Landlords Buy Homes With Mystery Loan, Hope Rent Covers Broken Toilets

KEY POINTS

•Real estate investors have increasingly used DSCR loans to buy rental homes without proving personal income or credit.
•Between 2019 and 2022, the DSCR loan market exploded from $5.6 billion to over $44 billion in loans.
•Delinquencies on these loans nearly quadrupled in three years amid higher interest rates and rising home prices.
•While investors hype DSCR loans as ideal, lenders admit risky practices like overly optimistic rent targets have caused many defaults.

In a world where mortgage applications feel like financial colonoscopies, DSCR loans have emerged as the shady back alley where landlords dodge credit checks and income proofs — basically the Tinder of real estate lending. From 2019’s humble $5.6 billion to 2022’s $44 billion loan bonanza, DSCRs sound great if your rental cash flow covers your $2,500 monthly expenses. But beware: delinquencies almost quadrupled in 3 years, with sketchy lenders betting rents will magically pay for busted HVACs. Thanks to the Fed’s rate hikes and pandemic-fueled property prices, small-time landlords, TikTok tycoons, and the occasional Blackstone shark are all watching their real estate kingdoms wobble, dreaming of BRRRR strategy glory while hoping Wall Street doesn’t notice.