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Property TypesJanuary 17, 2025

DSCR Loans for Triplexes and Fourplexes: Small Multifamily Guide

3-4 unit properties (triplexes and fourplexes) fall into the residential DSCR loan zone — and combined rents from multiple units often produce excellent DSCRs.

Why Triplexes and Fourplexes Work Well with DSCR Loans

Properties with 3 or 4 residential units sit at a sweet spot: they're large enough to generate substantial combined rent, but still classified as residential properties (1-4 units), making them eligible for residential DSCR loans. Once a property has 5 or more units, it becomes commercial multifamily — a different loan product entirely.

The combined rent from 3-4 units often produces DSCR ratios of 1.20x-1.50x or better, making these properties some of the strongest DSCR loan candidates in any market.

DSCR Calculation for a Fourplex: Example

Fourplex in Indianapolis, Indiana:

  • 4 units × $900/month each = $3,600 gross monthly rent
  • Purchase price: $500,000 at 75% LTV ($375,000 loan)
  • P&I at 8%:
,752/month
  • Taxes: $350/month
  • Insurance:
    • 00/month
  • Total PITIA: $3,302/month
  • DSCR: $3,600 / $3,302 = 1.09x

    • At interest-only: P&I drops to

    ,500 → PITIA becomes $3,050 → DSCR = $3,600 / $3,050 = 1.18x

    The IO structure meaningfully improves the DSCR on a tight deal.

    Key Differences: 3-4 Unit vs. Single-Family DSCR Loans

    Vacancy Factor: Does the Lender Apply One?

    This is an important question to ask upfront. Some DSCR lenders apply a standardized vacancy factor to multi-unit properties:

    On a $3,600/month fourplex, a 10% vacancy factor reduces the rent to $3,240 in the DSCR calculation — potentially moving you from 1.09x to 0.98x and out of certain program tiers.

    Ask every lender you're comparing: "Do you apply a vacancy factor to 3-4 unit properties?"

    Why 1-4 Unit vs. 5+ Units Matters So Much

    A fourplex (4 units) qualifies for residential DSCR loans with residential appraisals, residential underwriting, and residential rates. A quintuplex (5 units) is commercial multifamily — it requires a commercial appraisal (income approach, cap rate analysis), commercial underwriting, and commercial loan rates. The rate difference can be 1-2%, and the down payment requirements increase significantly.

    This is why experienced investors target fourplexes specifically: maximum residential-scale rental income with residential loan accessibility.

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    For business-purpose loans on non-owner-occupied investment properties only.