A Redondo Beach Building at 4.1% Cap: What the DSCR Math Actually Looks Like

Published July 26, 2026

At a 4.1% cap rate and today's roughly 6.75% DSCR rate, a Redondo Beach apartment deal often can't support a standard 75% loan. Here is the math on why.

Redondo Beach small apartment buildings are trading around a 4.1% cap rate. Current DSCR loan rates for a well qualified borrower run near 6.75%. Run those two numbers together and a standard 75% loan to value purchase often will not cash flow. This is illustrative math, not a specific deal, but the shape of it matters if you are underwriting anything here right now.

The two numbers, and where they came from

I covered the 4.1% cap rate and roughly $406,216 per unit pricing in an earlier post, sourced from Bluechip Investment Group's Redondo Beach guide, which also reports about $80.4 million in trailing 12 month sales volume across 198 units, with buildings closing about 4.2% under original asking. That post looked at what the pricing means from the sell side. This one looks at it from the financing side, because a cap rate by itself does not tell you whether a purchase actually works once you add debt.

For the debt side, I pulled the current rate table from DSCR Authority, which lists a blended market baseline of about 6.75% for a 30 year fixed DSCR loan, 720 FICO, 75% loan to value, standard tier assuming a debt service coverage ratio of 1.00 to 1.24. A DSCR loan is underwritten mostly off the property's own income rather than the borrower's personal income, which is exactly why the coverage ratio matters so much here. The lender wants the building's net operating income to cover the mortgage payment by a comfortable margin, not just break even.

The worked example

I want to be clear this is a hypothetical, built off the market averages above, not a specific listing or closed sale. Take an 8 unit building priced at the market average, about $3,250,000, roughly $406,000 a door. At a 4.1% cap rate, that pencils to about $133,250 a year in net operating income, call it $11,100 a month.

Now price a standard DSCR loan against it. At 75% loan to value, that is a $2,437,500 loan. At 6.75% fixed over 30 years, the monthly principal and interest payment comes out to roughly $15,800, or about $189,700 a year. Divide the building's income by that payment and you get a debt service coverage ratio around 0.70. Most DSCR lenders, including the standard tier described above, want to see 1.00 or better. This building, at this price and this rate, does not qualify for that loan.

So what would actually work? Solving backward, the loan would need to shrink to somewhere around $1,710,000, about 53% of the purchase price, before the building's income covers the payment at a 1.00 ratio. That means a down payment closer to $1,540,000, roughly 47% of the price, instead of the usual 25%. Push the target to a more comfortable 1.25 ratio, which some lenders price better, and the loan shrinks further to around $1,370,000, about 42% loan to value, with a down payment near $1,880,000.

What that does to actual cash on cash return

Qualifying for the loan is only half the question. The other half is what a buyer actually walks away with each year once the mortgage is paid. At the 53% loan to value scenario above, the $1,710,000 loan carries a monthly principal and interest payment of roughly $11,090, or about $133,100 a year, which is almost exactly the building's $133,250 in net operating income. That buyer qualifies, but they are left with next to nothing in year one cash flow after debt service. Every dollar of the deal's return, in that scenario, comes from appreciation and rent growth over time, not from cash in hand today.

Move to the more conservative 1.25 ratio and the picture changes. On the $1,370,000 loan, the annual payment runs closer to $106,600, leaving roughly $26,600 a year in cash flow against a $1,880,000 down payment. That works out to a cash on cash return a little above 1 percent, thin by most investor standards, but at least a positive number instead of a wash. Compare that to the 25% down structure most buyers assume they can use, and the difference is stark. The math is not saying Redondo deals cannot work. It is saying the buyer has to decide, before making an offer, whether they are underwriting for income today or value tomorrow, because at today's cap rates and rates, a single deal rarely delivers both.

What this means for your building

If you already own here, none of this changes your existing mortgage or your income. What it tells you is what a new buyer is actually up against, which matters if you are ever the seller. A buyer chasing a 4.1% cap rate at today's DSCR rates cannot use standard leverage and get a loan that qualifies. They either bring far more cash than a typical 25% down deal, negotiate a lower price, look at an interest only structure, or accept close to zero cash flow in year one and underwrite the purchase on appreciation and rent growth instead of current income. All of those buyers exist in this market, which is part of why pricing here has stayed tight even as rates moved up. But it does mean the buyer pool for a fully leveraged purchase is thinner than the raw cap rate might suggest.

If you are the one buying, whether adding to a portfolio or moving equity from another property, this is the math worth running before you write an offer, not after. A 4.1% cap rate and a 6.75% rate can both be accurate and still mean a deal has close to no cash on cash return at standard leverage. That is not a reason to walk away from Redondo. It is a reason to know upfront whether you are underwriting for cash flow or for appreciation, and to size your down payment accordingly.

Common questions

Does a low DSCR ratio mean the deal is bad? Not automatically. It means the deal will not qualify for a standard 75% loan to value DSCR loan at that price and rate. Buyers who can put more cash down, negotiate price, or accept thinner year one cash flow can still make it work. It is a financing constraint, not a verdict on the building.

Why is the DSCR rate higher than a conventional owner occupied mortgage rate? DSCR loans are underwritten off the property's income rather than the borrower's personal income and tax returns, which is more flexible for investors but carries more risk for the lender, and that risk is priced into the rate. The 6.75% figure here is the blended baseline for a well qualified 720 FICO, 75% LTV borrower; actual quotes vary by lender and structure.

Is this the math for an actual Redondo Beach listing? No. This is a hypothetical example built from published market averages, an 8 unit building priced near the reported average price per door and cap rate, used to illustrate how the numbers interact. Any real purchase needs its own underwriting against the actual rent roll, expenses, and a live rate quote.

Last verified: July 25, 2026, against the sources linked above. This is general information for property owners, not lending, investment, or legal advice. Confirm current rates, qualification terms, and deal specific underwriting with a licensed lender or financial professional before acting.

Kellie

Schofield Properties

323 Richmond Street, El Segundo, CA 90245

Topics: investing, redondo-beach, south-bay, market-trends

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