DSCR Loans for Coastal Vacation Rentals: Beach Property Investment Guide

Coastal vacation rentals are among the most lucrative — and most misunderstood — segments of real estate investing. A well-located beach property can generate $40,000–$80,000+ in annual short-term rental income, but financing them requires a different approach than traditional buy-and-hold investments.

That's where DSCR loans come in. Unlike conventional mortgages, DSCR loans evaluate the property's income-generating potential rather than your personal finances. For vacation rentals, this means lenders look at projected short-term rental revenue to determine whether the property can service its debt.

This guide covers everything you need to know: how DSCR lenders evaluate vacation rental income, the best coastal markets for STR investing in 2026, and real-world calculations to help you underwrite your next beach deal.

How DSCR Loans Work for Short-Term Vacation Rentals

The core DSCR formula is the same for any rental property:

DSCR = Gross Rental Income ÷ Total Debt Service (PITIA)

Where PITIA = Principal + Interest + Taxes + Insurance + Association (HOA) dues

For long-term rentals, income is straightforward — it's the monthly lease amount. For short-term vacation rentals, income calculation is more nuanced.

How Lenders Evaluate STR Income

Most DSCR lenders use one or more of the following methods to determine vacation rental income:

1. Third-party income projections: Tools like AirDNA, Rabbu, or Mashvisor provide market-based income estimates for specific properties. Most DSCR lenders accept AirDNA's Rentalizer report as documentation.

2. Trailing 12-month actuals: If the property has existing STR history (from platforms like Airbnb or VRBO), lenders will use the actual trailing 12-month income, often with a 10–15% haircut for conservatism.

3. Fair market rent as a floor: Some lenders will use the higher of STR projections or long-term fair market rent. This protects against STR regulatory changes.

Important: Not all DSCR lenders accept short-term rental income. HonestCasa works with lenders experienced in STR underwriting — an important distinction when you're financing a vacation property.

Additional Requirements for STR DSCR Loans

Beyond the standard DSCR requirements, vacation rental properties often involve:

• Higher down payments: 25–30% is typical (vs. 20–25% for long-term rentals)
• Reserves: 6–12 months of PITIA in liquid reserves
• STR permit verification: Lender will confirm the property is in a jurisdiction that allows short-term rentals
• Insurance: Specialized STR insurance (standard homeowner's policies don't cover commercial vacation rental activity)

Best Coastal Markets for DSCR-Financed Vacation Rentals

1. Gulf Shores / Orange Beach, Alabama

Alabama's Gulf Coast is one of the most investor-friendly STR markets in the country. No state-level STR restrictions, favorable tax treatment, and a long tourist season (March through October) make this area a standout.

Market numbers:

• Typical 3BR condo: $350,000–$450,000
• Annual STR revenue (3BR condo): $45,000–$60,000
• Peak nightly rate: $250–$400
• Occupancy: 65–75% annually

Sample DSCR Calculation:

A 1.37 DSCR is excellent and will qualify for competitive rates. The key with Gulf Shores is choosing properties with direct beach access or Gulf views — they consistently outperform properties even a few blocks from the water.

2. Outer Banks, North Carolina

The OBX has been a vacation destination for decades, and the STR market here is mature and well-documented. Larger homes (4–6 bedrooms) dominate the rental market, catering to family reunions and group vacations.

Market numbers:

• Typical 4BR oceanfront home: $650,000–$900,000
• Annual STR revenue (4BR): $65,000–$95,000
• Peak weekly rate: $3,000–$5,500
• Occupancy: 55–70% annually (highly seasonal)

Sample DSCR Calculation:

OBX's seasonality is both a feature and a bug. The summer months (June–August) generate 50–60% of annual revenue. Make sure your reserves can cover the quieter winter months when cash flow may be negative.

Critical consideration: Flood insurance and coastal erosion risk. Properties on the oceanfront face real long-term risks. Factor in flood insurance costs (which can be substantial) and favor properties with recent elevation certificates.

3. Destin / 30A, Florida

The Emerald Coast of Florida's panhandle combines sugar-white sand beaches with a mature STR infrastructure. Destin and the 30A corridor (Rosemary Beach, Seaside, WaterColor) attract wealthy vacationers willing to pay premium nightly rates.

Market numbers:

• Typical 3BR condo (Destin): $400,000–$550,000
• Typical 3BR cottage (30A): $700,000–$1,200,000
• Annual STR revenue: $50,000–$90,000 depending on location and property type
• Peak nightly rate: $300–$700
• Occupancy: 60–75% annually

Sample DSCR Calculation (Destin Condo):

Watch the HOA fees in Destin condos — they can be $500–$900/month and directly impact your DSCR. Always verify current HOA dues and any pending special assessments before purchasing.

Florida's homestead exemption does not apply to investment properties, so property taxes will be higher than what you see on listings showing homestead-adjusted figures.

4. Myrtle Beach, South Carolina

Myrtle Beach is the volume play in coastal STR investing. Lower price points than most coastal markets combined with year-round tourist activity (golf, dining, entertainment) create favorable DSCR numbers.

Market numbers:

• Typical 2BR condo: $175,000–$275,000
• Annual STR revenue: $28,000–$42,000
• Peak nightly rate: $150–$300
• Occupancy: 60–70% annually

Sample DSCR Calculation:

Myrtle Beach's lower entry point makes it accessible for investors with less capital. The high DSCR also means you'll qualify for favorable loan terms.

Risk factor: Myrtle Beach has significant STR supply. Competition is fierce, and properties that aren't well-maintained or well-marketed can underperform projections. Budget for professional management (typically 20–25% of gross revenue) and quality furnishings.

5. Panama City Beach, Florida

PCB offers a blend of Destin's beach quality with Myrtle Beach's affordability. The market attracts families, snowbirds, and spring breakers, creating diversified demand throughout the year.

Market numbers:

• Typical 2BR condo: $275,000–$400,000
• Annual STR revenue: $35,000–$55,000
• Peak nightly rate: $200–$400
• Occupancy: 60–72% annually

Sample DSCR Calculation:

Critical Factors for Coastal STR DSCR Success

Property Management

Unless you live within 30 minutes of your vacation rental, you need professional management. Budget 20–25% of gross revenue. This cost is typically not included in the DSCR calculation (lenders focus on gross income vs. debt service), but it significantly impacts your net cashflow.

Seasonality and Reserves

Most coastal markets have a high season (summer) and a low season (winter). Monthly income can swing from $8,000 in July to $1,500 in January. Your DSCR is calculated annually, but you need cash reserves to cover the months when income dips below expenses.

Rule of thumb: Maintain 6 months of PITIA in reserves specifically for your vacation rental. This isn't optional — it's survival.

Regulatory Risk

Short-term rental regulations are evolving rapidly. Before purchasing, verify:

• Current STR permit/license requirements
• Any pending legislation that could restrict STR activity
• HOA rules regarding short-term rentals (some associations have begun restricting or banning them)
• Zoning classifications that affect STR eligibility

Insurance

Coastal vacation rentals require specialized insurance coverage:

• Dwelling/property insurance: Commercial STR policy, not residential
• Flood insurance: Required in most coastal zones (FEMA or private)
• Wind/hurricane insurance: Separate from standard property insurance in many Gulf and Atlantic states
• Umbrella liability: Guests create liability exposure that your standard policy won't cover

Total insurance costs for a coastal STR can be $3,000–$8,000+ annually. Get actual quotes before committing to a purchase.

Furnishing and Setup Costs

Vacation rentals must be fully furnished and guest-ready. Budget $15,000–$30,000 for furnishing a 2–3 bedroom property to a competitive standard. This isn't part of your DSCR calculation, but it's a real upfront cost.

Higher-quality furnishings correlate directly with higher nightly rates and occupancy. Don't cheap out — guests pay premium prices for premium experiences.

The Bottom Line

Coastal vacation rentals can produce exceptional DSCRs — often 1.3–1.5+ — because short-term rental income typically exceeds long-term rental income by 40–80%. The tradeoff is higher complexity: seasonal income, management requirements, regulatory risk, and higher insurance costs.

For investors who understand these dynamics, coastal STR properties financed with DSCR loans represent one of the most profitable strategies in real estate.

Finance Your Beach Property with HonestCasa

HonestCasa offers DSCR loans specifically designed for vacation rental investors. We work with lenders who understand STR income, accept AirDNA projections, and close efficiently on coastal properties.

No tax returns. No W-2s. Just a property that earns.

Apply for a DSCR loan at HonestCasa →

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