Making the DSCR Math Work at Puget Sound Prices

Why Puget Sound ratios run thin

The DSCR compares rent with the full payment, and in Puget Sound the payment grows faster than the rent as prices rise. Seattle’s median home value is $950,800 against a median gross rent of $2,007; Bellevue’s median value is $1,508,500 (ACS 2024; general market benchmark, not a loan offer). Property taxes add more: the median real estate taxes paid is $7,503 in Seattle and $9,988 in Bellevue (ACS 2024; general market benchmark, not a loan offer).

Put a typical investor loan on a median-priced house and the principal, interest, taxes and insurance can exceed the rent before you count HOA dues. The fix is never to inflate the rent estimate. It is to change one of the other variables.

Lever 1: a smaller loan through more equity

The most direct lever is the loan amount. Every dollar of loan you remove lowers the principal and interest, so the ratio rises. Work backward: decide the ratio you want, multiply the rent by the inverse to find the maximum payment, subtract taxes, insurance and dues, and the remainder tells you how much principal and interest the property can carry.

For example, if a house rents for $3,000 and you want a 1.00 ratio, the full payment can be $3,000. If taxes, insurance and dues total $900 a month, principal and interest can be $2,100. Your rate quote and term then tell you the loan amount that produces that payment, and the price minus that loan is the equity you need.

Lever 2: a second rentable unit on the lot

Seattle and other Washington cities have made accessory dwelling units much easier to permit. A house with a legal ADU or a detached backyard cottage (DADU) can produce two rents against one payment, and some wholesale lender programs count both. In the illustrative example on our ADU page, a Seattle house that reaches only 0.64 on its own rent reaches about 1.02 when the permitted DADU rent is included.

The key word is permitted. Lenders and appraisers generally need the unit to be legal before they credit its rent or value, and programs differ on how much accessory-unit rent they include.

Lever 3: buy a 2-4 unit building instead of a house

Duplexes, triplexes and fourplexes in older Seattle, Tacoma and Everett neighborhoods often carry better rent-to-price relationships than detached houses, because the combined rent of every unit counts. Vacancy risk is spread across several leases too. The tradeoffs are management, older building systems and, in Seattle, RRIO registration and inspections for each unit.

Lever 4: lower carrying costs you can actually control

Some costs are fixed, but several are worth shopping:

• Insurance: get more than one landlord quote and compare deductibles; decide deliberately whether to add earthquake coverage
• Condo dues: a building with lower dues and healthy reserves can beat a cheaper unit with high dues or a looming special assessment
• Property tax: use the assessor’s figure for the exact parcel; levies differ by district, and a recent sale may reset the assessed value
• Utilities: be clear in the lease about which utilities the tenant pays, because owner-paid utilities do not appear in the DSCR but do hit your cash flow

Lever 5: payment structure

Some DSCR programs offer an interest-only period. Because the early payment excludes principal, the ratio during that period is higher. The calculator has a toggle so you can see the difference. The tradeoff is that you are not paying down the balance, and the payment rises when the interest-only period ends, so make sure the property can carry the fully amortizing payment too.

Lever 6: a program designed for lower ratios

Certain wholesale lender programs accept ratios below 1.00, typically with tradeoffs such as more equity, stronger credit, larger reserves or different pricing. This is where a broker earns its keep: the programs that accept lower ratios differ widely, and the right one for a Seattle condo may not be the right one for an Eastside townhome.

Be honest with yourself about what a ratio below 1.00 means. The property will not cover its own payment from rent, and you will fund the gap every month. That can be a rational choice for a long-term appreciation strategy, but it is a choice, and your reserves should reflect it.

Or buy where the math already works

Many Washington investors keep their King County properties and add rentals in Spokane, the Tri-Cities, Tacoma, Vancouver or Olympia, where ratios are friendlier. A cash-out refinance on a seasoned Seattle rental, if the ratio still works at the new loan amount, can fund down payments east of the mountains. That is the portfolio approach covered on our portfolio DSCR page.

Putting the levers together

Real Puget Sound files often combine two or three levers. A buyer might choose a duplex instead of a house, bring a larger down payment and shop insurance carefully, and the combination reaches a ratio none of the steps would reach alone. Run each version through the calculator and keep notes, because the version you bring to a broker should be the one you would actually buy.

Frequently asked questions