Buying a Denver duplex with a DSCR loan

Why duplexes fit this kind of financing

A duplex gives you two income streams and one set of fixed costs. Taxes, insurance and the roof are shared, so the rent from the second unit is nearly pure coverage. In a metro where single-family prices have outpaced rents, that second check is frequently what makes the property qualify at all.

Denver also has an unusually deep inventory of two-to-four unit buildings from the pre-war era. Side-by-side duplexes in Baker and Speer, stacked units in Capitol Hill, and small fourplexes in Harvey Park and Montbello were built as rentals and have stayed rentals for a century. Appraisers know these blocks, which means the income approach is well supported and the comparable sales are meaningful.

The legality question comes first

Denver has a long history of converting single-family houses into multi-unit buildings, and not every conversion was permitted. A property marketed as a duplex may have a legal two-unit record, a non-conforming two-unit use, or one legal unit plus an unpermitted basement apartment. Those are three different financing conversations.

Pull the city’s property record and the assessor’s data before you write an offer, and compare the recorded unit count to what the listing claims. Ask the seller for permits on any conversion work. If a unit is unpermitted, the lender may still finance the property as a single-family home, but the second rent check will not count, and the coverage ratio changes shape entirely. That is a deal-breaking difference on a property priced as a duplex.

• Confirm the recorded unit count and zoning on the parcel.
• Ask for permits and inspections on any basement finish or unit conversion.
• Check egress, ceiling height and separate utility metering for a lower-level unit.
• Confirm the property is not in a historic district with additional review requirements.

Inherited leases are the numerator

Most duplex purchases come with tenants in place, and those leases are the rent figure the file rests on. Two things matter: the rent on the lease and whether the lease is at market. A long-tenured tenant paying well below market is a real thing in Denver, and a lender will underwrite the actual lease, not the rent you plan to charge after a renewal.

That creates an awkward but honest decision point. If the property only works after you raise the rent, then the property does not work yet. You can buy it knowing that you will carry the gap for a while, or you can negotiate the price down to reflect the below-market rent. What you cannot do is submit the file on projected rent and expect it to close.

Deposits and the lease terms also transfer. Collect the deposit ledger, confirm the amounts are still held, and check for any side agreements, pets, or concessions that affect the economics. A tenant with a two-year lease at a fixed rent is an asset when rates are volatile and a constraint when you want to reposition the property.

What the appraisal does to a two-unit building

Two-to-four unit properties are appraised with both an income approach and a sales comparison approach, and the appraiser will reconcile them. Strong rents support a higher value; a building with below-market leases will be valued partly on what the market rent should be. That cuts both ways. If the leases are low, the appraiser may still credit market rent, which helps the loan-to-value. If the leases are high relative to the block, the appraiser may discount them.

Condition is where Denver duplexes get marked down. Pre-war buildings commonly have updated kitchens in one unit and original everything in the other. The appraiser will note deferred maintenance, and the underwriter may require repairs before closing — peeling exterior paint, a failing roof, exposed wiring, or a broken sidewalk. Budget for those items in the contract rather than discovering them at the appraisal review.

The numbers, in the open

Suppose, as a hypothetical illustration rather than a market figure, the purchase price is $815,000 with a loan that produces principal and interest of $3,940 a month. Taxes on the parcel run $520 a month and the landlord policy quotes at $285. There is no HOA because it is a two-unit building. The housing payment is $4,745. If the two units lease for $2,650 and $2,300 — $4,950 combined — the ratio is 1.04. Thin. Two vacancies a year and the property is running at a loss for those months.

Now suppose the buyer puts down more, cutting principal and interest to $3,480. The payment falls to $4,285 and the ratio rises to 1.16. Workable, with a real cushion. The difference between those two outcomes is equity, not rent, and that is the most common shape of a Denver duplex file: the building is fine, the rent is fine, and the leverage has to be sized to the payment rather than to the maximum the buyer can borrow.

Run your own numbers with the calculator before you talk to anyone. Enter the tax bill from the assessor record, a genuine insurance quote, and the rents from the actual leases. The ratio that comes back is the conversation you will be having.

After closing: the parts nobody underwrites

Two-unit buildings are small businesses. You will manage two households, two sets of expectations, and one shared wall. Noise complaints, parking disputes and uneven maintenance expectations are the ordinary texture of duplex ownership, and a property manager who understands small buildings is worth the fee in a market this dense.

Reserves matter more than the loan documents suggest. A century-old duplex will produce a sewer line, a roof, or a furnace in the first several years with near certainty. Holding a real capital reserve — separate from the lender’s required reserves — is what separates an investor who keeps the property through a bad year from one who sells into a soft market.