Guide · Hold it
Rental property analysis: the tests a lender runs
A rental works when its income carries the loan with room to spare. Lenders check that first, before appreciation or tax benefits come into it. Build or Busted runs the same tests on any one-to-four unit or larger rental and gives you the highest price that clears them all.
Start with net operating income
Gross rent, less vacancy and credit loss, less operating expenses (tax, insurance, management, maintenance, reserves) is net operating income. If you do not know the expenses yet, the app uses an operating ratio for the asset class and, once the address resolves, your state’s rental vacancy, effective property-tax rate and average premium, each labelled with its source.
Coverage is the gate that decides the loan
Debt service coverage (DSCR) is net operating income divided by the year’s loan payments. Most residential DSCR and bank lenders want 1.25 or better; under 1.00 the property cannot pay its own mortgage. Debt yield (income over the loan amount) is the second check a commercial lender uses, because it ignores the rate and amortisation.
Then your own targets
Cash-on-cash return and cash flow per unit are yours to set. The defaults are 8% cash-on-cash and $200 a month per unit, and you can switch to a beginner preset or type your own in Settings.
Where it pencils
When a deal falls short, the app solves for the price that clears every gate and the rent that would clear them at the asking price. That is the number to take into a negotiation.
Worked example: duplex rental
Hold a 2-unit in Charlotte: small multifamily (2–4), $300,000 purchase, $15,000 rehab, $380,000 after repair, $1,975 rent per unit. Verdict: Build, 100/100. It clears every gate at the asking price.
| Test | Default bar | Kind | This deal | Result |
|---|---|---|---|---|
| Debt service coverage | 1.25 minimum | Hard gate | 1.52 | Clears |
| Monthly cash flow per unit | $200 minimum | Hard gate | $380 | Clears |
| Debt yield | 8.0% minimum | Hard gate | 11.84% | Clears |
| Cash-on-cash return | 8% minimum | Target | 9.2% | Clears |
| Loan to value, all debt | 80% or below | Target | 75.0% | Clears |
| Equity created by the rehab | 15% minimum | Target | 17.1% | Clears |
| Break-even occupancy | 90% or below | Target | 74.8% | Clears |
Illustrative numbers, screened with the default experienced-investor targets. Open the same deal in the app from the samples on the first screen.