The Memphis real estate market continues to attract investors from across the country—thanks to its affordable home prices, solid rental demand, and thriving short-term rental scene fueled by tourism and business travel. From Midtown’s historic charm to East Memphis’ suburban stability, local investors are finding new ways to scale their rental portfolios without relying on traditional income documentation.
That’s where DSCR (Debt Service Coverage Ratio) loans come in. These investor-friendly mortgages focus on the property’s cash flow rather than the borrower’s personal tax returns—making them ideal for those building long-term and short-term rental portfolios in Shelby County.
Whether you’re eyeing a turnkey long-term rental near the University of Memphis or an Airbnb near Beale Street, DSCR loans offer a flexible path to financing that differs sharply from hard money loans.
🏠 Memphis market snapshot: prices, rents, and demand
Home prices & velocity
Median sale price: Redfin reports $185,000 in September 2025, up 3.7% YoY, with typical days on market around 40. That’s modest appreciation plus decent liquidity for investors.
Listing prices: Realtor.com shows a $204K median listing price, down 9.3% YoY—useful if you’re watching list-to-sale spreads for negotiation.
Valuation backdrop: Zillow’s index pegs the average Memphis home value at ~$143K , down 1.4% YoY—a reminder that sub-markets vary by product, neighborhood, and condition.
The current rental overview notes low vacancy and steady demand, driven in part by limited new mid-range supply—tailwinds for cash-flow underwriting.
A Memphis snapshot shows a rental vacancy rate around ~7.9% and a large share of 2-bed units in the stock—useful for comping DSCR rents by bedroom count.
Property taxes to pencil in
For 2025/26 budgeting, the Shelby County Commission set the county rate at $2.69 (state-certified). Factor taxes carefully into DSCR, especially on re-assessment or value-add projects.
🏨 Short-term rentals (Airbnb/VRBO) in Memphis: what the rules say
Permit required
Memphis requires a Short-Term Rental (STR) permit through the City (Public Works), including application, insurance, and responsible-party requirements. The ordinance framework is in the City Code and has been repeatedly summarized by local press and industry resources. Key points:
Permit required, permit number must appear in listings.
Application fee historically set at $300; annual renewal ~$150.
A grandfather clause applies to STRs operating before July 1, 2023 (until transfer or other triggers).
These details appear in the ordinance text and local news coverage; check the current City portal before buying, as processes (office/links) can shift.
📋 Pro tip: The City hosts permitting and licensing information; some pages reference county involvement as well. Always align your plan with the latest City/County guidance to avoid surprises on inspections, insurance minimums, and documentation.
💡 What makes DSCR loans a match for Memphis Investors?
Why DSCR fits here
Price-to-rent ratios in many Memphis neighborhoods are competitive compared with coastal markets, supporting DSCR approval thresholds. Local investors highlight low vacancies in professionally managed portfolios—a signal rent coverage can be achievable if you buy right.
Liquidity at entry-level to mid-tier price points supports rehab-to-rent or turnkey strategies—especially important when lining up appraisal comps for lenders.
📑 DSCR loans: how they work (and how lenders look at them)
Core ratio
DSCR = NOI / Total Debt Service. Many TN lenders start the conversation around 1.00× coverage (break-even) but often price or approve more favorably from 1.10×–1.25×+, depending on program, credit, reserves, experience, and property type.
Underwriting focus
Rent validation: Market rent via appraisal Form 1007 (long-term) or a blended method for mid-term/STR depending on lender.
Expenses: Taxes, insurance, HOA, and sometimes a vacancy/maintenance factor.
Borrower: Typically no DTI, reduced income docs; credit score, LTV, and reserves matter most.
Use cases
Turnkey long-term rentals (LTRs): Stabilized cash flow → smoother DSCR math.
BRRRR-style refis: Refinance to a DSCR loan after renovation and lease-up.
Small portfolios: Cross-collateralization or repeat DSCR acquisitions to scale.
📚 DSCR vs. hard money in Memphis: what’s the difference?
Purpose & timing
Hard money = short-term, asset-based bridge capital (fast closings, rehabs, credit-light).
DSCR = long-term, 30-yr fixed or ARM financing underwritten to cash flow—often your take-out after a flip/rehab or for buy-and-hold.
Rates & costs
Hard money typically carries higher rates/points and short maturities (6–24 months), aiming to be refinanced.
DSCR pricing sits closer to conventional investor loans, with market-driven rates that ebb with national mortgage trends.
Underwriting
Hard money: approves largely on asset value and exit plan; no DSCR needed at close.
DSCR: requires rent coverage at or above the lender’s DSCR threshold and an appraisal with market rent support.
Documentation
Hard money: faster, lighter docs; often funds rehab draws.
DSCR: more traditional closing package (appraisal + 1007, title, insurance, reserves) but still no personal income documents.
Exit
Hard money → exit via sale or DSCR refinance.
DSCR → long-term hold, potential cash-out after seasoning.
Pros & Cons of DSCR Loans:
✅ Pros
No DTI underwriting: Qualify on the property’s cash flow, not your W-2s.
Scalable: Repeatable structure for portfolio growth (1–10+ doors).
Flexible borrowers: LLCs and investors with non-traditional income can compete.
30-year fixed options: Lock payment stability—key when rents are steady and vacancy is low in your sub-market.
Works for LTR & some STR models: Many lenders allow long-term rent for underwriting; some will review documented STR income—policies vary, verify early.
⚠️ Cons
Rates & LLPA-style hits: DSCR interest rates often sit higher than owner-occupied rates; lower DSCR or higher LTV can increase costs.
Strict rent support: If appraised market rent (1007) comes in light, you could miss the DSCR threshold.
Reserves & credit: Expect reserve requirements and minimum credit scores—DSCR is not a “no-doc” loan.
Prepayment penalties: Many DSCR loans include prepay periods (1-3 year options) investors should plan for this.
🏛️Memphis Airbnb & mid-term strategy with DSCR:
📝 Regulatory compliance is step one
- Before offering short-term stays, obtain the proper STR permit and display the permit number in listings. Understand the grandfather clause and renewal fees. Non-compliance risks fines or enforcement—and DSCR lenders can balk at properties that can’t legally operate as intended.
📉 Stress-test your DSCR
Underwrite three scenarios: (1) long-term rent only, (2) blended mid-term, (3) STR at conservative occupancy/ADR. If the deal still covers at ≥1.20× on LTR rents alone, you’re better insulated against seasonality, reviews, or rule changes. (Many lenders default to long-term rent for the DSCR calc unless you can document multi-year STR income.)
Step-by-step: getting a DSCR loan closed in Memphis
🏁 1) Pick your strategy first
LTR: Easiest underwriting path; appraisal + 1007 supports DSCR.
STR: Confirm permit path, insurance, and whether your lender will underwrite actual short-term renal or only market long-term rental rent.
📋 2) Term sheet & docs
Entity docs (if closing in LLC), credit pull, bank statements for reserves.
Insurance quote (investor policy; STR riders if applicable).
Title & escrow local with Memphis/Shelby experience.
📊 3) Appraisal & 1007
Choose an AMC/appraiser who understands Memphis sub-markets—Orange Mound vs. East Memphis vs. Cordova vs. Midtown have different rent comps and cap rates.
🧮 4) Final DSCR math
Confirm market rent, PITI/HOA, and any lender vacancy factor.
If DSCR is thin, options include rate-buydown, more down, or shifting to LTR.
🖊️ 5) Close & manage
For STRs, maintain permit, tax remittance, and neighbor relations to avoid nuisance complaints that can threaten renewals.
✅ Frequently asked investor questions:
Q: Can I close in an LLC?
A: Many DSCR lenders allow entity vesting; check state and title requirements.
Q: What DSCR do I need?
A: Program-dependent. Common targets 1.10×–1.25×; in some cases, 1.00× at higher pricing or lower LTV.
Q: Will the you count Airbnb income?
A: Policies vary. Some will use actual STR history (e.g., 12–24 months with docs); many default to market long-term rent for underwriting. Permits must be in place.
Q: How do rate trends affect DSCR?
A: If national mortgage rates soften (industry forecasts look for ~6% averages in 2026 for owner-occupied), investor loan pricing can also improve, lifting coverage. Still, price your deal with a rate cushion and verify your lock options.
Have a question about qualifying or current DSCR interest rates? Please connect with us today by submitting the Quick Call Form here.