The 10-Loan Cap: Pay Off or Switch to DSCR?
You're at Fannie's 10-loan ceiling and a deal lands in your inbox. Pay off a paid-down rental, switch to DSCR, or split the portfolio? Run the numbers.
You own ten financed rentals across two metros. They cash flow. The portfolio is healthy. You've spent four years getting here.
Your loan officer just called. A 4-unit small multi lands in your inbox tomorrow at $1.4M. Going-in cap rate 7.2%. You've been waiting for this size of deal for two years.
Then you check your file. The paperwork breaks down like this:
- Properties owned: 10 (all financed)
- Conventional Fannie/Freddie loans: 10 of 10 used
- Aggregate equity: ~$680K
- Average rate on existing notes: 4.6% (locked in 2020-2022)
- Smallest remaining balance: $74,000 on a Cleveland duplex (29 months from payoff)
Fannie Mae caps a single borrower at 10 financed properties. You're at the wall.
The 4-unit fits Fannie's investor program — but you're at 10 of 10 slots. Acquiring it is structurally a slot question, not a financing-shop question.
Your three options price out roughly like this:
- Pay off Cleveland duplex: $74K cash → free 1 conventional slot → 4-unit goes Fannie at 6.8% investor rate
- DSCR loan on the 4-unit: No slot needed → 7.6% rate, 25% down ($350K), 1.20 DSCR minimum
- Refinance one rental into DSCR: Move a rental off the conventional ledger → free a slot → 4-unit goes Fannie at 6.8%
The 4.6% notes you already hold are the cheapest money you'll ever see. Touching them costs you something.
Pay off the Cleveland duplex. Write a $74K check, free a conventional slot, take the 4-unit at the 6.8% Fannie investor rate. The lowest rate on the new loan, but you've burned $74K of liquidity and accelerated a payoff you'd otherwise let amortize.
Take the 4-unit on a DSCR loan. Skip the slot question entirely. 7.6% rate (about 80 bps over Fannie), 25% down, no personal income docs, no DTI math. You preserve the $74K in cash but pay roughly $8,600 more in interest over the first year on the new note.
Refinance one existing rental into DSCR to free a slot. Move your highest-rate, lowest-cash-flow conventional note off the Fannie ledger, take the 4-unit at the 6.8% Fannie rate. The 4-unit gets the cheapest money. The refi'd property gets more expensive — but you keep your liquidity and the slot capacity.
The Optimization Trap
Most investors at the 10-loan cap reach for Option A because the math looks clean. Pay off $74K, get a 6.8% rate on a $1.4M deal, save 80 basis points versus DSCR. On the $1,050,000 loan that's about $8,600 in first-year interest savings — real money, but a fraction of what the property-price math instinct suggests.
But you didn't get $8,600 for free. You spent $74,000 to capture it.
The Cleveland duplex was already amortizing. In 29 months it would have paid itself off — without you writing a check. By accelerating the payoff, you converted $74K of liquid capital into ~$5,000/year in eliminated mortgage payments on the duplex ($415/month × 12) plus the rate savings on the new deal. Total payback: roughly 5–6 years on the cash deployed. Acceptable, but you've also drained your acquisition fund. The next deal that lands — and there's always a next deal — has to wait.
Why Option B Is Often the Right Wrong Answer
Option B preserves the $74K. That matters more than the rate spread.
A DSCR loan on the 4-unit at 7.6% costs about $80,000 in annual interest versus $71,400 at 6.8%. The $8,600 spread is real. So is the math on what $74K of preserved liquidity does over the same period: at the 7.2% going-in cap rate of the next deal you'll find, $74K covers a 25% down payment on a $296K acquisition. At that cap rate the property's NOI is ~$21K; after debt service on the $222K loan at 7%, it nets ~$5,000 in cash flow year one. Net of the $8,600 you "lost" on the rate spread, you're up $74K in productive equity and net cash flow that wouldn't have existed.
The underwriting rule is simple. Optimize the portfolio's cost of capital, not any single loan's rate.
Why Option C Is the Move
The trick is which conventional note to refi out. Look at your file for the property with the highest rate, lowest cash flow, and smallest principal balance. That's the one where moving to DSCR costs you the least. You're not refinancing the 3.875% Phoenix house with $190K in equity — you're refinancing the 5.5% Indianapolis townhome with $48K in equity that's barely cash flowing.
Run the spread. If the Indianapolis townhome's rate goes from 5.5% to 7.6% on a $145K balance, that's roughly $3,000 a year more in interest. Compare that to the $8,600 you save by putting the 4-unit on a Fannie note at 6.8% instead of DSCR at 7.6%. Net portfolio savings: about $5,600 per year. And the $74K stays liquid.
You've also created structural optionality. If rates drop in 18 months, the DSCR'd Indianapolis townhome can refi into a conventional loan at the new market rate — Fannie has no opinion about a property that previously had non-conforming financing. You're not locked out.
When Option A Actually Wins
One scenario flips the calculus: you're already cash-rich, rates are climbing, and the duplex has 29 months to go. If you have $200K+ sitting in a HELOC or a savings ladder doing nothing productive, paying off the duplex isn't a liquidity drain — it's a yield play. The eliminated $415/month payment on the duplex is a guaranteed 6.7% return on the $74K. Beats a CD.
But if the $74K is your acquisition fund — the cash you've been hoarding for the next deal — leave it alone.
The Real Question
The 10-loan cap forces a portfolio-level decision that the next deal masks. Most investors only think about how to finance the new property. The right question is: what's my blended cost of capital after the next two deals close, not just this one?
Pay off the duplex if liquidity is abundant. Take DSCR on the new deal if it's not. Refi an existing note into DSCR if you want to keep both the cheap rate on the new deal and the cash for the deal after this one.
The wall isn't 10 loans. It's the discipline to optimize the whole portfolio instead of the loan in front of you.
- Fannie's 10-loan cap is a hard ceiling — at the 11th property, financing changes shape regardless of which path you pick
- DSCR loans cost roughly 50-100 bps more than Fannie investor rates and require no personal income docs
- The cheapest dollar you have is a 4.6% locked note from 2020-2022 — touching it has a real opportunity cost
- Optimizing the new deal's rate isn't the same as optimizing the portfolio's blended cost of capital
- Liquidity is its own asset class — preserving cash for the next deal often beats saving 80 bps on this one
