The Quick Read: Two empty units do not rule out a DSCR purchase, because underwriting replaces a missing lease with an appraiser’s market-rent opinion and then tests whether the rent covers the debt. On a pooled loan, that test is measured across the whole package, so the number of properties, the appraised rent on the empty units, and their condition decide the outcome.
- Every property still needs a lease or an appraiser-supported market rent, so an empty unit is priced at what the appraiser says it would rent for.
- On a pooled loan, coverage is measured on the whole package, so strong properties can offset weak ones.
- Pool size matters: the same two vacancies weigh more in a small pool than in a large one.
- Units that are not rent-ready are a different conversation, usually involving a short-term loan first and a refinance after lease-up.
- Clearing the coverage floor does not mean the package cash flows, because repairs, vacancy, and management sit outside the ratio.
What “Two Vacancies” Can Mean
The phrase covers three different deals, and each one is underwritten differently. Find out which one the seller is offering before you spend money on an appraisal.
Two vacant houses inside a larger bundle. Say a seller offers six single-family rentals and two of them sit empty. Each house is its own property with its own appraisal and its own market-rent figure.
Two empty units inside one building. A fourplex with two vacant doors is one property. The appraiser documents rent unit by unit, and the lender looks at the building’s combined rent.
A mix of both. Many packages include a duplex or triplex alongside single-family homes. Here the building-level and package-level math both matter.
A second question sits underneath the first. Is the package one loan or several? Lendmire’s wholesale network includes lenders that place two to twenty properties under a single note. Others close a separate loan on each property at the same time. A third structure, a larger term loan for five or more properties, appears later here. The choice changes how a vacancy affects you.
Key Terms Defined
DSCR (debt service coverage ratio): the property’s qualifying monthly rent divided by its full monthly housing obligation.
PITIA: principal, interest, taxes, insurance, and association dues where they apply, which together make up the denominator.
Market rent: the monthly rent an appraiser estimates from comparable rentals, used when no lease exists or when the lease runs above market.
Pooled coverage: the sum of qualifying rents across all properties divided by the sum of their PITIA, used on a single-note portfolio loan.
Rent-ready: a unit in condition to be leased now, with no major rehab, safety, or legal-use problem.
Cross-collateralization: one loan secured by every property in the package, so all of them back the same debt.
How Underwriting Treats an Empty Unit, Step by Step
Step 1: The lender picks the rent figure. For a leased unit, lenders generally work from the lower of the lease and the appraiser’s market rent. An above-market lease adds nothing. For an empty unit, the appraisal figure is the only number available.
Step 2: The appraiser documents that figure. On a single-family home or condo, the appraiser produces a rent schedule from comparable rentals. McKissock, an appraiser-education provider, explains that this schedule documents monthly rent from comparable one-unit rentals. On a two- to four-unit building, the report covers each unit. The comparables get adjusted for size, condition, bedrooms, and location.
Step 3: The lender decides what counts. The appraiser gives an opinion, but the lender decides how much of it counts as qualifying income. McKissock makes the same point about the limits of the appraiser’s role.
Step 4: The math runs. DSCR divides rent used for lender review by PITIA only. On a pooled loan, the lender adds all qualifying rents, adds all PITIA, and divides. An empty unit adds its full carrying cost to the denominator. It adds only appraised rent to the numerator, and it adds nothing if the lender decides the unit does not belong in the pool.
Step 5: Leverage and credit get layered on. Coverage is one test. The file also has to clear leverage caps, a credit floor, and reserve rules. A larger down payment lowers the debt and can lift the ratio. It never erases those other requirements.
One thing the ratio does not do is measure profit. Clearing 1.00x means rent covers PITIA. Repairs, vacancy, management, utilities, and capital spending all sit outside the calculation.
Worked Example: The Same Package Three Ways
Run the numbers on an illustrative five-property pool. These inputs are modeled assumptions, not market data. Assume each property carries identical PITIA, each leased property rents at 1.25x its own PITIA, and the appraiser values the two empty properties at 1.15x.
| Scenario | Pooled coverage | Weakest property |
|---|---|---|
| All five leased | 1.25x | 1.25x |
| Two vacant, counted at appraised rent | about 1.21x | 1.15x |
| Two vacant, counted at zero | 0.75x | 0.00x |
The middle row is how underwriting works when a program uses appraiser-supported market rent, and the network’s portfolio programs require a lease or that figure on every property. The bottom row shows the worst case. Some lenders discount or exclude vacant units, so the treatment varies by program. This is why you should ask how a lender counts empty units before you sign.
Now change the pool size. Keep the same zero-rent treatment but spread it over ten properties with eight leased at 1.25x. Pooled coverage lands at 1.00x. The vacancies did not get cheaper, but each one carries a smaller share of the pool. A package of four properties with two empty is a very different file from a package of fifteen with two empty.
Here is a practical read on this table. If the middle row clears comfortably and the bottom row does not, the deal depends on how the lender treats vacant units. That is a diligence question to settle before contract, not after.
Pooled Loan or Separate Loans?
Both can work on a package with vacancies. They fail in different ways.
| Factor | One pooled loan | Separate loans |
|---|---|---|
| Coverage test | Measured on the whole pool | Each property on its own |
| Effect of a vacancy | Strong properties can offset it | Falls on that property’s file |
| Collateral | All properties back one note | Each property backs its own loan |
| Selling one later | Follows release terms | Simple payoff of one loan |
For a standard 30-year portfolio structure, Lendmire’s network places two to twenty properties under one note. Loan sizes run from $300,000 to $5,000,000, with larger balances reviewed. Leverage goes up to 80% of value on a purchase or a rate-and-term refinance. The coverage floor is 1.00x, measured on the pool. Single-family, two- to four-unit, condo, and townhome properties are eligible, and an interest-only period is available. Credit floors run around 640, with some structures asking for 680 or 720. Some structures also require a special-purpose entity, typically an LLC, subject to lender program eligibility.
For five or more properties, a separate rental portfolio term loan exists. It runs from $500,000 to $50,000,000 at up to 75% of value, with fixed terms and a balloon at maturity. Prepayment follows a yield-maintenance schedule. Some of these loans are non-recourse, with carve-outs for items like fraud and bankruptcy. Reserves are held for taxes, insurance, and capital expenditures. Properties in several markets can sit under one loan.
A rental that falls below 1.00x on its own can still sit inside a pool. Underwriting then tests the pooled coverage, the leverage, and the terms together, and the file stays subject to underwriting.
The tradeoff is real. Pooling absorbs a weak unit, but shared collateral means a problem in one property can reach all of them. Partial releases, substitutions, and the sale of one property out of the pool follow the loan documents. The release price runs above the property’s allocated balance, and the remaining pool must still cover its debt service. If you plan to sell one property soon after closing, separate loans may suit you better.
A Step-by-Step Buying Process
1. Get the rent roll and the lease copies. Separate occupied units from empty ones and note the dates, terms, and any concessions.
2. Estimate market rent for the empty units. Use rental comparables, and remember the appraiser’s number is the one that counts.
3. Run the three-state table above. Test the package at lease rent, at market rent, and in the worst case the lender could apply.
4. Ask the lender how empty units are counted. Get the answer in writing before you go under contract.
5. Write access and cooperation into the contract. The appraiser must be able to enter every unit, so the seller has to agree to that.
6. Add a rent-ready condition. Make the seller confirm the empty units can be leased as they stand.
7. Order appraisals. Single-family and condo properties get a rent schedule, and two- to four-unit buildings get the multi-unit report.
8. Assemble the file. Expect executed leases and a rent roll for occupied units, proof of rent payments, entity documents, and tax, insurance, and association figures.
9. Confirm leverage, credit, and reserves. These need to clear alongside coverage.
The forms in step 7 come from the agency world, not from DSCR rules. Fannie Mae’s Selling Guide identifies the small income property report as the one for two- to four-unit properties. Freddie Mac’s form shows the comparable-rent layout, including a comment field on vacancy. DSCR programs borrow those forms. Their terms come from each lender, not from the agencies.
Across Lendmire’s wholesale network, the packages that go smoothly tend to share one habit: the investor knows the appraised-rent number before the lender does. Packages that stall usually had a pro forma built on the seller’s asking rents.
Where the General Rule Breaks
Empty units counted at zero. Most programs credit an empty unit at appraised market rent, but some lenders discount or exclude it. The treatment is program-specific, so read the actual guidelines.
Blended versus per-property tests. Some programs test only the pooled ratio. Others also look at each property. If a lender tests both, one very weak property can cause trouble even when the pool is strong.
Units that are not rent-ready. A unit needing major rehab, with a legal-use problem or an uninsurable condition, is not an ordinary vacancy. These may get carved out of the pool. Another route is a short-term loan for the work, followed by a refinance once the unit is leased. If you take that path, refinancing a rental without waiting out a seasoning period is worth understanding first. Cash-out on a portfolio loan never exceeds 75% of the pooled value, and the first six months of ownership carry cost-based caps.
Appraisal rent that lags the market. Market-rent opinions rest on comparable rentals, and older lease comps can trail current rents. Leasing a unit at market rent before applying can lift the qualifying figure, but ask the lender first.
Short-term rentals. The standard rent schedule documents monthly rent. McKissock notes that appraisers should not convert nightly rates into it. Short-term rental programs have their own rules. Purchases run to 75% LTV with a 1.00x floor. Refinances run around 70%, and cash-out runs to 70%, with a 640+ score and about 12 months of hosting history expected. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Differing DSCR definitions. Commercial pages often define DSCR as net operating income divided by debt service. Residential DSCR programs generally use gross rent divided by PITIA. A figure quoted from the first definition does not transfer to the second.
Ineligible properties. Owner-occupied property, mobile homes, co-ops, mixed-use, and commercial property cannot go in the pool. Manufactured homes (single- and double-wide), log homes, and barndominiums are not offered through the network’s DSCR programs.
Below-1.00 pools. A pool under 1.00x is not a standard-floor file. Sub-1.00 coverage is available through select lenders in the network, with leverage and terms adjusted. Expect more cash down and different terms. No-ratio structures are available only through select lenders, generally for borrowers who already own a primary residence.
Reserves and Lease-Up Planning
An empty unit costs money every month. Taxes, insurance, utilities, and the loan payment all keep running while it sits idle. Plan for that carry before closing.
On single-property DSCR files, reserves commonly run around six months of PITIA. Conservative rate-and-term files at modest leverage under $1,500,000 can see them waived, while larger loans typically step up to about nine months. Portfolio structures differ. The term loan holds reserves for taxes, insurance, and capital expenditures. Reserves vary by lender, leverage, loan size, and transaction type, so get the actual requirement for your structure.
A few habits help after closing:
- Start marketing the empty units before closing if the contract allows access.
- Watch concessions. A free month or a discounted first lease can pull documented rent below the figure you modeled.
- Keep the lease-up record. If you refinance later, the leases and rent history for those units become part of the file.
- Model repairs, management, and capital spending separately, because the ratio does not include them.
When to Walk Away, Renegotiate, or Restructure
Walk away if the empty units fail the rent-ready test and the seller will not fix them. Also walk if the package only works at the seller’s rents and not at the appraiser’s.
Renegotiate price if the package clears coverage but the cushion is thin. A lower price shrinks the loan, which can lift the ratio without changing the rent.
Restructure if two of the properties drag the rest down. Options include leasing those units first, excluding them from the pool, or buying them later on their own loans. Strong files clear two tests at once: enough equity and enough rental coverage.
The decision depends on your profile. An investor with strong reserves and a plan to lease up quickly can accept a thinner first-year margin. An investor with limited cash should treat the empty units as the main risk in the deal, not as a discount. Tax treatment varies; consult a qualified professional before relying on any deduction.
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. The complete DSCR loans guide covers the wider program picture.
Frequently Asked Questions
Can one vacancy sink the whole pool?
Rarely in a large pool, and sometimes in a small one. On a pooled loan, coverage is measured across all properties, so strong rentals offset weak ones. In a four-property pool, one empty unit carries a heavy share of the total. If a lender also tests each property on its own, a very weak one can still cause trouble.
Does buying differ from refinancing when units are empty?
Yes, in both leverage and timing. On a purchase, the appraiser’s market rent replaces the missing lease. On a refinance, cash-out is capped at 75% of pooled value and the first six months of ownership carry cost-based limits. A rate-and-term refinance carries no cost restriction.
Who sets the rent on an empty unit?
The appraiser gives a market-rent opinion from comparable rentals, and the lender decides how much of it counts. Your own research does not override the appraisal. The usual routes for a higher figure are a new lease or a review of the appraisal.
Do I need a lease in place after closing?
Every property needs a lease or an appraiser-supported market rent to enter the pool. After closing, no lease is required to keep the loan in place. Leasing the empty units protects your cash flow, and the leases will matter when you refinance later.
Can I buy the package in an LLC?
Often, yes. Some portfolio structures require a special-purpose entity, typically an LLC, subject to lender program eligibility. Recourse loans carry a personal guarantee. Ask which entity setup the structure expects before you form one.
For current guidelines and terms, see Lendmire’s DSCR loan programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a DSCR-focused mortgage broker. It arranges investor financing through select lenders in its wholesale network, across 41 markets including Washington, D.C. It does not lend directly, and every file is underwritten individually by the lender, subject to lender guidelines. This article is not a commitment to lend. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. McKissock: Form 1007 and Its Impact on Short-Term Rental Appraisals
This article is part of Lendmire’s DSCR loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Put a Multi-State Rental Portfolio Under One DSCR Loan · How to Sell One Rental and Buy Another Inside a DSCR Portfolio Loan · Can You Sell One Rental Out of a Portfolio DSCR Loan?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.