How to Improve Your DSCR Ratio: 8 Proven Strategies

Your DSCR ratio directly determines whether you qualify for a loan, what interest rate you receive, and how much you can borrow. Moving from a 1.05 DSCR to 1.25 might reduce your rate by 0.50-0.75%, saving $140-$200/month on a $400,000 loan.

The DSCR formula is simple: Monthly Rental Income ÷ Monthly PITIA (Principal, Interest, Taxes, Insurance, Association fees). To improve your ratio, you either increase the numerator (rental income) or decrease the denominator (PITIA).

Here are eight proven strategies to improve your DSCR ratio, ranked by impact and ease of implementation.

Strategy #1: Increase the Down Payment

Impact: High | Ease: Medium | Cost: Requires capital

Increasing your down payment reduces the loan amount, which reduces your monthly principal and interest payment.

The Math

Scenario: $400,000 property, $2,600/month rent, 8% interest rate

At 75% LTV ($300,000 loan):

• P&I: $2,201/month
• Taxes + Insurance: $500/month
• PITIA: $2,701/month
• DSCR: 0.96 (doesn't qualify)

At 70% LTV ($280,000 loan):

• P&I: $2,054/month
• Taxes + Insurance: $500/month
• PITIA: $2,554/month
• DSCR: 1.02 (qualifies)

At 65% LTV ($260,000 loan):

• P&I: $1,907/month
• Taxes + Insurance: $500/month
• PITIA: $2,407/month
• DSCR: 1.08 (qualifies with better rate)

Impact Analysis

Every 5% additional down payment reduces your loan by $20,000, which reduces monthly P&I by approximately $147.

Trade-off: You're deploying more capital into this property, which might reduce your ability to buy additional properties. Calculate your return on that extra capital.

When This Strategy Works Best

• You're borderline (DSCR 0.95-1.05) and need to cross the 1.00 threshold
• You have excess cash and limited deal flow (better to deploy capital at lower leverage than leave it idle)
• A small increase in down payment unlocks significantly better terms (crossing from 1.09 to 1.15 might drop your rate 0.50%)

When to Avoid This Strategy

• You're already at 1.20+ DSCR (diminishing returns)
• You have other high-return uses for the capital
• You're trying to maximize property count and leverage is critical to your strategy

Strategy #2: Negotiate a Lower Purchase Price

Impact: High | Ease: Medium (market-dependent) | Cost: None (opportunity cost)

A lower purchase price requires a smaller loan, reducing PITIA and improving DSCR.

The Math

Original scenario: $400,000 purchase, 75% LTV = $300,000 loan, DSCR = 0.96

Negotiated scenario: $380,000 purchase, 75% LTV = $285,000 loan

• P&I at 8%: $2,091/month
• Taxes + Insurance: $475/month (slightly lower due to lower purchase price)
• PITIA: $2,566/month
• DSCR: 1.01 (now qualifies)

Negotiation Strategies

Lead with cash flow analysis: "I ran the numbers at $400,000 and the property doesn't generate sufficient rent to support financing. I can pay $380,000 where the numbers work."

Many sellers don't understand rental math. Explaining that their asking price is above what the property can cash flow creates leverage.

Offer faster closing or fewer contingencies: "I'll pay $380,000 with a 21-day close and waive inspection, or $400,000 with 45 days and inspection contingency."

Sellers often value certainty and speed over the last $20,000.

Point to rental comps: If the property only rents for $2,400 but seller priced assuming $2,800, show them actual rental comps. A $20,000 price reduction based on reality is easier to justify.

When This Strategy Works Best

• Slow market with limited buyer competition
• Property has been listed 60+ days
• Seller is motivated (relocation, financial pressure, estate sale)
• You can pay cash or close quickly

When This Strategy Is Difficult

• Hot market with multiple offers
• Property just listed and seller isn't negotiating
• Property is priced fairly for appreciation but tight on cash flow

Strategy #3: Increase the Rental Income

Impact: High | Ease: Medium to High | Cost: $0-$15,000+

Higher rent directly increases your DSCR. A $100/month rent increase improves DSCR by approximately 0.04-0.05 on a typical property.

Methods to Increase Rental Income

3A: Rent at True Market Rate

Issue: Property is currently rented below market.

Solution: When the lease expires, raise rent to market rate. If the property rents for $2,200 but market is $2,500, that $300 increase improves DSCR from 1.08 to 1.20.

For occupied properties: Some lenders will use market rent instead of current lease rent if market is higher. Provide strong rental comps to the appraiser.

For vacant properties: Set rent at market from day one. Don't under-rent just to fill quickly—$100/month below market costs $1,200/year and hurts your DSCR.

3B: Add Amenities or Upgrades

Certain improvements justify higher rent:

High-impact upgrades (rent increase $50-$150/month):

• Update kitchen (new countertops, cabinet refacing, modern hardware): $5,000-$12,000
• Update bathroom (vanity, fixtures, tile): $3,000-$8,000
• New flooring throughout (luxury vinyl plank or quality laminate): $3,000-$7,000
• Fresh paint in modern neutral colors: $1,500-$3,000
• Add washer/dryer (in-unit if property doesn't have): $800-$1,500
• Central A/C (if property lacks it): $5,000-$10,000

Lower-impact upgrades (rent increase $25-$75/month):

• Stainless appliances: $1,500-$3,000
• Modern light fixtures: $300-$800
• Smart home features (thermostat, doorbell, locks): $400-$800
• Ceiling fans: $400-$1,000
• Landscaping improvements: $1,000-$5,000

ROI analysis: Spending $8,000 on kitchen/bath updates to increase rent by $150/month:

• Annual rent increase: $1,800
• Payback period: 4.4 years
• DSCR improvement: 0.06-0.08 (might move you from 1.12 to 1.20)

3C: Add a Bedroom or Bathroom

If you have space to convert:

Adding a bedroom: Increases rent $100-$250/month in most markets

• Convert large living room, den, or office to bedroom
• Cost: $5,000-$15,000 (framing, drywall, flooring, closet, window)
• Permits required in most jurisdictions

Adding a bathroom: Increases rent $150-$300/month

• Cost: $10,000-$25,000
• Requires plumbing access
• High-impact in properties with only one bathroom

3D: Include Utilities (Carefully)

In some markets, including utilities allows you to charge higher rent:

Example: Property rents for $1,800/month, tenant pays utilities.

Alternative structure: Rent for $2,050/month, landlord pays water/sewer/trash ($100/month), tenant pays electric/gas.

Net rent increase: $150/month ($2,050 - $1,800 - $100 utilities landlord pays)

Warning: This only works if the market supports it. Don't pay $250/month in utilities to raise rent $150.

3E: Offer Furnished Rentals (Short-Term or Corporate)

Furnished rentals command 20-40% premiums in many markets:

Traditional rental: $2,000/month unfurnished Furnished rental: $2,600/month

Cost to furnish: $5,000-$12,000 for basic furniture package

Considerations:

• Higher tenant turnover
• Furniture maintenance and replacement
• Some lenders don't recognize short-term rental income for DSCR
• Works best near corporate centers, universities, hospitals

Documenting Increased Rental Income for Lenders

Lenders use appraised market rent, not your aspirations:

Best evidence:

• Executed lease at the higher rent
• Rental comps showing 3-6 similar properties renting at your target rate
• Recent rent increases in the neighborhood

Provide to appraiser:

• Print rental listings from Zillow, Apartments.com, Craigslist for comparable properties
• Highlight similar features (beds/baths, square footage, location)
• Note any advantages your property has (updated, garage, yard)

Strategy #4: Reduce Property Taxes (Appeal Assessment)

Impact: Low to Medium | Ease: Medium | Cost: $0-$500

Property tax reductions directly decrease PITIA, improving DSCR.

The Math

Current: $6,000/year property tax ($500/month) After appeal: $5,400/year property tax ($450/month)

DSCR improvement: $50/month reduction = approximately 0.02 DSCR increase

How to Appeal

Step 1: Review your property tax assessment

• Compare assessed value to recent sale price (if you just bought)
• Compare to neighbor properties (public record)
• Look for errors (wrong square footage, extra bedrooms counted)

Step 2: Gather evidence

• Recent appraisal showing lower value
• Comparable sales showing lower values
• Photos of property condition issues

Step 3: File appeal

• Deadlines vary by jurisdiction (typically 30-90 days after assessment notice)
• File online or mail form to assessor's office
• Small fee in some counties ($0-$100)

Step 4: Attend hearing or submit evidence

• Present comparables and errors
• Assessor may reduce assessment without hearing if evidence is strong

Success Rate

Property tax appeals succeed 30-50% of the time, with average reductions of 5-15% when successful.

Best candidates for appeals:

• Recently purchased below assessed value
• Property condition deteriorated since last assessment
• Neighboring properties assessed lower
• Assessment errors (wrong property characteristics)

When Not to Bother

• Assessment is fair or below market value
• Property just reassessed after your purchase at sale price
• You're in a jurisdiction that rarely grants reductions

Strategy #5: Shop for Lower Insurance Rates

Impact: Low | Ease: High | Cost: 2-3 hours of your time

Insurance is often the easiest expense to reduce with minimal effort.

The Math

Current insurance: $2,100/year ($175/month) After shopping: $1,500/year ($125/month)

DSCR improvement: $50/month savings = approximately 0.02 DSCR increase

How to Reduce Insurance Costs

Shop 5+ insurance companies:

• Online quote sites (Policygenius, Insurify)
• Direct carriers (State Farm, Allstate, Nationwide)
• Independent agents who shop multiple carriers

Bundle policies:

• Combine investment property insurance with auto, umbrella, or other properties
• Bundling often saves 10-20%

Increase deductible:

• Moving from $1,000 to $2,500 deductible saves 10-25% on premiums
• Only do this if you have reserves to cover higher deductible

Improve property:

• New roof, updated electrical, security system all reduce rates
• Mention these improvements when shopping

Verify replacement cost:

• If property is insured for $450,000 but replacement cost is $350,000, you're over-insured
• Adjust coverage to actual replacement cost

Typical Savings

Shopping insurance typically saves $300-$1,000/year with minimal effort.

Strategy #6: Accept a Longer Loan Term or ARM

Impact: Medium | Ease: High | Cost: More interest over life of loan

Longer loan terms or adjustable-rate mortgages reduce monthly payments, improving DSCR.

Strategy 6A: 30-Year vs 20-Year vs 15-Year Term

$300,000 loan at 8%:

• 15-year: $2,866/month P&I
• 20-year: $2,509/month P&I
• 30-year: $2,201/month P&I

Going from 15-year to 30-year reduces payment by $665/month, improving DSCR by approximately 0.26.

Trade-off: You'll pay significantly more interest over the life of the loan. On $300,000 at 8%:

• 15-year total interest: $215,000
• 30-year total interest: $492,000

When this makes sense:

• You need to qualify and can't otherwise
• You value cash flow over total interest cost
• You plan to sell or refinance before significant interest accrues

Strategy 6B: Consider an ARM

5/6 or 7/6 ARM rates are typically 0.25-0.75% lower than 30-year fixed:

30-year fixed: 8.50%, $2,307/month on $300,000 7/6 ARM: 7.75%, $2,144/month on $300,000

Savings: $163/month, DSCR improvement: 0.06-0.08

Trade-off: Rate adjusts after the fixed period (5 or 7 years). If you plan to refinance or sell within that timeframe, ARMs can be smart.

When ARMs make sense:

• You're highly confident you'll refinance or sell within 5-7 years
• You expect rates to decline and want to capture the lower payment now
• The lower payment is necessary to qualify

Strategy #7: Eliminate or Reduce HOA Fees

Impact: Low to Medium | Ease: Low (not often controllable) | Cost: N/A

HOA fees are included in DSCR calculations. Lower HOA = better DSCR.

The Math

Property A: $350/month HOA Property B: $50/month HOA or $0 (no HOA)

DSCR improvement: Saving $300/month improves DSCR by approximately 0.12

Strategies

Choose properties without HOAs: Single-family homes often have no HOA. This eliminates $100-$500/month from your PITIA calculation.

Choose condos with low HOA fees: Some condos have $50-$100/month HOAs while others charge $400-$600. The low-fee buildings produce better DSCR.

Verify what HOA covers: High HOA fees that include water, trash, exterior maintenance, and insurance may actually be economical compared to paying those separately.

You Usually Can't Change HOA Fees

Once you own, you're stuck with the HOA fee. The time to optimize this is during property selection, not after purchase.

Exception: If you're on the HOA board, you can advocate for lower fees, but this is a years-long process and may reduce property maintenance quality.

Strategy #8: Structure a Partial Seller Financing Deal

Impact: High | Ease: Low (requires cooperative seller) | Cost: None, but may affect overall deal terms

Seller financing for a portion of the purchase can reduce your institutional loan amount, improving DSCR on that loan.

The Structure

Purchase price: $400,000 Your down payment: $100,000 (25%) Seller financing: $50,000 (second mortgage at 6% interest-only for 5 years) Institutional DSCR loan: $250,000 (62.5% LTV)

The Math

Traditional structure (75% LTV):

• Loan amount: $300,000
• P&I at 8%: $2,201/month
• Taxes + Insurance: $500/month
• PITIA: $2,701/month
• DSCR on $2,600 rent: 0.96 (doesn't qualify)

Seller financing structure:

• Institutional loan: $250,000
• P&I at 8%: $1,834/month
• Seller note: $50,000 at 6% interest-only = $250/month
• Taxes + Insurance: $500/month
• Total payment: $2,584/month

Lender calculation (on institutional loan only):

• PITIA for DSCR calculation: $1,834 + $500 = $2,334
• DSCR: $2,600 / $2,334 = 1.11 (qualifies)

Critical Detail

Some lenders include the seller financing payment in the DSCR calculation. Always ask:

"If there's a second mortgage held by the seller, do you include that payment in the DSCR calculation?"

• If no: This strategy improves your DSCR significantly
• If yes: This strategy doesn't help DSCR (but still reduces your institutional loan amount, potentially helping with other requirements)

When Sellers Accept This

• Seller wants full asking price and you need better cash flow (seller gets price, you get terms)
• Seller has low-basis property with large capital gain (installment sale spreads tax hit over 5+ years)
• Seller wants ongoing income stream (retiree seeking monthly cash flow)
• Slow market where seller needs to differentiate their listing

Negotiation Approach

"I can pay your asking price of $400,000 if you're willing to carry $50,000 as a second mortgage at 6% interest-only for 5 years, with a balloon payment at the end. This allows me to finance the property while meeting your price target."

Combining Strategies for Maximum Impact

Individual strategies improve DSCR modestly. Combining them produces dramatic results.

Example: Property That Doesn't Qualify

Property: $400,000, $2,600/month market rent Original structure: 75% LTV ($300,000 loan), DSCR = 0.96

Combined strategies:

1. Negotiate price to $385,000 (Strategy #2)
2. Increase down payment to 30% ($115,500 down, $269,500 loan) (Strategy #1)
3. Upgrade property for $8,000 to achieve $2,800/month rent (Strategy #3)
4. Shop insurance, save $600/year ($50/month) (Strategy #5)

Result:

• Loan: $269,500 at 8% = $1,978 P&I
• Taxes + Insurance: $450/month (lower due to price reduction and insurance shopping)
• PITIA: $2,428/month
• Rent: $2,800/month
• DSCR: 1.15 (qualifies with good pricing)

Investment required:

• Extra down payment: $15,500 more than original 25% on $400,000
• Upgrades: $8,000
• Total: $23,500 additional capital

Return:

• Unlocked deal that wouldn't have qualified
• Better interest rate (1.15 DSCR vs 0.96 saves approximately 0.50-0.75% rate)
• Monthly savings: ~$100-150/month in interest = $1,200-$1,800/year
• Payback period on additional capital: 13-20 years (from interest savings alone)

But the real return is getting the deal done. Without these strategies, the property doesn't qualify.

Which Strategies to Prioritize

Highest impact, medium effort:

1. Increase down payment
2. Negotiate lower purchase price
3. Increase rental income

Lower impact, easiest implementation: 4. Shop insurance 5. Consider ARM or 30-year term 6. Appeal property taxes

High impact, difficult execution: 7. Seller financing 8. Reduce/eliminate HOA (property selection)

Start with the easy wins (insurance, loan structure) while you work on the higher-impact but more difficult strategies (rental income, price negotiation).

Bottom Line

Improving your DSCR ratio from 1.05 to 1.25 can save you 0.50-0.75% in interest rate—$140-$200/month on a $400,000 loan. Over 10 years, that's $17,000-$24,000 in interest savings.

The most effective strategies are:

• Increasing down payment: Reduces loan amount and monthly payment
• Negotiating lower purchase price: Requires smaller loan
• Increasing rental income: Through market-rate pricing, upgrades, or adding bedrooms/baths

Supporting strategies like shopping insurance, appealing taxes, and optimizing loan structure add incremental improvements that compound when combined.

Don't accept marginal DSCR (1.00-1.05) if you can reach 1.15-1.25 with reasonable effort. The better your ratio, the better your rate, terms, and long-term returns on the property.