Why Your DSCR Loan Will Get Accepted

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Why Your DSCR Loan Will Get Accepted

Get your DSCR loan accepted today! DSCR loans are based off of LTV, which is 75% for rate and term and 80% for purchase. However, you need to calculate the break even point as well before purchasing the property. The break even point can limit how much you can get out of the property, as well as requires you put more money in at purchase. Let’s take a closer look at the numbers to see how you can get your DSCR loan accepted! 

What do you need to know before purchasing a property?

Investors use the BRRRR strategy for rental properties and creates an easy way to build a portfolio. However complications arise when refinancing the property. While investors expect to refinance out at 75% to 80%, it doesn’t always work as planned. This is due to the fact that the DSCR ratio comes into play. The DSCR ratio limits the amount that you can get out of the property. That is why it is important to know your numbers before purchasing the property or prior to refinancing. By calculating the break even point on your DSCR ratio you will create the cash flow you need to succeed.

Example: One property qualifies and one does not.

It is important to take everything into consideration to see whether or not the property qualifies. The numbers that you need to consider include taxes, property insurance, flood insurance (when applicable), and HOA (when applicable). Remember, in order to qualify for a DSCR loan the rent needs to be greater than or equal to the expenses. To demonstrate the break even point today we will compare two properties that have the same property value, loan amount, and monthly payment.

Value of the property Loan amount  Monthly payment 
$200K $150K $1,050
Property A Property B 
Taxes: $1,800 $3,600
Property insurance: $1,200 $3,600
Flood insurance: $0 $0
HOA:  $0 $0
Total $3,000 $7,200

In conclusion,

Always run the numbers prior to purchasing the property to find the break even point.  The break even point affects your ability to refinance the property later on. Keep in mind that every property will be different and every location will be different as well.

Do you have any questions or want to run through some numbers reach out to us! We are happy to work through the numbers with you to ensure that the property will be a good investment.

Watch our most recent video to find out more about Why Your DSCR Loan Will Get Accepted!

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DSCR Loan Options: Interest-Only

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DSCR Loan Options: Interest-Only

Today we are going to explore the interest only DSCR loan option. It is important that people look at all of their options when they are searching for a DSCR loan in order to find the best one for your property. While rents are increasing, they are thankfully not increasing very fast. However, rates are still high and are falling between 7 and 8. These are the times when you really need to work your numbers and products in order to find the right DSCR loan for your rental property.  

Are you above the break even point for DSCR ratios?

A DSCR loan has always been a 30 year product, meaning that it is amortized over 30 years. However, there are other options out there that will typically give you the benefit of qualifying. Here at The Cash Flow Company, we typically see people who are just below the break even point on DSCR ratios. Just to clarify, the break even point on DSCR ratios is normally 1 or 1.1 depending on the lender. 

How do you change the numbers in your favor?

Many investors are wondering how they can change their numbers even when rents, taxes, and insurance are not going to change. In order to make an impact on your numbers you are going to have to change your interest rate, look at interest only loans, or find a 40 year product. By looking outside of the typical 30 year box, you will be able to find a number that fits your property. 

Let’s look at an interest only loan.

An interest only DSCR loan means that you are only paying the interest on the property for a period of time during that loan. Normally these loans are available for 5, 7, or 10 years. While you’re not paying down on the property, you are instead creating the cash flow you need to qualify. 

Loan amount $250K
Net Rent $1,725
Interest only loan 7.65%
Monthly payment $1,594
Break even point (Rents – Monthly payment) + $131

On this property, the expenses are under the break even point by $131. For an interest only loan this property would qualify because it is cash flowing. 

Set yourself up for success.

There is no reason to get into real estate investing unless you are creating wealth by creating cash flow. Just to clarify, creating wealth is setting yourself up for long term success, while cash flow is what you are creating right now. It is important that you not only look at making the right moves now, but also understand how everything will line up for the future. For example, a property that was purchased for $25K 20 years ago is now worth $400K. There is a lot of money to be made in real estate investing. Set yourself up for success by going through the numbers and focusing on finding the best product. 

There is a downside.

By using an interest only loan or an amortized loan you will be paying it down slower. However, over time the property will go up in value. This helps to balance things back out when the time comes to sell the property. In these different times you have to use different strategies in order to be successful. For example, when rates are a little higher, you need to find a product that will break even or better yet cash flow. When the rates go back down you can then refinance it and get a better payment. Keep in mind that  what may appear as a downside now, could be beneficial later as long as the property breaks even.

Start looking for the best product for you!

Now is the time to look into different products to see which is best for you and your property. By using an interest only DSCR loan you will create the cash flow you need to succeed. Here at The Cash Flow Company we want to help you find the best product for you! Contact us today to walk through the numbers.

Watch our most recent video to find out more about DSCR Loan Options: Interest-Only

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DSCR Loans: 3 Most Common Questions Answered

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DSCR Loans: 3 Most Common Questions Answered

Here at The Cash Flow Company we receive questions daily regarding DSCR loans. Today we are going to focus on the 3 most common questions and give you the answers you need to succeed. 

First, can you use a DSCR loan for a multiplex?

While there are fewer lenders who offer loans for multiplexes, there are still options available to you. DSCR loans do exist for 5 or more units and include commercial properties as well. However, you need to make sure that at least 50% of the property is residential. 

Second, what documents do you need for a DSCR loan?

Unlike traditional loans, DSCR loans are easy to process. The items that you will need for a DSCR loan include a lease agreement, operating agreement, appraisal, expenses, and reserves. To clarify, expenses include taxes, insurance, HOA, and flood insurance. Reserves on the other hand include bank statements, retirement funds, and investments. 

Finally, what happens if the rental doesn’t break even?

Most lenders want the properties to break-even. Breaking even means that your income can cover your expenses. Income is the rent that you are receiving for the property. Expenses included the mortgage, insurance, taxes, HOA, and flood. If you divide the income by the expenses, it should equal 1, which is the break-even point. However some lenders are okay with deals that have a ratio that is less than 1. Lenders understand that sometimes investors just need to get out of a bad loan. In this case, they offer higher rates and lower LTV’s. 

Do you have any questions regarding DSCR loans? Contact us today to find out how a DSCR loan can help you succeed in real estate investing! 

Watch our most recent clip to find out more about DSCR Loans: 3 Most Common Questions Answered.

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The Best Way to Find a DSCR Loan For Your Investment

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The Best Way to Find a DSCR Loan For Your Investment

Today we are going to discuss the best way to find a DSCR loan for your investment property. Unlike Fannie and Freddie, or traditional lenders, DSCR loans do not have the same guidelines. Instead, DSCR loans are regulated by a few big investors and do not force people to fit into a computerized box. This creates the opportunity for investors to find the perfect loan to meet their needs. What is the best way to find a DSCR loan? Let’s take a closer look.

Every lender is different.

Every DSCR lender is different and they each have their own guidelines that they follow. While a lot of lenders will only do 1 to 4 units, others will be more adventurous and do commercial properties.  For these lenders, you either fit in their box or you don’t. All DSCR lenders are not the same, they don’t always look the same, and most importantly they are not priced the same. It is important to keep this in mind when you are looking and shopping for DSCR loans.  Shopping around for the best loan to fit your needs is especially important if you have something unique. 

What to look for?

Keep in mind all of your options when looking at DSCR loans. This includes the pricing, rules, and regulations, which can vary depending on the lender. Here at The Cash Flow Company we have between 7 and 10 different places that we work with for DSCR loans. That is because not every DSCR loan type will fit in every lender’s box. For example, we are doing a portfolio for a customer who has a 12 plex, 4 plex, and a couple single family properties. The borrower only wants one loan. Another customer is doing 3 single family properties, but two are very unique situations. One is a pad split, another is a contract for a deed. Our goal for both customers is to find a lender that can do all of these properties in one loan. By finding the right DSCR lender, the sky’s the limit to your success.

We are here to help!

Are you in need of a DSCR loan for a unique property? Here at The Cash Flow Company we are happy to run through the numbers to see which loan is best for you. Most importantly, there is no need to run your credit! Don’t get stressed trying to fit into a lending box! Keep your options open and find the right DSCR lender today! 

Contact us today to find out more about DSCR loans! 

Watch our most recent video about: “The Best Way to Find a DSCR Loan For Your Investment” 

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How to Make a DSCR Loan Work for Your Rental Property

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How to Make a DSCR Loan Work for Your Rental Property

It is important that people look at all of their options when they are searching for a DSCR loan. While rents are increasing, they are thankfully not increasing very fast. However, rates are still high and are falling between 7 and 8. These are the times when you really need to work your numbers and products in order to find the right DSCR loan for your rental property.  

Are you above the break even point for DSCR ratios?

A DSCR loan has always been a 30 year product, meaning that it is amortized over 30 years. However, there are other options out there that will typically give you the benefit of qualifying. Here at The Cash Flow Company, we typically see people who are just below the break even point on DSCR ratios. Just to clarify, the break even point on DSCR ratios is normally 1 or 1.1 depending on the lender. 

How do you change the numbers in your favor?

Many investors are wondering how they can change their numbers even when rents, taxes, and insurance are not going to change. In order to make an impact on your numbers you are going to have to change your interest rate, look at interest only loans, or find a 40 year product. By looking outside of the typical 30 year box, you will be able to find a number that fits your property. 

Let’s look at a 30 year loan:

DSCR expenses include your principle, interest, taxes, insurance, flood insurance, and HOA. These can also be referred to as your expenses for the property.

Today we are just going to focus on principal and interest, or your Net Rent. 

Loan amount $250K
Net Rent $1,725
30 year loan 7.65%
Monthly payment $1,774
Break even point (Rents – Monthly payment) -$50

On this property, the expenses are $50 over the break even point. For a 30 year product, this property would not qualify.

Let’s look at an interest only loan.

Just to clarify, interest only means that you are only paying the interest on the property for a period of time during that loan. Normally these loans are available for 5, 7, or 10 years. While you’re not paying down on the property, you are instead creating the cash flow you need to qualify. 

Loan amount $250K
Net Rent $1,725
Interest only loan 7.65%
Monthly payment $1,594
Break even point (Rents – Monthly payment) + $131

On this property, the expenses are under the break even point by $131. For an interest only loan this property would qualify because it is cash flowing. 

Let’s look at a 40 year loan.

A 40 year loan is an amortized loan, which just means that it takes longer to pay off. 

Loan amount $250K
Net Rent $1,725
40 year loan 7.65%
Monthly payment $1,673
Break even point (Rents – Monthly payment) + $52

The difference between a 30 year loan and a 40 year loan on this property is  $101. 

Set yourself up for success.

There is no reason to get into real estate investing unless you are creating wealth by creating cash flow. Just to clarify, creating wealth is setting yourself up for long term success, while cash flow is what you are creating right now. It is important that you not only look at making the right moves now, but also understand how everything will line up for the future. For example, a property that was purchased for $25K 20 years ago is now worth $400K. There is a lot of money to be made in real estate investing. Set yourself up for success by going through the numbers and focusing on finding the best product. 

There is a downside.

By using an interest only loan or an amortized loan you will be paying it down slower. However, over time the property will go up in value. This helps to balance things back out when the time comes to sell the property. In these different times you have to use different strategies in order to be successful. For example, when rates are a little higher, you need to find a product that will break even or better yet cash flow. When the rates go back down you can then refinance it and get a better payment. Keep in mind that  what may appear as a downside now, could be beneficial later as long as the property breaks even.

Building your foundation.

Here at The Cash Flow Company we want to help you qualify! By using this next example, you could not only have the opportunity to get into one property, but build your investment future. Real estate investing is truly one of the most reliable forms of investment. It is a long term investment with excellent opportunities to create wealth.

Let’s look at buying down your rate.

Buying down your rate means that you are paying an extra point, which is 1% of your loan to the lender in order to get a better rate. A better rate would be a better payment, and which would allow you to qualify.

Loan amount $250K
Net Rent $1,725
Pay down interest (1%)  7.35%
Monthly payment  $1,722
Break even point (Rents – Monthly payment) $3 under

While there is not much cash flow right now, it does allow investors to get into the property and creates an opportunity to build a asset. 

Start looking for the best product for you!

Now is the time to look into different products in order to see which is best for you and your property. Regardless of whether it’s a 30 year loan, interest only loan, 40 year loan, or a buy down, you have a lot of options available.  Here at The Cash Flow Company we want to help you find the best product for you! Contact us today to walk through the numbers.

Watch our most recent video How to Make a DSCR Loan Work for Your Rental Property to find out more! 

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Why You’ll Get Rejected for a DSCR Loan

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Why You’ll Get Rejected for a DSCR Loan

Today we are discussing why you’ll get rejected for a DSCR loan. DSCR loans are based off of LTV, and are 75% for rate and term and 80% for purchase. However, there is another factor that you need to take into consideration. That factor is the break even point. This amount limits how much you can get out of the property, and requires more money for the purchase. In today’s example we will be comparing and contrasting two properties to show how you can easily be rejected for a DSCR loan.

What do you need to know before purchasing a property?

Investors use the BRRRR strategy for rental properties and creates an easy way to build a portfolio. However complications arise when refinancing the property. While investors expect to refinance out at 75% to 80%, it doesn’t always work as planned. This is due to the fact that the DSCR ratio comes into play. The DSCR ratio limits the amount that you can get out of the property. That is why it is important to know your numbers before purchasing the property or prior to refinancing. By calculating the break even point on your DSCR ratio you will create the cash flow you need to succeed.

Example: One property qualifies and one does not.

It is important to take everything into consideration to see whether or not the property qualifies. The numbers that you need to consider include taxes, property insurance, flood insurance (when applicable), and HOA (when applicable). Remember, in order to qualify for a DSCR loan the rent needs to be greater than or equal to the expenses. To demonstrate the break even point today we will compare two properties that have the same property value, loan amount, and monthly payment.

 

Value of the property Loan amount  Monthly payment 
$200K $150K $1,050
Property A Property B 
Taxes: $1,800 $3,600
Property insurance: $1,200 $3,600
Flood insurance: $0 $0
HOA:  $0 $0
Total $3,000 $7,200
Monthly amount $3,000/12 months = $250 $7,200/12 months = $600
Break even point (mortgage payment + taxes and insurance) $1,050 + $250 = $1,300 $1,050 + $600 = $1,650
Rent is $1,400 a month  This property will qualify for the full $150K refinance This property will NOT qualify for $150K because the rent is less than the break even point

In this example it is clear to see that even though you qualify for the DSCR loan, the property doesn’t always qualify. This example is all based on the DSCR ratio and shows how the income and expenses compare. 

In conclusion,

It is important to run the numbers prior to purchasing the property to find the break even point.  The break even point will affect your ability to refinance the property later on. Always keep in mind that every property will be different and every location will be different as well. 

If you have any questions or want to run through some numbers reach out to us! We are happy to work through the numbers with you to ensure that the property will be a good investment. 

Watch our most recent video about Why You’ll Get Rejected for a DSCR Loan.

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What Documents Do I Need for a DSCR Loan?

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What Documents Do I Need for a DSCR Loan?

Today we are going to discuss what documents are needed for a DSCR loan. DSCR has really been taking off in the last 6 months! As rates continue to come back down and properties start to cash flow again, many investors are coming back to DSCR. It is an excellent product for real estate investors to use for their next property! 

What kind of documents do you need when you are applying for a DSCR loan?

If you are doing a refinance, you will need:

  1. Lease agreement – What are you leasing?
  2. Business setup – What is the operating agreement and who runs the company?
  3. Reserves – You need a couple months of bank statements that show 2-3 months of reserves.
  4. Taxes – Needed for DSCR ratio.
  5. Insurance: Needed for DSCR ratio.
  6. HOA – Needed for DSCR ratio.
  7. Flood – Needed for DSCR ratio.
  8. Title 
  9. Appraisal – An appraisal will show the value of the property.

Once you have the appraisal and everything you need for the DSCR, it normally takes 2 to 3 weeks before everything is finalized.

There is something for everyone!

DSCR loans have become more mainstream and there are a lot of options available to fit your investment needs. It is important to have all of your documents ready to go before starting the DSCR loan process to get everything finalized quickly. Whether you have a commercial, 5 unit, or a rural property, DSCR can open the door to endless opportunities! Do you have a unique rental property and are looking for more lending options? If so, contact us today to find out more about DSCR loans and how you can get under the DSCR umbrella! 

To find out more about DSCR loans and calculate your DSCR ratio contact us today!

Watch our most recent video to answer the question “What Documents Do I Need for a DSCR Loan”.

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Discover the #1 KEY to DSCR and BRRRR

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Discover the #1 KEY to DSCR and BRRRR

Today we are going to review BRRRR and DSCR in order to discover the #1 Key to your success. While DSCR and BRRRR are excellent products by themselves, when used correctly together, you can have the cash flow you need to create generational wealth. Let’s take a quick recap of what DSCR and BRRRR are before combining them!

What is BRRRR?

BRRRR is a popular real estate investment strategy that stands for buy, repair, rent, refinance, and repeat. In order to buy the property, investors use a short-term loan such as hard money or private money. Once the property is purchased, investors repair the property in order to add more value and make it worth more. After repairs are completed, the property can then be rented out and investors can refinance the property. The refinance provides an excellent opportunity to get into a cheaper long-term loan, such as a DSCR. Finally, repeat the process again and again in order to create generational wealth.

What is a DSCR loan?

A DSCR loan is a real estate loan that is geared towards rental properties. This type of loan focuses on income versus expenses. As a result, the more a property cash flows, the better! 

Let’s put BRRRR and DSCR together!

The #1 rule that you must follow when using BRRRR and DSCR together is that you do NOT buy first! Instead, you need to plan your refinance. This begins by checking your numbers! If you have an income of $1,400 and expenses of $1,300, then you would have a DSCR ratio of 1.08. It is important that you always ask yourself whether or not you will break-even. If the answer is no, then you will not qualify for a DSCR loan.

Is it really a good deal?

Again, you need to determine if the property will break even or not. If not, then you will get stuck in an expensive short-term loan when the time comes to refinance the property. Those who can’t refinance will also begin to see their profits disappear. Investors who take their time and know their numbers will hit the bullseye! Remember, cash flow is key! Properties that cash flow will qualify for a DSCR loan. 

Do you have a property in mind? Do you need help with your numbers? Give us a call today and we will walk you through the steps to ensure your success!

Watch our most recent clip to Discover the #1 KEY to DSCR and BRRRR

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DSCR Loans: What Type of Properties Qualify?

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DSCR Loans: What Type of Properties Qualify?

Today we are going to discuss DSCR loans and look at what type of properties qualify. DSCR loans are an excellent product because they can provide more flexibility than traditional lenders. Unlike Fannie and Freddie, or traditional lenders, DSCR loans do not have the same guidelines. Instead, DSCR loans are regulated by a few big investors and do not force people to fit into a computerized box. DSCR loans create an opportunity for investors to find the perfect loan to meet their needs. 

Unique properties require unique loans.

Many unique properties include ones that need a smaller loan, a rural loan, mixed use, or properties that are above 4 units.  Keep in mind that some lenders are not always able to meet your needs. Unlike traditional loans, DSCR lenders all follow different guidelines and requirements. While one will do a DSCR ratio of 1, another lender will require 1.1 to get their best rates. Your credit score also plays a role in loan approval. Some lenders will go down to a 620 credit score, while others will say that 680 is the lowest they will go. There are so many different options that are available to investors. Be sure to take your time to find the best option for you and your property.  

The lending box.

There is a lending box that 60% to 70% of investors fit into. This box requires them to have a 700 credit score, 75% LTV, and a 1 to 4 unit property. For these investors, it becomes a matter of price shopping to see which lender has the best price for their property. If you don’t fit into this box don’t worry! There are a multitude of loan options available that can provide the flexibility you need to succeed. Do you have a VRBO, Airbnb property, pad rental, or a rural property? Find the right loan and the right amount for your next investment project. Whether it’s $50K or $300K, DSCR lenders have the versatility that can open the door to endless possibilities.

We are here to help!

Are you in need of a DSCR loan for a unique property? Here at The Cash Flow Company we are happy to run through the numbers to see which loan is best for you. Most importantly, there is no need to run your credit! Don’t get stressed trying to fit into a lending box! Keep your options open and find the right DSCR lender today! 

Contact us today to find out more about DSCR loans! 

Watch our most recent video to find out more about: DSCR Loans: What Type of Properties Qualify?

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How to Calculate Your Maximum DSCR Loan Amount

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How to Calculate Your Maximum DSCR Loan Amount

Today we are going to go over how to calculate your maximum DSCR loan amount. Most DSCR loans are based off of LTV. Just to clarify, LTV is normally 75% for rate and term and 80% for purchase. However, there is another factor that you need to take into consideration. That factor is the break even point. The break even point can either limit how much you can get out of the property, or make you put more money in at purchase. Let’s take a closer look at the numbers to ensure that you can calculate your maximum DSCR loan amount prior to purchasing a property. 

What do you need to know before purchasing a property?

Many investors use the BRRRR strategy when investing in real estate properties. While this is an excellent method to use to build a portfolio, investors are often faced with issues when it comes to refinancing the property. While investors expect to refinance out at 75% to 80%, it doesn’t always work as planned. This is due to the fact that the DSCR ratio comes into play. The DSCR ratio can limit the amount that you can get out of the property. That is why it is important to know your numbers before purchasing the property or prior to refinancing. By calculating the break even point on your DSCR ratio you will be able to create the cash flow you need to succeed.

Example: Calculating how much you would qualify for. 

Value of the property is $200K

Refinance is 75% rate and term

$200K x .75 = $150K (this is the loan amount you would qualify for)

Keep in mind that this example is with a good credit score and a good rate at 75%. 

Example: Calculating monthly payment.

At 75% we are going to use a 7.5% rate.

$150K x .075 = $1,050 monthly payment (includes principal and interest)

If we have the same property in a different area, different zip code, or different state, then this property may or may not qualify for the 75% loan.

Example: One property qualifies and one does not.

It is important to take everything into consideration when determining whether or not the property qualifies. The numbers that you need to consider include taxes, property insurance, flood insurance (when applicable), and HOA (when applicable). Remember, in order to qualify would mean that the rent needs to be greater than or equal to the expenses for the property.

Property A Property B
Taxes: $1,800 $3,600
Property insurance: $1,200 $3,600
Flood insurance: $0 $0
HOA: $0 $0
Total $3,000 $7,200
Monthly amount $3,000/12 months = $250 $7,200/12 months = $600
Break even point (mortgage payment + taxes and insurance) $1,050 + $250 = $1,300 $1,050 + $600 = $1,650
Rent is $1,400 a month This property will qualify for the full $150K refinance This property will NOT qualify for $150K because the rent is less than the break even point

In this example it is clear to see that even though you qualify for the DSCR loan, the property doesn’t always qualify. This example is all based on the DSCR ratio and shows how the income and expenses compare. Keep in mind that every property will be different and every location will be different as well. 

In conclusion,

Before you purchase a property or get into BRRRR make sure that you run the numbers to determine if the property breaks even. This is done by finding out what the rents are for similar properties in the area, along with collecting quotes for the taxes and insurance on the property. In doing so, you will be able to ensure that the property is going to hit the LTV that you want when refinancing. 

If you have any questions or want to run through some numbers reach out to us! We are happy to work through the numbers with you to ensure that the property will be a good investment. 

Watch our most recent video How to Calculate Your Maximum DSCR Loan Amount to find out more!

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