Scaling Past 4 Doors in San Antonio: DSCR Loans, Entity Structure, and the Financing Wall

Most San Antonio landlords can buy the first two or three rentals on conventional financing without breaking a sweat. The wall shows up somewhere between door four and door six, when the bank stacks every mortgage against your W-2 income and your debt-to-income ratio stops working. The fix is not a magic lender — it is switching how the loan is underwritten and how the property is held. Below is what that actually looks like in Bexar County right now, with the real friction points.

Where the wall actually is

Fannie Mae technically allows a single investor to finance up to ten 1–4 unit properties. In practice, the second half of that stack is brutal: reserve requirements jump to six months of PITI per property, rate add-ons climb, and most retail loan officers quietly tap out after loan four because the file becomes an underwriting project. If you are a W-2 earner making $120K and you already carry three rentals plus a primary, your DTI is usually cooked before you walk into the next deal.

That is the point to stop fighting conventional underwriting and move to a DSCR (Debt Service Coverage Ratio) loan.

How a DSCR loan actually underwrites

A DSCR lender does not care about your tax returns, your K-1s, or your side consulting income. They care about one ratio: the property's gross monthly rent divided by its monthly PITIA (principal, interest, taxes, insurance, HOA). A 1.0 DSCR means the rent exactly covers the payment. Most lenders want 1.10 to 1.25 for their best pricing, and they will still fund below 1.0 — just at a worse rate and lower LTV.

For a San Antonio example: RentInSA's active listings show a median 3-bedroom asking rent of $1,695/mo as of November 2026. If you are buying a $235K 3/2 in Converse (median rent in Converse right now is $1,700) with 25% down at a DSCR rate roughly 75–150 basis points above conventional, your PITIA often lands around $1,550–$1,650 once you load in Bexar County's non-homestead tax rate and a real insurance quote. That is a DSCR hovering at 1.03–1.10 — fundable, but thin. Deals in Cibolo (median $2,080) or Schertz ($1,915) tend to pencil cleaner because rent scales faster than taxes on the newer stock.

What you actually need to close one

• 20–25% down (sometimes 15% with a pricing hit)
• A 680+ credit score for decent terms; 720+ for the best
• Two to six months of PITIA in reserves per property
• An appraisal with a Form 1007 rent schedule — the appraiser's market rent, not your pro forma, is what the lender uses
• Title held in an LLC is not just allowed, it is often preferred

Conventional vs DSCR, side by side

	Conventional (Fannie/Freddie)	DSCR
Income doc	Full tax returns, DTI matters	Property rent only
Max loans	10 financed properties, hard	No portfolio cap
Title	Personal name required	LLC allowed and common
Rate	Lower (baseline)	+0.75% to +1.50% typical
Down payment	20–25% investment	20–25% typical
Reserves	6 months PITI per property after #4	2–6 months, lender-dependent
Prepay penalty	None	Often 3–5 years, buy it down

The honest take: do your first two or three conventional to keep the cheap rate. Move to DSCR when DTI stops working or when you want the properties held in an entity from day one.

The LLC question

Texas is an inexpensive state to form an LLC — $300 filing fee with the Secretary of State and an annual Public Information Report with the Comptroller. The protection argument is real: a tenant slip-and-fall judgment against an LLC-held property should not reach your primary residence or other entities, assuming you maintain the corporate formalities (separate bank account, no commingling, proper insurance, written leases in the LLC's name).

Two things people miss:

• Due-on-sale clause. If you already own a property in your personal name with a conventional loan and you quitclaim it into an LLC, you are technically triggering the lender's right to call the note. In practice, lenders rarely call performing loans, but the risk is yours. The clean move is to buy new acquisitions directly in the LLC with a DSCR loan.
• Series LLCs. Texas allows series LLCs (one parent, multiple protected cells). They are cheap to maintain but cause headaches at title companies, insurers, and some lenders who do not want to underwrite a series cell. Decide before you file.

Talk to a Texas real estate attorney before you pick a structure. The wrong setup is expensive to unwind.

The property tax reality nobody budgets for

Your rental does not get a homestead cap. The 10% annual appraised-value cap under Texas Tax Code § 23.23 only applies to homesteaded primary residences. On a rental, BCAD can — and does — reassess to full market value every single year. A $220K purchase in a hot submarket can be reassessed to $260K the next January, and your PITIA (and your DSCR) goes with it.

Budget accordingly:

• File a BCAD protest every year. Comparable sales and equity arguments both work. Form 50-132 is the protest form; the informal appraiser meeting resolves most cases before the ARB hearing.
• Price the deal using the post-sale assessed value, not the seller's current tax bill. Sellers with a 10-year homestead cap are paying taxes on a fictionally low value.
• If you buy in Alamo Heights ISD or NEISD, verify the combined rate — ISD + city + county + flood control + ACCD. You are often looking at 2.1–2.5% of assessed value depending on exemptions and location.

Insurance: DP-3, not HO-3

A rental needs a landlord policy (typically DP-3, which is open-perils and includes loss-of-rent coverage), not a homeowner's HO-3. Require your tenant to carry renter's insurance in the lease. Stack a $1M–$2M umbrella over the top once you have more than two doors — it is the cheapest coverage you will ever buy relative to the liability exposure. If your property is in a mapped flood zone (parts of 78227, 78228, and anywhere near Salado Creek or Leon Creek), a separate NFIP or private flood policy is non-negotiable.

What most people get wrong

• Using the gross rent multiplier from Zillow-style estimates. Pull a Form 1007 rent schedule from a local appraiser or at minimum pull comps from actual rented listings. Asking rent is not achieved rent.
• Quitclaiming an existing conventional loan into an LLC without reading the note. Due-on-sale is real. Buy in the entity on acquisition instead.
• Forgetting Texas Property Code § 92.052. Once you own the rental, you owe the statutory duty to repair conditions that materially affect health or safety. Deferred maintenance that cash-flows on paper becomes a § 92.056 remedy for the tenant — repair-and-deduct, lease termination, or damages. Build a real capex reserve.
• Ignoring the security deposit clock. Texas Property Code § 92.103 gives you 30 days to return the deposit or an itemized deduction after the tenant surrenders. Bad faith withholding is three times the wrongfully withheld amount plus $100 plus attorney's fees under § 92.109. At four doors, your odds of a deposit dispute per year are not low.
• Buying the cheapest house in the worst submarket for the cap rate. A pro forma 9% cap in a high-turnover ZIP with 60-day vacancies and $4,000 turn costs is a 4% cap in reality. The math is boring; the operations decide the return.
• Not budgeting for the non-homestead reassessment. A deal that pencils at the seller's current tax bill often does not pencil at next year's BCAD valuation.

When to bring in a pro

Once you cross four doors, the cost of a bookkeeper who understands Schedule E, a Texas real estate attorney for your entity structure, and a CPA who files your 1065 or 1120-S stops being optional. The DIY math works at two properties. At six, a $500 mistake per entity per year dwarfs the professional fees.

When you are ready to find the next deal or you want to see what competing rentals are actually asking in your target submarket, browse active listings at /rentals or filter by area. If you already own and you are ready to list a unit, you can post it on RentInSA at /list-your-home. For investor-focused agents who have closed rental deals in Bexar County rather than just primary residences, /agents is the right starting point.