ATTOM’s latest annual “Single-Family Rental Market” report, released in March 2026, confirmed what many private lenders and investors have been seeing for several quarters: Rental yields are tightening across much of the country, even as rents and wages continue to rise. On paper, that seems like a contradiction. In reality, investors are paying more to acquire and operate properties at a time when renters have less room in their budgets to absorb higher rents.

Although this shift is creating challenges, it does not mean opportunities are disappearing. It only means that investors who relied on rapid appreciation to make deals work now must evaluate deals more carefully, rethink where they buy, and pursue strategies that deliver value in different ways. And it means private lenders must adjust as well.

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As the ATTOM report lays out, rents are still rising in many markets, but they are not keeping pace with higher acquisition costs due to rising home prices.

From 2025 to 2026, median rents increased faster than home prices in 55% of the counties analyzed, underscoring that rent growth has remained positive over the past year. At the same time, acquisition costs have risen to record levels, with the national median home price reaching $360,000 in 2025. According to ATTOM’s “Q1 2026 U.S. Home Affordability Report,” that’s an 8% increase since first-quarter 2024.

But higher acquisition costs do not explain the full picture. In many markets, property taxes and insurance premiums have also increased dramatically during the past few years. According to a recent analysis by the National Association of Realtors, homeowners’ insurance alone increased by roughly 41% between 2019 and 2024, although there have been reports of premiums rising as much as 300% in some markets. Federal Reserve data shows the average homeowner spent about $2,300 a year on insurance in 2024, or roughly 2.7% of median household income, up from about 2% before the pandemic.

The economy and a softer labor market are also playing a role. Recent U.S. Labor reports have alternated between positive and negative job growth month-to-month. A recent Gallup poll found that in the fourth-quarter of 2025, 49% of U.S. workers reported struggling in their lives, up from 43% in the first quarter of 2022, while only 28% believed it’s a good time to find a quality job, down from 70% in the second quarter of 2022. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index increased 3.3% over the 12 months ending in March 2026, while gasoline prices rose 18.9% over the same period. Federal Reserve policymakers expect full-year 2026 inflation to moderate to 2.7%.

Generally, rising operating costs are having the most impact on the DSCR market because they directly reduce cash flow. Higher acquisition costs remain a key constraint, particularly in markets where home prices have surged, while slower rent growth is not the primary driver of yield compression in most markets.

What is clear is that the rental market is shifting. But in some ways, it’s also becoming normalized after a period of extraordinary growth following the COVID pandemic. Prior to the pandemic, U.S. home prices increased at an annual rate of about 5-6%, according to Federal Housing Finance Agency House Price Index (HPI) data. By comparison, home prices grew by 18.02% year over year in 2021 and 10.9% in 2022 before moderating in subsequent years. In 2025, the HPI rose only by 3.37%.

Enormous home price gains created an environment where investors could often rely on appreciation to support the economics of an acquisition. Now that rental yields are tightening and appreciation has slowed, investors are taking a more disciplined approach to their acquisition strategies—focusing less on short-term appreciation and more on the fundamentals of each deal.

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When rental yields tighten, how financing is structured becomes far more important to whether a transaction works. Gross rental yield is based on rent relative to property value, while net rental yield—which accounts for operating expenses—is typically what lenders focus on when evaluating deal performance. One area where this is clearly visible is in how lenders approach debt service coverage ratio thresholds. Structuring loan-to-value requirements around a 1.0x DSCR, calculated as net operating income divided by total debt service, has become the reasonable baseline expectation. Lower ratios, such as 0.65x or 0.75x that were common before COVID, have become a much bigger ask.

Historically, DSCR loans were often underwritten below 1.0, but today most lenders are looking for deals that can support at or above a 1.0, with stronger deals trending closer to 1.1 or higher. This shift is closely tied to rental yields. Before the pandemic, ATTOM reported average gross rental yields of 8.6% in 2019 and 8.4% in 2020. At the time, lenders were often comfortable underwriting below 1.0 DSCR.

Liquidity has also taken on greater importance. When borrowers bring additional reserves to a transaction, it can offset tighter DSCR calculations and provide lenders with a clearer picture of the borrower’s ability to support the property.  Historically, lenders were often comfortable with more limited reserves when yields were higher—often a few months of payments. Today, many lenders expect borrowers to carry six to 12 months of payments to absorb fluctuations in operating expenses.

Payment structures are also changing. Interest-only terms are one tool lenders are using to help investors qualify for financing while maintaining the leverage they seek. By lowering the initial payment burden, these structures can make it easier for investors to get into a deal and stabilize a property, particularly in situations involving tenant turnover. Word to the wise: interest-only payments can create increased risk on payoff or refinance. Consider carefully how well the exit plan pencils out.

Local tax policy can also influence how both lenders and investors evaluate rental opportunities. In some jurisdictions, tax abatement programs can temporarily reduce property tax expenses during the early years of ownership. This matters because many investors refinance within the first three to five years of a loan. If a property is covered by a longer tax abatement period, investors may be able to refinance before higher tax costs materially affect the deal.

Tax abatement programs can vary significantly from one county or city to the next, but they are fairly common. According to Good Jobs First, a nonprofit research and policy organization, about 53% of the 801 jurisdictions it examined disclosed tax abatement programs, although the true number is likely higher. They are widely used as economic development tools, particularly in urban and redevelopment-focused markets.

Altogether, these factors have raised the bar for what constitutes a viable DSCR loan. DSCR volume continues to grow, but the composition of deals is shifting. In most cases, deals now need to underwrite at or above a 1.0 times DSCR using more conservative rent and expense assumptions and stronger borrower liquidity. Lower DSCR structures are still possible, but they typically require compensating factors such as lower leverage and higher reserves.

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Tightening rental yields are also changing how investors finance deals and where they are finding the strongest opportunities, particularly through a combination of DSCR and residential transition loan strategies.

Although DSCR loan volume continues to grow, tighter yields and rising operating costs are making marginal deals harder to justify, particularly on older properties. Rather than moving away from DSCR loans, some investors are using residential transition loans (RTLs)—short-term financing designed to fund property improvements before transitioning into longer-term permanent financing—to improve a property’s cash flow profile before moving into DSCR financing at a later date. RTLs allow lenders to qualify a property quickly while giving the investor time to complete upgrades that can meaningfully improve rents, tenant quality, and overall property performance.

We are also seeing growing interest among investors in infill properties where surrounding homes have already been improved. According to the Urban Institute, an estimated 2.2 million vacant single-family homes nationwide could be rehabilitated, while more than 330,000 occupied single-family rental homes are considered severely inadequate. For investors, these numbers point to significant opportunities to acquire and update aging housing stock in markets where even modest improvements can help a property’s competitive position and cash flow profile.

Another aspect of RTL investing is the role it plays in extending the useful life of aging housing stock. Many communities across the country have a significant number of homes that are older but still structurally viable. Renovating those properties helps address housing supply challenges in markets where new construction remains limited.

Finally, higher acquisition costs are pushing investors to look beyond traditionally expensive coastal markets. The Midwest and other lower-cost regions are attracting growing interest because the underlying deal math is more favorable: Lower entry prices relative to rents create more room for deals to work even under tighter yield conditions.

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As the rental market evolves, the type of lending partner that real estate investors choose is more important than ever. For instance, in DSCR lending, experienced lenders often consider a range of factors beyond the ratio itself, including the borrower’s credit profile, liquidity, and experience managing rental properties. In some cases, a FICO exception can be made, so the DSCR pencils. Experienced leaders understand that compensating factors can offset a weaker ratio, and structuring around those is often what separates a deal that closes from a missed opportunity.

A growing demand for more specialized financing options is also why many investors are moving away from independent mortgage banks that primarily focus on owner-occupied loans and typically do not offer many BPL options. According to a February 2026 report from the American Enterprise Institute, about 40% of small-investor purchases between 2018 and 2024 were financed through Fannie Mae and Freddie Mac. However, private lenders accounted for roughly 68% of conventional investor loan originations below the conforming loan limit in 2024, which indicates strong demand for financing outside traditional IMB channels. For certain acquisitions, many investors will transition a fix-and-flip acquisition into a long-term rental, yet many traditional IMBs are not equipped to accommodate this shift.

At the same time, more IMBs are entering the investor space, which means private lenders must be able to match the speed and technology experience that IMB borrowers are used to. Investors increasingly expect an efficient process, faster approvals, and fewer operational bottlenecks from their financing partner. Increasingly, well-capitalized private lenders are using offshore resources, AI, and other tools to lower underwriting costs, offer more competitive pricing, and compete in ways that IMBs and smaller lenders often cannot.

Product depth also matters. Because many conventional lenders do not even offer RTL products, large private lenders that offer both DSCR and RTL financing are often better positioned to accommodate different investment strategies. They may also offer blanket loans, portfolio loans, and cross-collateralized financing structures, and are often better equipped to finance deals involving trusts, layered entities, and other legally complex borrower structures. Although many conventional lenders avoid such transactions because they create extra complexity, many sophisticated private lenders have the legal resources to handle them.

As more investors adapt to tighter yields and more selective underwriting environments, lenders must also adapt by focusing more closely on product fit, operational efficiency, and borrowers’ ability to execute their investment strategy. In compressed market environments, lenders should focus on three areas: technology that reduces operational cost, speed, and credit risk challenges; increasing innovative product offerings; and capitalizing on opportunities disguised as market challenges.