A 7-Cap Listing Is the Seller's Number. Your DSCR Is the Lender's.

A buyer sends me a listing. Two-family in New Jersey, $540,000, and the flyer says it in bold: 7 cap, cash flows day one.

The appraisal comes back and the file is at 0.987. On the sheet I priced it on, at 75 percent leverage, that is not a slightly worse loan. It is no loan.

Nobody lied. The seller's number and the lender's number are two different formulas with two different sets of inputs, answering two different questions. The listing tells you what the building earns on the price. The ratio tells the lender whether the rent it believes covers the payment it computes. You can have a true 7 cap and a dead file on the same building on the same day.

The building in this post is illustrative. The price, the rents, the tax bill and the insurance premium are round numbers I picked to show the mechanics, not a real listing. The rate sheet is not illustrative. It is a wholesale business-purpose DSCR rate sheet dated September 24, 2026, and every rate, price and adjustment below comes from it.

What a listing cap actually is

A cap rate is net operating income divided by price. On this listing the seller's NOI is $37,800 a year, and $37,800 divided by $540,000 is 7 percent. That is the whole calculation.

The question is whose NOI. A listing cap is built from the seller's numbers, and a seller's NOI usually has three things missing from a buyer's point of view. There is no vacancy in it, because the building is full the day the flyer is printed. There is no maintenance reserve in it, because the seller is not planning to own it long enough to replace the roof. And the insurance line is the seller's policy, which may have been written for an owner who lived in one of the units, not the landlord policy you will carry.

The tax line has its own problem. It is whatever figure the seller or the agent typed in, and it can be last year's bill. New Jersey towns do not reassess to your purchase price, so the assessment usually carries over. The rate does not: the county board certifies a new one every year. The number the lender escrows is the current bill, not the flyer.

None of that makes the cap wrong. It makes it the seller's. And look at what is not in it at all: financing. A cap rate is the return on an all-cash purchase. There is no rate in it, no loan and no payment. It cannot tell you whether a loan works, because a loan is not part of the question it answers.

What the lender computes

A DSCR on a one-to-four unit investment loan is a different division problem. Gross monthly rent over the full monthly payment: principal, interest, taxes, insurance and association dues, PITIA. This building has no association dues.

Every input comes from a different place than the listing.

The rent is the appraiser's, not the seller's. On a two-to-four unit property the rent schedule is part of the appraisal report itself, the Form 1025, where the appraiser gives an opinion of market rent for each unit from comparable rentals nearby. It is not the separate Form 1007 a single-family rental gets. If the units are leased, the lender reads the leases next to that schedule, and most lenders start from the lower of the two figures. When the lease is higher and actually being paid, there is often a way to get it used, and I wrote that up in the lease-versus-market-rent post. As a buyer, assume the lower number until your lender tells you otherwise in writing.

The taxes are the current bill. The insurance is a landlord policy quoted for you. And the principal and interest are at the rate your file actually prices at on the sheet, after every adjustment, not the rate on a website.

I divide gross rent by the full payment in this post, the standard convention. Some lenders haircut the rent for vacancy and management first, which is the version in DSCR Ratio Explained. A haircut only lowers every coverage figure below.

Notice what the lender's number leaves out too: vacancy and maintenance. It is not a better measure of what the building earns. It is a different question. Can the rent the appraiser believes carry the payment the lender computes?

What the September 24 sheet says about coverage

The sheet is a wholesale business-purpose DSCR rate sheet dated September 24, 2026, thirty-year fixed, one to four units. I am not naming the lender and I am not reproducing the grid. What matters here is its structure.

The sheet has three coverage tiers at 1.00 and above: 1.00 to 1.09, 1.10 to 1.19, and 1.20 and up. All three carry the same adjustment. Zero.

Read that twice, because it is the opposite of what most investors assume. On this sheet coverage is a gate, not a discount. A 1.25 does not price better than a 1.00. It prices the same. Extra coverage buys you cushion, not rate.

Below 1.00 the sheet stops being generous. A file between 0.80 and 0.99 can still price, with 0.625 added to the rate itself, not to the price, but only at 70 percent leverage or less. Above 70 percent it is NA, which on a rate sheet means not available: no price. Below 0.80, and on a no-ratio file, it is NA at every leverage level on this program.

So the sub-1.00 door closes entirely above 70 percent leverage. At 75 percent there is no such thing as a thin file on this program. There are files at 1.00 or better, and there are files that do not exist.

The traced deal

Everything below comes from the stated inputs. The purchase price is $540,000, two units, New Jersey. The listing's 7 cap puts the seller's NOI at $37,800 a year. The borrower closes in an LLC, sits in the 740 to 759 band, takes a five-year prepayment penalty and escrows taxes and insurance. At 75 percent leverage the loan is $405,000.

The adjustments on this file, in price:

• The 740 to 759 band, at 70.01 to 75 percent leverage: minus 0.275
• Purchase: plus 0.200
• Two or more units, at the same leverage: minus 0.500
• Loan size, New Jersey, and the five-year prepayment penalty: zero each

Net: minus 0.575.

On this sheet, in the middle of the ladder, each 0.125 of rate moves 0.375 in price. At 7.124 percent the sheet pays 100.586, and after the minus 0.575 the file nets 100.011, just above par. That is the rung this file lands on. If the ladder itself is new to you, the fed funds post walks how an adjustment in price becomes a rate.

On a wholesale DSCR rate sheet dated September 24, 2026, a 740-credit, two-unit purchase at 75 percent loan-to-value priced at 7.124 percent on a 30-year fixed, and the sheet offered no pricing at that leverage for coverage below 1.00.

Principal and interest on $405,000 at 7.124 percent over thirty years: $2,728.29 a month. Taxes, illustrative, $13,500 a year, which is $1,125.00 a month. Landlord insurance, illustrative, $2,400 a year, which is $200.00 a month. Total payment: $4,053.29.

Now the appraisal. Three outcomes for the rent the appraiser writes down across both units:

Appraiser's market rent	DSCR	On the September 24 sheet
$4,600 (the seller's rent roll)	1.135	Prices, zero coverage adjustment
$4,400	1.086	Prices, zero coverage adjustment
$4,000	0.987	NA at 75% leverage. No loan

Look at the first two rows. A $200 difference in the appraiser's rent moves coverage from 1.135 to 1.086, and the price does not move at all. Gate, not discount. Now the third row. $400 less rent than the roll, and the file does not get more expensive. It stops existing.

At $4,000 this file misses 1.00 by $53.29 a month. The rent that clears exactly 1.00 at 75 percent is $4,053. The rent that reaches the top coverage tier on this sheet, 1.20, is $4,864, which is more than the seller's own rent roll, and on this sheet it would buy no better price.

One more number, because it is the one the flyer implies. At 7.124 percent, principal and interest on this loan come to $32,739.44 a year. The seller's NOI of $37,800 divided by that is 1.155. That is NOI over debt service, a commercial-style coverage ratio, and it looks comfortable. The lender on a one-to-four unit DSCR loan never computes it. The number that decides this loan is 0.987, and nothing on the flyer tells you which one you are going to get.

The counter-case: the cap wasn't lying

This belongs in the middle of the post, not at the bottom.

The cap rate did not lie. At the seller's rent roll this file is a 1.135 and it prices, with $546.71 a month of room over the payment. The seller's own NOI over the same debt service is 1.155. When the appraiser agrees with the rent roll and the tax bill is the one on the flyer, the listing and the lender land in nearly the same place. A 7 cap in a market where the rents are verifiable and the taxes are known is not a trap. It is just not an answer. Caps don't lie. They answer a question the lender never asks.

And this sheet's coverage structure is one lender's structure on one day. Some programs do pay for coverage. I have priced from sheets with a 1.25 tier that improves the price, and DSCR Ratio Explained walks what that kind of ladder looks like. Do not assume your program pays for a 1.25, and do not assume it doesn't. Ask to see where the coverage tiers sit on the sheet your file will price on, and where the NA line starts.

What fixes a 0.987

Go back to the dead row: $4,000 of rent, 0.987, no price at 75 percent.

The instinct is to work the rate. Run it. One rung down the ladder, 6.999 percent, nets 99.636, so the borrower pays 0.364 in price for it, $1,474.20 on this loan. The payment falls $34.08 a month to $4,019.20, and coverage goes to 0.995. Still under 1.00. Still no price. It takes a rate near 6.93 percent to clear 1.00 at this leverage, and on this sheet that is more than a rung away. You can buy coverage with points if a sheet goes low enough, but points are spent at closing. Equity is still yours.

The fix for thin coverage is usually equity, not rate shopping.

So change the loan. Drop to 70 percent leverage. The loan falls to $378,000 and the down payment rises by $27,000. At the same 7.124 percent, principal and interest fall to $2,546.40, the payment to $3,871.40, and coverage on the $4,000 rent comes back at 1.033. Five points of equity turn a dead file into a priced one.

Why 70 and not 73? At 7.124 percent a loan of about $397,000, just over 73.5 percent, clears exactly 1.00 on $4,000. But a file at exactly 1.00 has no room for anything to move before closing, and 70 percent is where this sheet stops treating coverage as a gate. At 70 percent or less, a file between 0.80 and 0.99 still prices, at 0.625 added to the rate. Above 70 it does not price at all. Seventy percent is the leverage at which a light appraisal costs you rate instead of costing you the deal.

One caution on the arithmetic. A $378,000 loan at 70 percent sits in different rows of the grid than a $405,000 loan at 75, and I held the rate at 7.124 percent to isolate what the equity does. Price the 70 percent version on the day, on your sheet. On this payment, coverage stays above 1.00 at any rate up to about 7.62 percent.

What to do before you offer

Before the offer, not after the appraisal.

Get the tax bill. Not the listing's tax line. The current bill, from the town's tax collector.

Get a landlord insurance quote for the building as you will own it, not the seller's premium.

Run gross rent divided by the full payment at the rate your file prices at on the current sheet, and run it at the rent an appraiser is likely to write down, not the rent roll. The rents on comparable two-families nearby are the best guess you have before the appraisal comes back.

If it comes in under 1.10, price the 70 percent version before you walk.

If you are looking at five units or more, the math above is not your math. The fifth unit moves you onto a different program, and the five-unit post covers what changes.

FAQ

Is cap rate the same as DSCR? No. A cap rate is net operating income divided by price, with no loan in it. It measures what a building earns on an all-cash purchase, and on a listing it is built from the seller's numbers. DSCR on a one-to-four unit investment loan is monthly rent divided by the full monthly payment: principal, interest, taxes, insurance and any association dues, at the rate your file actually prices at. The rent is the figure the lender accepts, which usually starts from the appraiser's. The two numbers can disagree on the same building. In the example in this post, a two-family advertised as a 7 cap comes back at 0.987 coverage when the appraiser writes the rent at $4,000.

Does a higher DSCR lower my DSCR loan rate? Not on every program. On a wholesale business-purpose DSCR rate sheet dated September 24, 2026, the coverage tiers at 1.00 to 1.09, 1.10 to 1.19 and 1.20 and above all carried the same zero adjustment, so a file at 1.25 priced exactly like a file at 1.00. Coverage on that sheet was a gate, not a discount, and below 1.00 there was no price at all above 70 percent leverage. Other programs do price a 1.25 tier better. Ask where the tiers sit on the sheet your file will price on before you pay for coverage you may not be paid for.

What happens if the appraisal rent comes in lower than the seller's rent roll? Your coverage usually drops to the appraiser's number, because most lenders start from the lower of the lease and the appraiser's rent. In the example in this post, a two-family with a $4,600 rent roll covers its payment 1.135 times, and at an appraised $4,000 it covers it 0.987 times. On the September 24, 2026 sheet, a file under 1.00 had no price at 75 percent leverage. The usual fix is equity. Dropping to 70 percent leverage, $27,000 more down on a $540,000 purchase, lifts coverage to 1.033 with the rate held where it was, and at 70 percent that sheet priced files below 1.00 as well.

Send me the listing, the rent roll, the current tax bill and the down payment you have in mind, and I will run coverage at the rent an appraiser is likely to write, price it against the current sheet, and show you where the NA line sits for your file. Send the numbers here.

Dominick Prevete 31 years in real estate finance. Founder, National Loan Provider. 25 Main Street, Unit B, Sparta NJ. (908) 220-6404.

Every rate, price, adjustment and coverage tier in this post is taken from a single wholesale business-purpose DSCR rate sheet dated September 24, 2026, thirty-year fixed, one to four units. The lender is deliberately not named and the grid is not reproduced. The property is illustrative: the price, the rents, the tax bill and the insurance premium are round numbers chosen to show the mechanics, not a listing and not quotes. Coverage is gross rent divided by the full monthly payment. The 70 percent case holds the rate at 7.124 percent to isolate what the equity does; a smaller loan at lower leverage prices off its own rows of the grid. Program terms and pricing move daily, and every file prices to its own specifics on the day it is priced. This is market commentary, not a commitment to lend.

Loans are for business purposes only and are not subject to TILA, RESPA, or HOEPA. Not for primary residences. Equal Housing Opportunity. All loans subject to underwriting approval. Rates and terms shown for illustration; actual rates depend on deal specifics. National Loan Provider does not arrange financing on owner-occupied residential properties. Every loan we arrange is business-purpose investor financing.