Thinking about buying an Airbnb in Indio and wondering how investors qualify without traditional W-2 income? You are not alone. In event-driven markets like the Coachella Valley, many buyers use DSCR loans that look at the property’s rental cash flow rather than personal income. In this guide, you will learn how DSCR loans work, how lenders size short-term rental income in Indio and Palm Desert, and what to prepare to get confident, fast approvals. Let’s dive in.
What is a DSCR loan
A DSCR loan qualifies you using the property’s ability to cover its debt payments. Lenders compare the property’s rental income to the annual debt service, often summarized as PITIA: principal, interest, taxes, insurance, and HOA where applicable. The formula is simple: DSCR = rental income ÷ annual debt service. A DSCR above 1.0 means income covers debt, and many lenders prefer a cushion around 1.0 to 1.25 for short-term rentals. For a quick refresher on the ratio, see the DSCR definition from Investopedia.
Why DSCR fits Indio STRs
Indio’s revenue is highly seasonal and event driven. Coachella and Stagecoach bring peak demand, while shoulder seasons slow down. Lenders know this and design programs that rely on property-level cash flow and normalized averages, not just peak-month results. Regional tourism data confirms strong demand drivers across Greater Palm Springs, including festivals and winter travel, which supports underwriting assumptions for STR performance (visitor spending context).
How lenders size STR income
Accepted income sources
- 12 months of Airbnb or VRBO statements if available.
- Third-party market reports like AirDNA’s Rentalizer when history is limited. Many DSCR lenders use or accept these projections. See the STR lending overview from AirDNA.
- An appraiser’s rent schedule that converts nightly rates and occupancy into annual revenue.
Seasonality adjustments
- Underwriters normalize for Indio’s event spikes and off-season periods.
- They may use multi-year averages, reduce projected occupancy, or set floors and caps.
- The goal is a sustainable revenue number for DSCR, not a one-time festival surge.
What expenses they deduct
- Local taxes and assessments reduce the income used in DSCR. In Indio, operators remit a Transient Occupancy Tax around 13 percent (Indio TOT guidance). In Palm Desert, most stays owe 11 percent TOT plus a 1 percent TBID assessment (Palm Desert TOT and TBID).
- Property management fees if you use a professional manager. Full-service fees in vacation markets commonly fall in the mid-teens to mid-20s as a percent of gross revenue (fee ranges overview).
- Cleaning, utilities, supplies, maintenance, HOA dues, insurance, and permit fees. Lenders either estimate line items or apply a standard expense ratio.
Local rules that impact approval
Indio requirements
- You must obtain and renew a city short-term rental permit before operating or advertising an STR. The city also requires registration for TOT reporting and remittance. Review the city’s program details and application steps on the Indio STR permits page.
- Lenders often verify permit status or eligibility because legal compliance affects income stability and DSCR.
Palm Desert differences
- Palm Desert maintains an STR eligibility map and specific operating standards. Some areas have restrictions. See the Palm Desert STR planning page.
- Palm Desert also requires 11 percent TOT and a 1 percent TBID assessment for most STR stays, with monthly returns required even with no activity (Palm Desert tax guidance).
Typical terms to expect
Program terms vary by lender and your profile, but here is what is common for STR-focused DSCR loans:
- Minimum DSCR: often 1.00 to 1.25, with stronger pricing above 1.25.
- Loan-to-value: typically 70 to 80 percent. Some lenders cap at 70 to 75 percent for new STR operators.
- Credit score: many programs start around 640 to 700, with better terms at higher scores.
- Reserves and history: several months of reserves and 6 to 12 months of operating history can help. Without history, expect reliance on third-party projections.
- Documentation: fewer personal income documents. Lenders focus on credit, assets, STR income evidence, and entity details if using an LLC. For STR-specific program practices, review examples from Easy Street Capital.
What to prepare for a smooth approval
- 12 months of Airbnb or VRBO statements, if available, showing gross revenue and fees.
- Proof of Indio STR permit application or active permit, plus TOT registration.
- AirDNA or appraiser rental report if the property is new to STRs.
- A draft operating budget that includes TOT, management, cleaning, utilities, maintenance, HOA, insurance, and permit fees.
- Insurance quotes for STR coverage. Standard homeowner policies often exclude business activity, so plan for STR-specific endorsements or policies (insurance overview).
- Entity documents if purchasing in an LLC. Many DSCR lenders allow entity title with personal guarantees.
Simple DSCR example
Below is a hypothetical example to show the math. Use it as a guide when building your own pro forma.
- Gross projected STR revenue after platform fees: 120,000 dollars per year
- Indio TOT at 13 percent: subtract 15,600 dollars → remaining 104,400 dollars
- Professional management at 18 percent: subtract 18,792 dollars → remaining 85,608 dollars
- Other operating costs (cleaning, utilities, maintenance): subtract 12,000 dollars → Net operating income ≈ 73,608 dollars
- Annual PITIA: 60,000 dollars
DSCR = 73,608 ÷ 60,000 ≈ 1.23. That is in range for many programs, though some lenders want 1.25 or higher for best pricing. Always confirm the lender’s exact calculation method and expense assumptions.
Common pitfalls to avoid
- Skipping permit checks. Confirm eligibility and requirements before you write an offer.
- Using peak festival revenue without normalizing for the off-season.
- Ignoring TOT, TBID, and permit fees in your income model.
- Relying on platform protections in place of proper STR insurance. Lenders and cities expect adequate coverage (insurance basics).
Your next step
If you want an STR in Indio that both pencils and delights, start with a clean DSCR plan. We can help you source eligible properties, model cash flow with local taxes and seasonality, and align the purchase with lenders who understand event markets. When you are ready to run the numbers and tour the right homes, connect with the Jacobellis Group - Bayside Real Estate Partners.
FAQs
What is a DSCR loan for Indio short-term rentals?
- A DSCR loan qualifies you based on the property’s rental income compared with annual debt payments, not your W-2 income, and many lenders want a DSCR near or above 1.0 to 1.25.
Do I need an STR permit before closing in Indio?
- You should confirm eligibility and requirements early because lenders consider permit compliance. Indio requires an STR permit and TOT registration before operating or advertising.
How do Indio and Palm Desert taxes affect my loan math?
- These taxes reduce usable income for DSCR. Indio’s TOT is around 13 percent, while Palm Desert requires 11 percent TOT plus a 1 percent TBID assessment on most stays.
Can I use projected Airbnb income if the property has no history?
- Many STR DSCR lenders accept third-party projections like AirDNA or an appraiser’s rent schedule when there is limited or no operating history.
Can I buy an Indio STR in an LLC with a DSCR loan?
- Many programs allow entity title with personal guarantees. Bring your entity documents so underwriting can confirm structure and guarantors.
