What can you expect to pay on your DSCR loan interest rates? Here’s what it is (and why it matters).

You can still find a DSCR product for ratio 1 or negative cash flow properties.

DSCR loans have certain ratio thresholds. When you break these thresholds, your rate gets better. And better rates mean lower monthly payments. Which means… more cash flow!

Let’s go over some of these thresholds for DSCR loan interest rates.

Loans for a 1.25 DSCR

Say we have a property with $1,590 worth of monthly expenses, which we can charge a $2,000 rent on. Divide the rent by the expenses, and we get a DSCR of about 1.26.

One way of thinking about this is that the property is profiting 25% over the expenses. That’s good for the underwriter (and it’s good for you), so you’ll get a lower interest rate.

1.25 is a major threshold for DSCR lenders. In the current market at the beginning of 2022, the rate for a 1.25 DSCR is around 7.25%.

DSCR Loan Interest Rates for a 1 or Lower Ratio

If a property has negative cash flow, say 0.94, then the average interest rate would be 9+% on a DSCR loan.

For a breakeven ratio of 1, the typical interest rate right now would be more like 7.75%.

The Difference in DSCR Loan Interest Rates

Anytime you can lower the rate, that’s cash flow that goes into your pocket.

The difference between a negative DSCR and a 1.25 is about $220/month on your payment. Over the course of a year, that adds up to $2,600. If you have 5 rental properties, that’s $13,000/year. At 10 rental properties, it’s a $26,000 difference!

If real estate investing is going to be your career or retirement plan, buying properties that you know will cash flow is vital. A couple hundred bucks a month can snowball into hundreds of thousands over time.

This is why it’s important to know how to calculate DSCR quickly when you’re looking at buying a new property. Never put a contract on a rental property when you’re not sure if the cash flow fits your goals.

Read the full article here.

Watch the video here:

https://youtu.be/o5js06y–qM

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With lenders cutting back, here are 5 options for gap financing in real estate.

If you’re a real estate investor, you’re probably familiar with the concept of shrinkage in the loan business.

During economically turbulent times, lenders cut back the amount of money they’re willing to lend. This affects how much money you get for your project (aka, your LTVs).

If the typical bridge lender offers you 80-90% of the purchase, you’ll need something to help you cover the other 10-20%.

It’s up to savvy investors to find alternative sources of funding to fill that gap left by your loan. In this article, we’ll go through 5 ways to get gap financing that could work for you.

What Determines Your Gap Financing in Real Estate?

Firstly, there are a few ducks you’ll need in a row before diving into gap financing.

Most gap funding will determine whether to lend to you based on three things: credit, assets, and experience.

Both the amount of primary funding you’ll receive from your lender and the amount of gap funding you’ll be able to get will be dependent on credit. Also, you can get other lines of credit by putting up your assets as collateral. Finally, having experience or knowing what you’re doing may incline some gap funding lenders to give you a loan.

Now, let’s go through some particular ways to get gap financing in real estate.

1. HELOC

If you have good credit and real estate assets (owner-occupied or not), you should always have a line of credit called a HELOC available to you. HELOC stands for “home equity line of credit.”

These funds will typically be the safest, easiest, and cheaper you can get. All real estate investors who have property and good credit should have a HELOC.

This is going to be your safest, easiest, and cheapest source of funds because they’re always available to you.

2. Lines of Credit from Banks

But what if you have good credit but no real assets? In that case, you’ll need to look at other, unsecured options to fill the gap.

One option is to use an unsecured line of credit from a local bank or national company. These lines of credit typically have higher interest rates than a HELOC, but they’re still a good option if you have good credit. 

3. 0% Credit Card

Another option is to use a 0% credit card. We’ve helped people use this method.

Used properly, credit cards can be great for a real estate investor. You only pay the activation fee, and maybe 2% over a year with the right card.

Warning: you have to treat credit like this with respect. Make sure you pay the balance back completely after your project.

4. Real OPM as Gap Financing in Real Estate

One way to fill that funding gap is by finding real OPM (other people’s money). This means connecting with individuals who want to make a better return on their money than their bank provides. Lending you the money for your real estate projects can get them that better return.

OPM can be used flexibly for a down payment, carry costs, or construction costs on any real estate project.

OPM is one of the cheapest, fastest funding options for real estate investors. It can be a good option if you don’t have great credit, or don’t have many existing assets. With OPM, you don’t need good credit or a property with equity – you can set your lender up with a lien on the property you’re buying.

5. Don’t Misuse Your Funds

One thing needs to be clear with gap funding: do not abuse it.

If you use a line of credit that was intended for a real estate investing project, then make sure it’s used for that purpose. It should also be entirely paid off after each transaction is completed.

Treat credit like a lender, and treat your investments like a business. Never use real estate lines of credit for personal use. It will kill your credit, your financial future, and your investing career.

How to Get Gap Financing in Real Estate

We’re happy to help with any questions you have about funding or gap financing on real estate projects.

We’ve helped with thousands of transactions worth millions of dollars using OPM. You can download our free OPM guide here.

Any other questions? Send us an email at Info@TheCashFlowCompany.com.

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Quick ‘n Easy DSCR Calculation

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Your DSCR calculation made easy with our free loan calculator.

Don’t be intimidated by a DSCR loan. If the property cash flows, then you have a pretty good shot at getting approved.

And there’s a simple way to find out the cash flow of a rental property: the debt service coverage ratio.

Underwriters use this ratio to determine if a property is positively cash flowing. It’s an important metric to understand if you want to maximize your leverage and get the most out of your investments.

Now, let’s go over how to calculate DSCR quickly and understand what it means for your property.

What Is a DSCR in Real Estate?

Firstly, let’s define what DSCR is. It’s a ratio that compares a property’s income to its expenses.

You calculate DSCR by dividing the property’s income (rents) by its expenses (monthly mortgage payment, taxes, insurance, and HOA if applicable). A ratio of greater than 1 means the property is cash flowing, which is what both you and your lender want to see.

So, the higher the ratio, the better the cash flow, and the more money in your pocket.

For a DSCR loan, the higher this ratio is, the better the terms your loan will have.

Expenses & Income for DSCR Calculation

Next, to find out the expenses your DSCR loan will consider, you’ll add together four items:

  • Mortgage
  • Property Tax
  • Insurance
  • HOA Fees

Finally, to find out the income, you’ll need to check out what rents are in the area for comparable properties.

How to Calculate DSCR Quickly

To help keep all these numbers straight when you calculate DSCR, you can download our free, simple DSCR calculator at this link.

Read the full article here.

Watch the video here:

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Why You Need To Refinance a BRRRR

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Why can’t you just keep the first loan on your BRRRR? Here are the reasons to refinance a BRRRR.

The BRRRR strategy uses two loans. The second one is for the refinance – the third “R” in BRRRR.

You buy with a hard money or bridge loan, but eventually you need new funding for the property. There are 3 reasons why you need to refinance.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate When You Refinance a BRRRR

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance.

When To Refinance a BRRRR

Want the greatest profit on your project? Have the refinance loan ready by the time you buy your under-market property.

If you need help finding the right refinance loan, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

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Here’s how to calculate a property’s DSCR (and what it means for your loan).

Don’t be intimidated by a DSCR loan. If the property cash flows, then you have a pretty good shot at getting approved.

And there’s a simple way to find out the cash flow of a rental property: the debt service coverage ratio.

This ratio is used by underwriters to determine if a property is positively cash flowing. It’s an important metric to understand if you want to maximize your leverage and get the most out of your investments.

Let’s go over how to calculate DSCR quickly and understand what it means for your property.

What Is a DSCR in Real Estate?

First, let’s define what DSCR is. It’s a ratio that compares a property’s income to its expenses.

You calculate DSCR by dividing the property’s income (rents) by its expenses (monthly mortgage payment, taxes, insurance, and HOA if applicable). A ratio of greater than 1 means the property is cash flowing, which is what both you and your lender want to see.

The higher the ratio, the better the cash flow, and the more money in your pocket.

For a DSCR loan, the higher this ratio is, the better the terms your loan will have.

How to Calculate Expenses & Income for a DSCR Loan

To find out the expenses your DSCR loan will consider, you’ll add together four items:

  • Mortgage
  • Property Tax
  • Insurance
  • HOA Fees

To find out the income, you’ll need to check out what rents are in the area for comparable properties.

How to Calculate the DSCR

To give you a better understanding of how to calculate DSCR, let’s look at a quick example.

Let’s say we have a property with rents coming in at $1,700 a month. 

The monthly mortgage payment is $1,290. Taxes are $100/ month, insurance is $100/month, and HOA is $100 /month. Added together, this gives us $1,590.

Now, to calculate the DSCR ratio, we divide the income ($1,700) by the expenses ($1,590). We get a ratio of 1.07.

This is great! The break-even point for a DSCR is a ratio of 1. Underwriters and lenders like to see a ratio of at least 1 to ensure that the property can take care of itself. Now lenders know you won’t need to take money out of your pocket to cover the expenses. This is assurance for them, making them more likely to approve the loan with good terms.

A 1.07 ratio means the property is positively cash flowing, and it’s a good investment.

Example of a Low Ratio

But what if we could only charge $1,500 in rent for this same property? 

Let’s look at the impact of a decrease in rent. In this case, we’d calculate the DSCR ratio by dividing $1,500 (income) by $1,590 (expenses), which gives us 0.94. You’ll need an extra $90 out-of-pocket just to breakeven.

This is less than 1, meaning the property is negatively cash flowing.

You need to estimate the rent on a property before you think about buying it. This property at $1,500 wouldn’t be a good investment (and wouldn’t qualify for a good DSCR loan). But remember – the same property at $1,700 rent would be a good investment.

Usually, the only time DSCR loans are used on a negatively cash-flowing property is when someone gets stuck with a property they can’t sell, and a little income on the property is better than none at all. It’s not wise to purchase a rental property that you know won’t cash flow from day 1.

Negative DSCR Loans

You can still find a DSCR product for negative cash flow properties.

There are certain thresholds when you calculate DSCR loans. When you break these thresholds, you get a better rate. And better rates mean… more cash flow! Your monthly payments will lower.

Let’s go over what some of these thresholds will look like.

Loans for a 1.25 DSCR

Say we have a property with $1,590 worth of monthly expenses, which we can charge a $2,000 rent on. Divide the rent by the expenses, and we get a DSCR of about 1.26.

One way of thinking of this is that the property is profiting 25% over the expenses. That’s good for the underwriter (and it’s good for you).

1.25 is a threshold for DSCR lenders. In the current market at the beginning of 2022, the rate for a 1.25 DSCR is around 7.25%.

Rates for a Negative to 1 DSCR

If a property has negative cash flow, say 0.944, then the average interest rate would be 9+% on a DSCR loan.

For a breakeven ratio of 1, the typical interest rate right now would be more like 7.75%.

The Difference

Anytime you can lower the rate, that’s cash flow that goes into your pocket.

The difference between a negative DSCR and a 1.25 is about $220/month on your payment. Over the course of a year, that adds up to $2,600. If you have 5 rental properties, that’s $13,000/year. At 10 rental properties, it’s a $26,000 difference!

If real estate investing is going to be your career or retirement plan, buying properties that you know will cash flow is vital. A couple hundred bucks a month can snowball into hundreds of thousands over time.

This is why it’s important to know how to calculate DSCR quickly when you’re looking at buying a new property. Never put a contract on a rental property when you’re not sure if the cash flow fits your goals.

How to Calculate DSCR Quickly

To help keep the numbers straight when you calculate DSCR, you can download our free, simple DSCR calculator at this link.

If you have any other questions about how to calculate DSCR (or how to get a DSCR loan!), send us an email at Info@TheCashFlowCompany.com.

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How tough are DSCR loan qualifications for beginner investors? (You might be surprised…)

DSCR loans are becoming one of the most popular investor tools in the lending world.

But can you use them if you’re just a beginner? Let’s go over income and experience DSCR loan qualifications.

Are DSCR Loans Good?

Firstly, let’s go over what a DSCR loan is.

DSCR stands for “debt service coverage ratio.” They’re a loan for rental properties that are based on the debt ratio of rent income to the property’s expenses.

These loans can be flexible and hassle-free. This makes them the go-to choice for investors financing a rental property or turning a fix-and-flip project into a rental at the last minute in bad markets.

But are DSCR loans really as good as they seem? Let’s take a closer look at 5 reasons why DSCR loans are a solid choice for investors. 

DSCR Loan Qualifications for Experience

DSCR loans are great for new investors!

Traditional loans often require you have two years of real estate investing experience. But a DSCR loan has no requirements for experience. These types of loans focus more on your property or deal than on you personally as an investor.

Because there are no experience requirements, a DSCR loan is a great opportunity to get into your first investment rental property. Don’t wait to apply for your first DSCR loan.

Income DSCR Loan Qualifications

For DSCR loans, you don’t need a W2 job, show any tax returns, or hand over any other income documentation.

This means DSCR loans are good for minimizing your tax liability. You can write everything off, pay the IRS as little as you want, and still get a great loan.

Read the full article here.

Watch the video here:

https://youtu.be/x5Nf-SIKerQ

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Using investor loans to make your BRRRR profitable.

The BRRRR strategy uses two loans. The first is the “B” of BRRRR – buy. Does it matter what kind of loan you use?

There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This eliminates the need for a down payment, making the process more repeatable (and profitable).

2. Quick Closing with Investor Loans for BRRRR

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your bank account, then it almost defeats the purpose of a value-add property. But if you use the buy loan to leverage all rehab costs on a BRRRR, more cash stays in your pocket.

The Best Investor Loans for BRRRR

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Read the full article here.

Watch the video here:

https://youtu.be/_cdQkaaXxAw

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Buy and refi: here’s how BRRRR works.

Say you buy a house and rent it. What’s the big deal? Hopefully, your rental income is a little more than your mortgage payment, and you’re able to pocket the extra cash or save it for future real estate purchases.

How does BRRRR differ from this?

There’s a driving power behind BRRRR, making it a more profitable and fun process than simple rental investments.

BRRRR uses a two-loan strategy to capture maximum equity in value-add properties. Let’s go through these two loans and see how BRRRR works.

Buy: How the First BRRRR Loan Works

The first loan is the “B” of BRRRR – buy. There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This takes less out of your pocket and makes the process more profitable and repeatable.

2. Quick Closing

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your pocket, it almost defeats the purpose of a value-add property. It’s best to use the buy loan to leverage all rehab costs on a BRRRR.

What’s the Best Buy Loan?

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Refinance: How the Second BRRRR Loan Works

The third “R” in BRRRR stands for refinance. At this point, we need a new loan on the property. There are 3 reasons.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance. 

Diving Deep Into How BRRRR Works

BRRRR is a powerful real estate investing strategy. We want to take away the mystery of how BRRRR works.

Download our free BRRRR map to put you on the right track with your next deal. And email us at Info@TheCashFlowCompany.com with any questions.

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A few reasons why DSCR loans are some of the best loans for real estate investors.

Not all loans are created equal when it comes to real estate investing.

A traditional loan doesn’t always cut it for a value-add property. But there’s no possible way hard money can work for a rental property for more than a few months.

So what are your long-term investor loan options?

This is where the DSCR loan comes in. Here are 3 quick reasons why DSCR loans work well for investors.

Less Paperwork

The investor’s dream: less paperwork. Applications and approvals are simple with DSCR loans. There are no income requirements, employment verification, or any other intensive qualifications.

Not only is it less hassle to skip some paperwork – it also means the entire loan process is much faster.

Short-Term Rentals

DSCR loans don’t just work for traditional rentals, but they work for all real estate investment properties. DSCR loans are flexible and work with a variety of rental options. This includes VRBO, Airbnb, or a traditional long-term property.

There are a few things to take into consideration with short-term rentals and DSCR. But it’s still a simple and often profitable loan for these types of properties.

Best Loans for Real Estate Investors Doing BRRRR

Many investors wonder – are DSCR loans good for BRRRR-style properties? The answer is yes.

DSCR loans are great for the long-term, refinance loan at the end of your BRRRR project. The combination of a quick and easy loan and a structure designed for rental properties makes DSCR and BRRRR the perfect pair.

DSCR – The Best Loans for Real Estate Investors

If you’re in the market for a long-term loan on a rental property, reach out to us for help with the numbers. Send us a deal or ask us a question at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

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It’s “the easy loan.” But are DSCR loans good for your investments?

DSCR loans are becoming one of the most popular investor tools out there. 

But why are they so well-loved? Let’s go over 5 reasons investors like DSCR loans. 

Are DSCR Loans Good?

Firstly, let’s go over what a DSCR loan is.

DSCR stands for “debt service coverage ratio.” They’re a loan for rental properties that are based on the debt ratio of rent income to the property’s expenses.

These loans can be flexible and hassle-free. This makes them the go-to choice for investors financing a rental property or turning a fix-and-flip project into a rental at the last minute in bad markets.

But are DSCR loans really as good as they seem? Let’s take a closer look at 5 reasons why DSCR loans are a solid choice for investors. 

#1: You can start investing now.

DSCR loans are great for new investors. Traditional loans often require you have two years of real estate investing experience.

Because there are no experience requirements, a DSCR loan is a great opportunity to get into your first investment rental property. Don’t wait to apply for your first DSCR loan.

#2: No income requirements.

With a DSCR loan, you don’t have to have a W2 job, or show any tax returns or other income documentation.

This means DSCR loans are good for minimizing your tax liability. You can write everything off, pay the IRS as little as you want, and still get a great loan.

#3: Less paperwork.

The investor’s dream: less paperwork. Applications and approvals are simple with DSCR loans. There are no income requirements, employment verification, or any other intensive qualifications.

Not only is it less hassle to skip some paperwork – it also means the entire loan process is much faster.

#4: DSCR works for short-term rentals too.

DSCR loans don’t just work for traditional rentals, but they work for all real estate investment properties. DSCR loans are flexible and work with a variety of rental options. This includes VRBO, Airbnb, or renting out a traditional long-term property.

There are a few things to take into consideration with short-term rentals and DSCR. But it’s still a simple and often profitable loan for these types of properties.

#5: Great for BRRRRs.

Many investors wonder – are DSCR loans good for BRRRR-style properties? The answer is yes.

DSCR loans are great for the long-term, refinance loan at the end of your BRRRR project. The combination of a quick and easy loan and a structure designed for rental properties makes DSCR and BRRRR the perfect pair.

Want to find out how a DSCR loan might work with your BRRRR rental? You can download our free DSCR loan calculator here. It can help you learn your ratio and get an idea of the kind of terms your property may qualify for.

Are DSCR Loans Good for Your Property?

If you’re in the market for a loan on a rental property, you can reach out to us to help with the numbers. Send us a deal or ask us a question at Info@TheCashFlowCompany.com.

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