kind of honest analysis that matters before you sign a contract.

Loan Terms for 20-Unit DSCR Loans

At $2M+ loan amounts, lenders may offer slightly better rates due to the economies of underwriting a single larger loan vs. multiple smaller ones. Rate buydowns are also more common at this level.

Interest-Only Options

Many DSCR lenders offer 2–5 years of interest-only payments on 20-unit loans. This can dramatically improve cash flow:

• 30-year amortizing payment on $2.1M at 7.50%: $14,686/month
• Interest-only payment: $13,125/month
• Monthly savings: $1,561 ($18,732/year)

Interest-only periods are especially valuable during the first 2 years of ownership when you're stabilizing operations, addressing deferred maintenance, and optimizing the rent roll.

Due Diligence Essentials for 20-Unit Buildings

At 20 units, due diligence is not optional — and cutting corners here costs real money. Budget $15,000–$25,000 for a proper due diligence package:

Property Condition Assessment (PCA)

A PCA (also called a Property Condition Report) is a detailed inspection of every building system:

• Roof (age, condition, remaining useful life)
• Foundation and structure
• Mechanical systems (HVAC, plumbing, electrical)
• Unit interiors (sample inspection of 20–50% of units)
• Common areas and exterior
• ADA compliance
• Fire and life safety systems

Cost: $4,000–$8,000 for a 20-unit. The report will include a Replacement Reserve Schedule estimating capital expenditures over the next 12 years. Lenders review this carefully.

Phase I Environmental Site Assessment

Required by most DSCR lenders for 20-unit properties. Checks for:

• Historical use of the property (gas stations, dry cleaners, industrial)
• Current environmental conditions
• Regulatory database searches
• Site inspection

Cost: $2,500–$4,500. If Phase I identifies potential concerns, a Phase II (soil/groundwater sampling) may be needed — adding $10,000–$30,000 and 4–8 weeks.

Financial Due Diligence

Request and verify:

• Trailing 24-month profit and loss statements
• Trailing 24-month rent roll (monthly)
• All current leases
• Bank statements showing actual rent deposits
• Utility bills (12 months)
• Tax bills (2 years)
• Insurance declarations page
• Vendor contracts (management, landscaping, maintenance)
• Capital improvement records

Zoning and Legal

• Certificate of occupancy for all 20 units
• Zoning compliance letter
• Building code violations (check with local municipality)
• Title search and insurance commitment
• Survey (if not recent)

Tax Considerations at 20 Units

A 20-unit building qualifies for significant tax benefits:

• Depreciation: 27.5-year straight-line depreciation on the building value (not land). On a $2.8M property with $500K in land value, that's $83,636/year in depreciation deductions.
• Cost segregation: A cost segregation study can accelerate depreciation by reclassifying building components (appliances, flooring, landscaping, parking lots) into 5, 7, or 15-year categories. First-year deductions of $200,000–$400,000 aren't unusual on a 20-unit.
• 1031 exchange: Sell another investment property and defer capital gains by exchanging into the 20-unit.
• Opportunity Zone benefits: If the building is in a designated Opportunity Zone, additional tax incentives may apply.

A cost segregation study costs $5,000–$10,000 for a 20-unit and typically pays for itself 10–50x over through tax savings. Do it in year one.

Management Considerations That Affect DSCR

At 20 units, management decisions directly impact your DSCR — and your ability to refinance:

On-site vs. off-site management: Most 20-unit buildings don't justify a full-time on-site manager, but some owners offer a rent discount to a reliable tenant in exchange for basic on-site duties (showing vacant units, handling minor maintenance calls, monitoring common areas).

Professional management fees: 5–7% of collected rent is standard for a 20-unit. This typically includes leasing, rent collection, maintenance coordination, financial reporting, and tenant communications. Maintenance markups (10–20% on contractor invoices) are separate.

Tenant retention strategy: At 20 units, each turnover costs $2,000–$5,000 (cleaning, repairs, painting, marketing, lost rent). Reducing turnover from 40% to 25% annually on a 20-unit saves $15,000–$25,000/year — which flows directly to NOI and DSCR.

Scaling From 20 Units: What Comes Next

A 20-unit building often serves as a stepping stone to larger multifamily:

• 20–50 units: Still DSCR-eligible at many lenders; similar underwriting with larger loan amounts
• 50+ units: Transitions into agency financing (Fannie Mae, Freddie Mac) territory, which offers lower rates but stricter requirements
• Portfolio approach: Use DSCR loans to accumulate multiple 15–30 unit buildings, then recapitalize through a portfolio refinance or agency loan

The skills you develop managing a 20-unit — financial analysis, vendor management, tenant relations, capital planning — translate directly to larger properties. The financing just scales with you.

Frequently Asked Questions

What's the minimum credit score for a 20-unit DSCR loan?

Most lenders require 680+ for a 20-unit. Higher credit scores (720+) unlock better rates and higher LTV options. Below 680, you may need to explore bridge financing or partner with a higher-credit borrower.

Can I get a DSCR loan on a 20-unit that's only 75% occupied?

It depends. Some DSCR lenders will use market rent for vacant units, but most want to see at least 80–85% physical occupancy at the time of origination. If you're below that, a bridge loan for the lease-up period followed by a DSCR refinance is the typical path.

How much cash do I need to buy a 20-unit with a DSCR loan?

For a $2,800,000 purchase at 75% LTV: $700,000 down payment + $35,000–$55,000 closing costs + $110,000–$220,000 reserves = approximately $850,000–$975,000 total. Some of this can come from retirement accounts or other real estate equity.

Do I need an LLC for a 20-unit DSCR loan?

Not technically required by all lenders, but strongly recommended. Most DSCR loans close in the entity's name. An LLC provides liability protection and simplifies the tax reporting for a property of this size.

What's the difference between a DSCR loan and a bridge loan for a 20-unit?

DSCR loans are permanent financing for stabilized properties (high occupancy, market rents). Bridge loans are short-term (12–36 months) for properties in transition — below-market occupancy, needs renovation, or in lease-up. Rates on bridge loans run 9–12%+ vs. 7–8.5% on DSCR. You typically bridge first, stabilize, then refinance into DSCR.

Can I finance a 20-unit and a 10-unit together in one DSCR loan?

Some lenders offer blanket DSCR loans covering multiple properties, but most prefer single-asset loans. Cross-collateralizing properties adds complexity and limits your flexibility to sell or refinance individual assets later.

The Bottom Line

A 20-unit apartment building is a mid-size commercial asset that demands serious underwriting — and rewards serious operators. DSCR loans let you finance based on the property's performance, not your personal income, which is exactly right for an asset of this scale.

The critical number is NOI. If your net operating income covers the annual debt service by 1.20x or more with honest expense estimates, the deal works. If you have to massage the numbers to get there — lower the vacancy assumption, ignore the deferred maintenance, pretend utilities cost less than they do — walk away.

Twenty units is enough scale to build significant wealth. It's also enough scale to lose significant money if you get the math wrong.

HonestCasa provides DSCR financing for apartment buildings up to $5,000,000. Honest underwriting, realistic timelines, and no surprises at the closing table.