You’ll hear investors say “Bridge to DSCR” like it’s a magic incantation. It isn’t. It’s a sequence—a disciplined way to take a property that’s not bankable today and make it bankable in 12–20 weeks. The trick isn’t clever financing; it’s sequencing execution so the refinance is inevitable.
This case study walks through an A–Z example: the numbers, the timeline, the actual underwriting touchpoints, and what to do when the appraisal or rents come in lighter than you hoped. It’s written for operators who want to move past theory and into repeatable practice.
The Setup: Why Bridge First?
DSCR lenders underwrite stabilized income and predictable expenses. If units are vacant, under-rented, or the property needs meaningful work (roof, kitchens/baths, electrical, permits), DSCR can’t get comfortable yet. A bridge loan gets you closed, funds rehab through reimbursed draws, and buys time for you to prove the plan with signed leases.
Property Snapshot
- Asset: Side-by-side duplex (2×2)
- Purchase price: $360,000
- As-is rent: $2,200/mo total ($1,100 × 2)
- Target stabilized rent: $3,200/mo total ($1,600 × 2)
- Rehab budget: $80,000 (line-item below)
Bridge Terms (Illustrative)
- 12-month interest-only at 9.75%
- Origination: 2 points
- Max LTC: 75% of total cost
- Rehab reimbursed in draws after inspection
- Interest reserve pre-funded (~8 months modeled)
Budget & Scope (Line Items)
- Roof replacement ............................... $16,000
- Two kitchens (cabs/counters/appliances) ........ $24,000
- Two bath refreshes ............................. $8,000
- Flooring/paint/interior doors .................. $18,000
- Electrical/lighting upgrades ................... $6,000
- Contingency (10%) .............................. $8,000
Total rehab: $80,000
Leverage & Proceeds
Total cost (TC): $360k + $80k = $440k
Max LTC 75%: $330k total exposure cap
Day-1 advance: 80% of purchase (capped by LTC) → 0.80 × 360k = $288k funded at close; the rest comes via draws up to the $330k cap.
Draw Schedule that Keeps Crews Moving
- Draw 1: Demo + rough-ins (elec/plumb) — $20k
- Draw 2: Kitchens set + bath rough — $25k
- Draw 3: Flooring/paint/doors — $20k
- Final: Exterior + punch list — $15k
Field note: Draws reimburse completed work. Carry 2–3 weeks of float for materials/deposits so inspectors never hold you up.
Interest Reserve (Why It Matters)
If you’re running a true value-add plan, early months produce little to no rent. An interest reserve keeps cash flow stable. At 9.75% on an average outstanding of $300k over 8 months:
- Monthly interest ≈ 0.0975/12 × 300,000 ≈ $2,438
- Reserve ≈ $19,500–$20,000 (pad this by a draw cycle)
Total Cost of Capital (Reality Check)
- Points: 2% × 330k ≈ $6,600
- Interest (net of reserve): ~ $19,500 (if 8 months)
- Third-party fees: appraisal, doc/title, inspections ≈ $3,000–$4,500
Carry subtotal: ~$29k–$31k → include this in your profit math before you offer.
Week-by-Week Sequencing
- Week 0: Close & mobilize. Orders placed for cabinets, vanities, long-lead fixtures.
- Week 1–2: Demo, roof tear-off, material deliveries staged.
- Week 3–5: Rough-ins complete → Draw 1 request synced to inspector calendar.
- Week 6–9: Cabinet set, counters template, bath tile → Draw 2.
- Week 10–12: Flooring, paint, doors/hardware → Draw 3.
- Week 13–14: Exterior touchups, landscape, punch → Final draw.
- Week 15–18: Lease-up. List both units at conservative rent; incentive if needed.
- Week 19–22: Refi submission to DSCR lender with executed leases, rent ledger, insurance binder, tax numbers, and expense schedule.
Refi to DSCR: The Math Under the Microscope
- Stabilized rent: $3,200/mo
- Non-negotiable expenses: Taxes + insurance + HOA ≈ $550/mo
- Target DSCR PITIA: ~$2,300/mo (illustrative)
DSCR: 3,200 ÷ 2,300 ≈ 1.39 → healthy cushion with room for rate wiggle.
Valuation Angles
- Sales comps approach: Renovated duplex comps support an appraisal at ≈ $520,000.
- Income approach (lite): If the cap environment supports it, some appraisers triangulate with both.
Max DSCR LTV @ 75%: 0.75 × 520k = $390,000 → indicative refi proceeds.
All-In Basis vs. Refi Proceeds (The Gap)
- All-in basis: 360k + 80k + ~30k carry ≈ $470,000
- Refi proceeds (75% LTV): ≈ $390,000
You’re not whole on cash. That’s normal on smaller deals. Your “win” is a stabilized, cash-flowing asset with most of your capital returned and a 30-yr note. Bigger value-adds or lower purchase basis can close the gap.
Underwriting: What The DSCR Lender Will Actually Ask
- Leases & ledger: Signed, market-rate, security deposits noted.
- Insurance: Correct occupancy class; premium included in PITIA.
- Taxes & HOA: Source documents; any special assessments disclosed.
- Appraisal package: Photos post-rehab; spec/finish notes help the value case.
- Reserves: 6–12 months PITIA depending on credit/experience.
Two Useful Variations
1) Interest-Only DSCR (Early Years)
When DSCR is tight at fully-amortizing payments, an initial IO period (e.g., 5 years) can get you approved while you season rents.
2) “One-Unit First” Lease Strategy
Finish and lease one unit 2–3 weeks ahead to bring real rent and marketing momentum into the file.
What If Things Go Sideways?
- Appraisal light: Provide spec sheet, highlight comp adjustments, request reconsideration with one strong additional comp.
- Rents short: Offer a 12-month lease with one free month to “gross-up” effective rent while maintaining stability optics.
- Timeline slips: Use extension option on bridge (budget 0.5–1.0% fee) and tighten DSCR with an IO structure.
Bridge → DSCR Quick Checklist
- Line-item scope with units and draw milestones.
- Interest reserve sized to realistic duration (+2–3 week buffer).
- Rent comps & broker opinion with conservative underwrite.
- Refi target LTV and DSCR modeled with cushion.
- Plan B for low appraisal or light rents (IO, lower LTV, lease incentive).
Bottom Line
“Bridge to DSCR” works because it respects the order of operations: fix the property, prove the income, then ask for a 30-year loan. If you control the timeline, document meticulously, and keep your math conservative, the refi isn’t a gamble—it’s a scheduled handoff.
