Choosing Between DSCR, Hard Money, and Conventional Loans

When you’re buying investment property, the loan you pick decides how fast you grow. Some loans are built for long-term holds. Others are built for speed. Most investors eventually use a mix. The trick is understanding which one to use - and when.

Below we’ll break down the three main loan types investors rely on: DSCR loans, hard money loans, and conventional loans. Each one solves a different problem, and knowing those differences saves time, money, and stress.

1. DSCR Loans: The Long Game for Income Properties

A DSCR loan (Debt Service Coverage Ratio) is designed for investors who own - or plan to own - rental properties that generate steady income. Lenders don’t care about your W-2 income or tax returns. They care if the property can pay for itself.

They calculate that using the Debt Service Coverage Ratio, which compares the rental income to the property’s monthly debt payments.

• A DSCR of 1.0 means the property breaks even.

• A DSCR of 1.20 or higher shows positive cash flow and is usually required for approval.

These loans are popular with serious investors because they allow you to scale without showing personal income. As long as the property performs, you can qualify for more.

Typical DSCR loan facts:

• Interest rates usually run between 7%–9%, depending on credit and property type.

• Terms can stretch to 30 years, often with fixed rates.

• Down payments range from 20%–25%.

• Approval time is about two to three weeks.

Best for: Long-term rentals and BRRRR-style portfolio building.

Common mistake: Overestimating rent or underestimating expenses. If the property’s income dips, so does your DSCR, which can kill your ability to refinance.

2. Hard Money Loans: Fast Capital When Speed Matters

When time kills deals, hard money saves them. These loans are built for fix-and-flip projects, rehabs, or bridge financing. Lenders focus on the property’s asset value and after-repair value (ARV), not your personal finances. That’s why investors who can’t qualify with banks can still close with hard money.

Key facts:

• Interest rates run from 10%–13%, sometimes higher for riskier deals.

• Terms are short - 6 to 18 months is standard.

• Down payments often fall in the 10%–20% range.

• Funds can arrive in as little as 5–10 days.

You’ll pay more, but you’ll close faster. And speed often wins deals that others can’t fund in time.

Ideal uses:

• Distressed property purchases

• Short-term flips

• Bridge loans before refinancing

Biggest mistake: Treating a hard money loan like a long-term solution. You must have an exit plan - sell or refinance - before maturity. Otherwise, you’re stuck paying high interest or extension fees.

Pro tip: Many successful investors use hard money first, then refinance with a DSCR loan once the property is rented and cash flowing. This two-step strategy converts a fast flip into a stable, income-producing asset.

3. Conventional Loans: The Standard Option with Limits

Conventional loans are what most people think of when they hear “mortgage.” They’re perfect for homeowners and small investors with strong credit and steady income. But they’re not always flexible enough for real estate investors who move quickly or buy properties needing repairs.

Basic facts:

• Approval depends on personal credit score, income, and debt-to-income ratio.

• Interest rates are lower - typically 6%–7%.

• Loan terms range from 15 to 30 years.

• Down payments for investment properties hover around 20%.

Advantages: Low rates and predictable payments.

Drawbacks:

• Lenders cap the number of financed properties (often 10).

• Won’t fund homes in poor condition.

• Long underwriting and strict documentation slow down deals.

Conventional loans can work if you’re buying your first or second property, but once you start building a portfolio, they limit how fast you can scale.

How Investors Use DSCR and Hard Money Together

At Brrrr Loans, we see this pattern every day: investors combining the speed of hard money with the staying power of DSCR financing.

Here’s how it works:

1. Buy with Hard Money. Close fast on an undervalued property, even one needing major work.

2. Rehab and Rent. Improve the property, get tenants, and start generating reliable income.

3. Refinance with a DSCR Loan. Once rental income stabilizes, refinance into a long-term, lower-rate DSCR loan.

This approach unlocks equity, pays off the high-interest hard money loan, and sets up steady monthly cash flow. You can repeat the cycle again and again - turning short-term capital into long-term wealth.

Example scenario:

An investor finds a duplex for $200,000 that’ll be worth $320,000 after renovations.

• A hard money loan funds 85% of the purchase and rehab within 7 days.

• Three months later, it rents for $3,200/month - enough for a DSCR of 1.25.

• The investor refinances into a 30-year DSCR loan at 8.5% and frees up cash to buy the next property.

That’s how portfolio growth actually happens in practice.

Which Loan Should You Choose?

If you need to move fast, hard money gets you to the closing table.

If you need to hold and cash flow, DSCR gives you long-term stability.

If you just want to own a home, conventional still works fine.

But for serious investors who plan to grow a portfolio, pairing hard money with DSCR loans gives you the best of both worlds - speed and scalability.

Final Thoughts

The smartest investors don’t rely on one type of loan. They use the right one for the right stage of the deal. Hard money loans make fast moves possible. DSCR loans lock in the long-term cash flow that follows. Conventional loans still have their place, but they’re rarely built for investors who plan to scale.

At Brrrr Loans, you can do both - close quickly on your next property and refinance into lasting income once it’s stabilized. Whether you’re funding a flip, building a rental portfolio, or refinancing for better terms, the right financing structure makes the difference. Apply today and see how Brrrr Loans helps real investors move faster and grow stronger.

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