Tag Archive for: cash flow

10 Things You Should Know About a DSCR Loan for Rental Property Deals

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How do you know if you’re the right type of person for a DSCR loan on a rental property?

What makes a good DSCR loan? What makes a good DSCR property?

We get hundreds of people asking these questions. While traditional loan offerings will be more or less the same from lender to lender, DSCR loans are more like the wild west. Every lender will have slightly different requirements, expectations, and terms.

But DSCR loans are an amazing option when used in the right place, on the right property, from the right borrower.

Let’s go over 10 things that will help you understand what’s right for a DSCR loan on a rental property.

What’s a DSCR Loan for a Rental Property?

Debt service coverage ratio loans are loans designed for real estate investors. They’re most often 30-year products, but some lenders will offer other types.

The debt ratio in a DSCR loan is based on two things: the property’s income and the property’s expenses (mortgage, interest, taxes, and insurance). Cash flow is a vital piece to DSCR lending.

Let’s look at 10 things to keep in mind for DSCR loans.

1. Income

DSCR loans are best for borrowers whose current income over the last two years doesn’t qualify for either a conventional loan or a loan from a local bank.

If your tax returns are low over the last two years, that’s where a DSCR loan might come in for your rental property.

2. Business History

Many real estate investors are new, so they don’t have two years’ worth of tax returns for their business.

With DSCR loans, the length of your business does not matter. You could have opened the LLC the morning you close on the loan. Banks need your business information because they’re lending based on you. DSCR lenders don’t because they’re lending based on the property.

3. Employment Gaps

In the same vein as the first two items, DSCR loans are great for people who just changed jobs, moved, or haven’t had a continual work history for the past two years.

A conventional bank won’t be understanding about career shifts or gaps in work. But they won’t impact your ability to get a DSCR loan.

4. Investing History

Traditional lenders can be hard on new real estate investors. They want to see past successful projects in order to trust you. DSCR loans, though more designed for investment properties, don’t care about your past real estate investing history.

5. Cash Flow on a DSCR Loan Property

To get a great DSCR loan, the rental property must cash flow. While there are some DSCR loans available for negative cash-flowing properties, you’ll only get the best rates and terms when you have positive cash flow.

6. Loan Limit

DSCR loans are also good for people who have maxed out the amount of conventional loans they can get.

Conventional loans have a limit of 10 per person. Once you’ve reached that limit, you need to start looking for alternative options (like DSCR loans).

7. Credit Score

The higher your credit score, the better. However, even people with lower credit scores (660 and below) have options with DSCR.

Keep in mind, a lower credit score means a more expensive loan. A more expensive loan will lower your cash flow. Lower cash flow might disqualify you for the loan.

Instead of a 7.5% interest rate, a poor credit score could only get you a 9.5%.

8. Holding a Property with a DSCR Loan for 3-5 Years

This is another area where DSCR loans differ from conventional loans: DSCRs come with prepayment penalties. This means if you pay them off before 3 or 5 years (whatever period is decided by the lender), then you get charged a hefty fee.

DSCR loans are best for people who want to hold the property, and not refinance or sell within the prepay period.

9. Property Is Turnkey

DSCR loans aren’t good for fix and flip properties. A DSCR property should need no work – it should be turnkey, totally ready.

This means you should use a DSCR loan on either rental-ready purchases or a refinance on a completely renovated BRRRR-style rental.

10. Interest-Only

Lastly, DSCR loans are good for someone looking for interest-only payments. Banks and conventional loans don’t offer interest-only options.

Doing interest-only improves your cash flow, giving you 5-10 years where you don’t have to pay principal.

The Right DSCR Loan for a Rental Property

When you’re looking for cash flow, always look at all of your options before you jump into a loan.

We hope this article gives you an idea of what you should look for when you shop around.

Download this free DSCR calculator for the next time you’re shopping for rentals, and send any questions our way at Info@TheCashFlowCompany.com.

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What’s Your Cash Flow: Interest Rate by Credit Score

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Lenders decide your interest rate by credit score. Here’s how it shakes out…

Leverage is the lifeblood of investing… Using other people’s money (loans) to create income and wealth for you and your family.

The largest source of funding is both small and large lending institutions. One of the top (if not the top) determining factors for lenders getting you the best funding possible… is your credit score.

Let’s look behind the scenes and see how these lenders use credit scores to determine your rate.

How Lenders Decide Interest Rate by Credit Score

Full disclosure: sometimes your rate gets jacked up just because you’re working with a greedy loan officer.

However, once you’ve found a lender you trust, you can be assured they’re using an internal system that looks something like this:

These credit boxes are what the lender uses to determine the cost of a good vs not so good credit score. (If your score is too low, you more than likely will just not get a loan).

The above example is what we would see from a typical DSCR lender. A conventional lender’s would look very similar.

The negative price adjustments are not a direct change to a rate but they are added to the cost to calculate the rate. In layman’s terms: the higher the cost, the higher the rate.

From the highest score to the lowest, you would expect to see around a 1.5% increase in interest rate. So, if the best rate was 7% at a 740+ credit score, then you may expect a rate of 8.5% with a 640 score.

Example: How Interest Rates and Credit Score Changes Your Cash Flow

As an example, let’s say we need a $300,000 loan for either a purchase or refinance. The cost of our funding, depending on interest rate, would be:

  • At 7%, the monthly payment would be $1,996
  • At 8.5%, the monthly payment would be $2,306

How does that look in credit terms? A 640 score would cost you the $2,306. On the other hand, a 740 score would cost you $300 less, at $1,996.

This is a $300 difference per month in your cash flow. Aka: a bad credit score could cost you $3,600 per year in cash flow!

An investor with a great credit score and 10 properties would be paying $1 million less over the life of their loans than an investor with the same amount of properties and bad credit.

Help with Your Cash Flow

This is why investing is easier for some people and harder for others:

Cash flow is king.

Credit will control that cash flow.

 

Want to find out how to get your credit score up and your rates down?

To get our report on the best rates, reach out to us at Info@TheCashFlowCompany.com. You can also get more info on real estate investing on our YouTube channel.

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How Income Impacts Your Real Estate Loan Options

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How income impacts your real estate loan options (and other requirements you need to know in this market).

The mortgage industry is constantly changing, and not to the advantage of borrowers.

If you’re in a situation with a property that isn’t cash-flowing, you want to get locked in somehow – whether with a 30-year product or a 3-year one.

Loan options are changing just about daily – to the detriment of buyers. Credit score requirements are going up, loan-to-values are going down, and rates are steadily rising.

Here’s what you need to know (especially to refinance a property that has negative cash flow).

Credit Requirements for Loans

Just as you care about the financial health and responsibility of your tenants, the bank cares about the same for you. The expectations from banks become stricter when money is as tightened like it is now.

Credit requirements specifically have increased. You’ll have a hard time finding any loan at all in this market if your score is below a 680. To get better terms and rates, you’ll have to have a score in the mid-700s.

Income Impacts Your Real Estate Loan Options

Income is an important part of the underwriting process for any loan, but especially so on a property that isn’t cash flowing. Different types of loans will have different income requirements.

How Income Impacts Traditional Loans

Your income matters most if you’re attempting to get a traditional loan or other bank loan. Even if a property is negatively cash flowing, you can still get a traditional loan based on your income. If you make enough money (from a W2 job, other investment properties, etc.), banks will gladly offer you a loan.

As long as your income can cover the property’s costs, then the rent income doesn’t matter so much for a traditional loan.

Income for Bridge and DSCR Loans

Let’s say the property has no or negative cash flow and you don’t have a strong enough income for the banks’ requirements. In that case, a bridge or DSCR loan is a better option for your property that isn’t cash flowing.

Neither a bridge loan nor a DSCR loan rely on your personal (or business) income at all. A DSCR loan typically works based on the ratio of your rent and your expenses, but there are also no-ratio or negative DSCR loans available.

Terms and LTVs: Your Real Estate Loan Options

The length of time, or term, of your loan is important to consider when you have a property that isn’t cash flowing.

Why you need a loan in this circumstance comes down to two reasons:

  1. You need to lock in a loan before the market gets worse.
  2. You need that loan to carry you until the market improves.

LTVs are also important, and will dictate whether or not you can afford this new loan.

Traditional Loans

There are a lot of options for a traditional loan on a property that’s not cash flowing. Some will work better for your property than others.

Many bank terms are between 3- to 7-years fixed, amortized over 20 or 30 years. These loans are useful for non-cash-flowing properties because that three, five, or seven years can bridge you into the next season where rates will come down.

If you can qualify for one of these traditional loans, your maximum potential loan-to-value in this market is 75%. Bank loans will offer the highest LTVs out of all of your real estate loan options in this situation.

Bridge Loans

The term of a bridge loan is typically one or two years. If you know you’ll have an exit after that year or two, bridge loans are a great option.

Bridge loans are easy and fast. However, it’s possible interest rates won’t go down within that 1- to 2-year term, so you may be stuck refinancing into a second bridge loan, or other loan.

Additionally, the LTVs on bridge loans average 60-70% maximum.

DSCR Loans

There are many different types of DSCR loans available, with varying terms.

They traditionally go for 30 years. However, there are other options, including interest-only 40-year or 3- to 7-year fixed loans.

LTVs also take a hit with DSCR loans, averaging around 65-70%. 

How Income Impacts Real Estate Loan Options

If you need a loan for a non-cash-flowing property, see if you can qualify for a traditional loan first. Their high LTVs make them the best, but their income requirements may be tough to meet.

Read the full article here.

Watch the video here:

https://youtu.be/AQ-zcRBQB9c

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How Interest Rates Impact Affordability (and Your Cash Flow!)

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Buying low and selling high all comes down to interest rates’ impact on affordability. Here’s what that means.

Building generational wealth with real estate depends on leveraging buyer affordability.

Interest rates and prices work like a seesaw. When interest rates go up, affordability and buying power go down, so prices go down. When interest rates come down, buyers can afford higher payments, so prices re-inflate.

So, where will we be in 2023, and how will prices play out? Interest rates are projected to be 8% – the highest they’ve been in years. Let’s look at an example of this seesaw effect.

Interest Rates’ Impact on Affordability

We’ll use 8% as an example, since that’s the projected average for next year. (But this math will work whether your interest rate is 7%, 10%, etc.).

Let’s say our buyer can afford a $250,000 house with an 8% interest rate. We can calculate that their monthly payments would be $1,834.

That monthly payment amount is important. We tend to think of a buyer’s budget as the purchase price they can afford. But really, a buyer’s budget is the monthly payment they can afford.

Even if a buyer is willing to pay a higher purchase price with high interest rates, their lender may stop them. A buyer qualifies for a loan based on the affordability of the monthly payment.

For an interest rate of 8% in 2023, buying power looks like this:

You can plug any numbers you want into this formula to figure out affordability.

For example, let’s say interest rates are 9%. The affordability doesn’t change – our buyer could still only swing a $1,834/month payment. Therefore, this homebuyer’s buying power goes down to $228,000.

Cash Flow with High Interest Rates

As you can see, the higher the interest rate, the lower the price. This is why you should buy while interest rates are high. 

Prices will be lower than they have in a while. The challenge is that high interest rates make generating cash flow on properties more difficult. However, even if your rental property only breaks even every month – that’s fine for right now. 

A little temporary cash flow loss is worth it when you’re on the path to generational wealth. When interest rates come back down, cash flow will accelerate through the roof.

Let’s flash forward our 2023 example a few years in the future.

Building Equity when Interest Rates Impact Affordability

Say we bought that $250k house at 8% in 2023. Three or four years later, the market has stabilized. More money is flowing in the economy and in real estate, driving interest rates back down. Inflation has calmed down to normal levels. Now, let’s say the average interest rate is down to 5%.

What’s the affordability of that 5% rate with our buyer who could qualify for a $1,834/month payment? Now, they can qualify for a $341,000 house.

That means the house you bought for $250k in 2023 could be worth $341k by 2027. This one property could create $91,000 in equity.

Of course, this isn’t a guaranteed timeline or number. But we know it’s close. Real estate operates with the seesaw of rates and prices, affordability and payments.

Refinancing Once Rates Fall

So you have $91,000 in extra equity. But here’s where the cash flow starts to kick in: You can now refinance the property from an 8% rate to 5%.

Your original loan will be down to about $245,000 after 4 years of $1,834 monthly payments. Refinancing $245k at the new 5% interest rate makes for monthly payments of $1,315.

This refinance would increase your monthly cash flow by $519.

Multiply that by 12 months in a year. By 10 more properties… And you’re on the track to generational wealth.

Read the full article here.

Watch the video here:

https://youtu.be/I5jRjQvHJhk

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Create the Best Leverage for Your Real Estate Investments

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BRRRR is all about leverage. So how can you arrange the best leverage for these real estate investments?

We’ve helped clients with the BRRRR process for over 20 years. What’s the biggest error we see people make?

They don’t start with the end in mind. So they don’t maximize their leverage.

Many beginning investors take the order of the BRRRR acronym literally. They buy, rehab, rent, THEN try to figure out what the refinance will look like. That’s actually doing BRRRR wrong.

Going into the refinance blindly is not how you get the best leverage for your real estate investments. At best, you won’t know how the property cash flows. At worst, you can’t get a refinance loan at all.

Let’s look at what you need to do instead.

Prepping for the Best Leverage for Your BRRRR

Does it make sense to buy a property (with a higher interest loan), put all the money into repairs, rent it, and THEN figure out whether it’s a good or bad investment?

It takes just a little time and effort up-front to figure out if you can get the best leverage for the property.

We like to call this time up-front “building your BRRRR buyer’s box.” It’s a process that helps you prepare for the refinance ahead of time so you don’t do BRRRR wrong.

Going into a property, you should know:

  • Your max LTV
  • Your cash flow minimum
  • What rehab budget you can afford
  • How much cash you’ll need to bring in.

Creating the Best Leverage for Your Real Estate Investments.

Download our free BRRRR Checklist to understand the numbers of your refinance. Make your rental property a success.

Leverage determines whether you’ve done BRRRR wrong or right. All real estate investing hinges on leverage, and our goal is to help you create the best leverage possible. 

Using the right debt will accelerate your business, while the wrong stuff will slow your investing career to a halt.

Read the full article here.

Watch the video here:

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What is the “BRRRR Buy Box”? And Why Do You Need It?

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Want to guarantee a successful rental property? Learn the framework: The BRRRR Buy Box.

Every BRRRR has a “buy box.”

If you don’t know yours, then you jump into the refinance stage blind. You can end up with negative cash flow, more required out-of-pocket, or not even qualifying for a refinance at all. 

We’ve had clients live this nightmare. One came to us at the end of a BRRRR just to find out three of their properties wouldn’t cash flow, so they had to sell them. All because they didn’t learn their perfect BRRRR Buy Box before they started.

Let’s go over the BRRRR Buy Box to save your next rental from the same fate.

What Is the BRRRR Buy Box?

So, what is the BRRRR Buy Box? It’s a set of parameters to keep your BRRRR on track to a successful, profitable refinance. What’s in it? There are four important numbers:

  1. What is your minimum cash flow requirement? Not only yours, but what is your lender’s minimum net cash flow for you to qualify? 
  2. What amount, if any, do you want to put into the property? This is money that you’re willing to keep in the property. You don’t get it back out at the refinance. 
  3. What’s the maximum loan you feel comfortable with? What do you qualify for? What fits your cash flow requirements for this particular market?
  4. What’s your maximum amount for purchase and rehab? These numbers are vital to keep you in-budget with cash flowing.

Let’s go through an example of what a BRRRR Buy Box would be. 

Example BRRRR Buy Box

Cash Flow Requirements

Let’s start with the first question. Say your minimum needed cash flow for a property is net $500 per month.

This is your first criteria, so you want to make sure every property you look at would cash flow $500/month. To predict cash flow, you can approximate rent in the area of the property, as well as estimate the monthly mortgage payment and other costs. 

If you know you can charge $2,000 for rent, but your loan, taxes, and insurance will equal $1,450, then you can predict a $550 monthly cash flow.

Cash Put into the BRRRR

How much money do you want to put in? Some people do BRRRR for the appeal of zero down properties. Other people want to put as much in as possible at the beginning to keep loan payments down and cash flow up.

Having a target number helps you better set up your refinance.

Maximum Loan

The maximum loan doesn’t always mean the highest possible loan you qualify for. Rather, it’s the loan that works best for the property and the situation.

What is the maximum leverage you could use and still meet your cash flow requirements and the bank’s refinance guidelines?

Most banks will refinance you on rate-and-term from 75 – 80% of the appraised value, as the house sits after you’ve bought and rehabbed it. Cash out refinances cover somewhere between 65 – 75%. That may be too much for your particular area, or not enough. It’s important to understand the maximum loan for your particular deal.

Purchase and Rehab Budget

Finally, what is the maximum amount of money you can put into the purchase price and rehab? What budget fits in your buy box?

Remember that on top of the purchase and rehab, you’ll still have carry costs and closing costs. All of these numbers will have to fit within your budget.

Prevent and Prepare with Your BRRRR Buy Box

We believe in this quote:

“Prepare and prevent. Don’t repair and repent.”

This line applies to all real estate investing, but especially BRRRR. The BRRRR Buy Box is a framework designed to help you bring a “prepare and prevent” mindset to your rental investments.

The BRRRR Buy Box involves keeping the refinance at the forefront of the process. You need these 4 key pieces of information before ever closing on a property:

  • Cash flow requirement.
  • Money you can put in the property.
  • Required loan amount.
  • Purchase and rehab budget.

Knowing the BRRRR Numbers

If the maximum loan you want to do is $250,000 and you’re willing to put in $30,000, that makes $280,000 total for everything. This “everything” includes the purchase, both closings (for the initial loan and the refinance), all construction costs, and carry costs.

There are a lot of reasons to prepare for BRRRR. Poor prep results in holding the house longer, missing out on vital rent income, and paying high interest rates on a hard money loan.

Before diving into BRRRR, remember:

  • The house can involve major repairs.
  • Your lender could delay the appraisal process.
  • You need to factor closing and carry costs into your total budget.

Don’t give up on BRRRR

Make sure you’re prepared to win at BRRRR. Know your BRRRR Buy Box, and you’ll be successful.

Nine out of the 10 people we meet who stop doing BRRRR give up because they got to the refinance and it just did not work.

They didn’t prep their buy box ahead of time. They had to bring in too much money. The house did not cash flow. They didn’t qualify for a refinance. They got stuck with a hard money loan sitting on the house, eating away at their funds.

In this situation, people usually sell at a loss, then they’re turned off from BRRRR forever.

BRRRR is an excellent process. It’s a smart way to get into rentals, if you prevent and prepare before you start buying. 

Download this free BRRRR tool to plug in your numbers and understand your BRRRR Buy Box quickly and easily.

Help with Your BRRRR Buy Box

If you’re left with any questions or have a potential BRRRR deal you want us to look at, we’d be glad to help. We can go through the numbers for you and help you find your BRRRR Buy Box.

Send us an email at Info@TheCashFlowCompany.com.

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How to Combat a Negative Cash Flow Rental Property

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Sometimes you end up with a negative cash flow rental property. Here’s how to combat that negative cash flow.

A negative cash flow rental property can be the lesser of two evils.

If your options are to sell your flip at a loss, or shell out tens of thousands of dollars yearly interest on a bridge loan refinance… Suddenly eating a small monthly loss making the flip a rental doesn’t seem so bad.

Let’s look at the numbers behind making a negative cash flow rental property work for you.

Refinancing with Bridge Loans vs DSCR

Getting a DSCR or no-ratio loan from a new lender is typically a better move than continuing to refinance with bridge loans from your current lender.

You don’t know where the market will be in 12 to 24 months. We know that long-term, the markets will come back, but what if that doesn’t happen for 3 years? You could get stuck refinancing with a bridge loan year after year, charging points with each refinance.

DSCR loans are often a better option in this situation. You just have to know your numbers.

Let’s go through an example so you know exactly how to calculate a DSCR loan and see if it’s the smart choice for you.

Using a DSCR Loan on a Negative Cash Flow Rental Property: The Numbers

Let’s look at an example with a $300,000 loan. We’ll assume that both the original flip loan and the DSCR loan you’re refinancing into are interest-only.

This $300,000 flip loan has a 10% interest rate. That means you’re paying $2,500/month just for interest. This is the current negative cash flow of the property.

On the other hand, if you can get a DSCR loan for a 7% interest rate, you’d be paying $1,750/month instead. Plus, you could get a tenant renting for $1,800/month.

At this point, $1,800 would be coming in, and $1,750 would be going out for mortgage payments. This is actually a positive cash flow of $50/month.

However, your mortgage isn’t your only expense on this property. We still have to take taxes and insurance into consideration. Let’s say both of those costs add up to $300 per month. 

This raises the total expenses with a DSCR loan to $2,050 per month, bringing the cash flow to a -$250 every month.

Flip Loan vs DSCR Loan Compared for a Negative Cash Flow Rental Property

Obviously, you never like to lose money on a property. But that $250 of negative cash flow multiplied by 12 months is only $3,000. After 2 years, it’s $6,000. That may seem like a lot, but let’s look back at what you’d spend with the original flip loan.

If we go back to our example, remember we’d be paying $2,500 per month in interest, plus $300 in taxes and insurance with the original flip loan. That’s $2,800 spent for 1 month with the flip loan – close to the $3,000 for the full year with a DSCR loan!

If you keep the house on the market with this flip loan for 2 months, it’s $5,600. That’s comparable to 2 years of out-of-pocket costs if the same property was converted into a rental.

Is Negative Cash Flow Worth It?

This is how you have to look at the numbers in this scenario. It will help you determine what’s right for your flip. Is it better to wait for the market and shell out thousands of dollars in the meantime? Or rent the property with a little negative cash flow for 2-3 years in hopes of recouping an extra $100k in equity when the markets come back? (Or at least until rates come back down so you can refinance?)

In many cases, it makes more sense to turn your flip into a rental ASAP. A negative DSCR or no-ratio loan is how to combat that a negative cash flow.

Read the full article here.

Watch the video here:

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Numbers Don’t Lie: Turn Your Flip into a Rental Now

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These numbers show you when it’s time to turn your flip into a rental.

What do you do with a flip that won’t sell?

The question is: is it smarter to leave the house on the market and keep dropping the price? Or take it off and turn it into a rental now before rates go further up and prices further down?

You don’t want to sell for a price that loses you money. But if you refinance into a rental, you know it’ll be negative cash flow.

It can feel lose-lose. But we can show you the better way out.

Let’s go over the numbers behind this, so you can look at this problem clearly. Here’s what it will look like if you turn your flip into a rental now.

How Bad Is the Negative Cash Flow?

The hesitation for many investors in this situation is: if you take the property off the market, the house has negative cash flow. The price is too high, and the rent probably won’t cover the costs. Why would you intentionally put yourself in a situation where you’re losing money?

But the reality is: the house is a negative cash-flowing property now. Every month the house is on the market, you pay interest. That money adds no value to the property – you’re just draining your money straight into your lender’s pocket.

Even if you don’t refinance with a rental loan, you already have a negative cash flow property.

Why not take the step to turn your flip into a rental now and reduce the amount of money you’re losing each month?

Refinance a Flip To a Rental

Typically, people spend more money leaving a house on the market for 2 or 3 months than they would turning it into a negative cash flowing rental for 2 years.

Would you rather pay $2,500 per month on a house with a for sale sign on it? Or get $2,200 in rent and only pay $300 of your own money per month? This is the question you’re left with when your flip isn’t selling in this market.

Turning a Flip to a Rental in Past Down Markets

Take a lesson from 2008 and 2009. Many investors who sold during the crash later realized that if they had waited 3 or 4 years, they could have made their money back on those properties.

Not only would their property values have gone up, but rates would have come down. Those properties would have become major assets. Instead, investors took a big hit selling in a down market.

Negative DSCR and No-Ratio Loans

So if you decide to go with this negatively cash flowing property, what are your options for a loan? 

Let’s go over the negative DSCR and the no-ratio loan programs.

These loans allow you a 30-year fixed product that’s interest-only. These DSCR loans work even on properties that aren’t cash flowing.

Typically for a DSCR loan, the rent from the property has to at least cover the monthly expenses (principal, interest, taxes, and insurance). Outflow has to equal inflow.

But these negative DSCR and no-ratio options allow you to refinance rental properties even when you bring in less rent than you pay out per month.

Refinancing with Bridge Loans vs DSCR

Getting a DSCR or no-ratio loan from a new lender is typically a better move than continuing to refinance with bridge loans from your current lender.

You don’t know where the market will be in 12 to 24 months. We know that long-term, the markets will come back, but what if that doesn’t happen for 3 years? You could get stuck refinancing with a bridge loan year after year, charging points with each refinance.

DSCR loans are often a better option in this situation. You just have to know your numbers.

Let’s go through an example so you know exactly how to calculate a DSCR loan and see if it’s the smart choice for you.

Using a DSCR Loan to Combat Negative Cash Flow: The Numbers

Let’s look at an example with a $300,000 loan. We’ll assume that both the original flip loan and the DSCR loan you’re refinancing into are interest-only.

This $300,000 flip loan has a 10% interest rate. That means you’re paying $2,500/month just for interest. This is the current negative cash flow of the property.

On the other hand, if you can get a DSCR loan for a 7% interest rate, you’d be paying $1,750/month instead. Plus, you could get a tenant renting for $1,800/month.

At this point, $1,800 would be coming in, and $1,750 would be going out for mortgage payments. This is actually a positive cash flow of $50/month.

However, your mortgage isn’t your only expense on this property. We still have to take taxes and insurance into consideration. Let’s say both of those costs add up to $300 per month. 

This raises the total expenses with a DSCR loan to $2,050 per month, bringing the cash flow to a -$250 every month.

Flip Loan vs DSCR Loan Compared

Obviously, you never like to lose money on a property. But that $250 of negative cash flow multiplied by 12 months is only $3,000. After 2 years, it’s $6,000. That may seem like a lot, but let’s look back at what you’d spend with the original flip loan.

If we go back to our example, remember we’d be paying $2,500 per month in interest, plus $300 in taxes and insurance with the original flip loan. That’s $2,800 spent for 1 month with the flip loan – close to the $3,000 for the full year with a DSCR loan!

If you keep the house on the market with this flip loan for 2 months, it’s $5,600. That’s comparable to 2 years of out-of-pocket costs if the same property was converted into a rental. 

This is how you have to look at the numbers in this scenario. It will help you determine what’s right for your flip. Is it better to wait for the market and shell out thousands of dollars in the meantime? Or rent the property with a little negative cash flow for 2-3 years in hopes of recouping an extra $100k in equity when the markets come back? (Or at least until rates come back down so you can refinance?)

In many cases, it makes more sense to turn your flip into a rental ASAP with a negative DSCR or no-ratio loan.

What Should You Do Next?

If you feel ready to refinance your flip into a rental, act quickly. Rates are going up, prices are going down.

There are some downsides to no-ratio and DSCR loans. Let us know you’re looking, and we’re happy to help you find the best loan for your situation.

The Cash Flow Company looks at hundreds of loans every month to find the best terms for investors, with the lowest down payments, highest LTVs, and best rates. Let us run the numbers on your property, and we’ll let you know what product will be best for your situation.

We want to get you to a place where you reduce negative cash flow and get back into some profitable flips. Email us at Info@TheCashFlowCompany.com.

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How to Launch Your Retirement Through Private Lending

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How to Launch Your Retirement Through Private Lending

How to Launch Your Retirement Through Private Lending

Launch your retirement!

The most common ways to save for retirement are the stock market, 401Ks, and other retirement savings accounts. They’re common journeys most people take when they start putting money away for their future.

But did you know there’s another frontier to explore when it comes to preparing for retirement?

Although it’s a frontier that’s been around for centuries, and it’s a frontier that’s helped many, it’s not exactly a frontier people think to explore.

But this frontier can lead to lucrative cash flow and a safe, comfortable, and happy future.

We’re talking about private lending.

https://youtu.be/3shyEuw1zSI

Private lending can launch your retirement savings into a whole new universe. Compared to the stock market, which is volatile, and retirement savings accounts, which are questionable, private lending is consistent, easy, and safe. And, most importantly, profitable.

What is private lending?

Simply put, you become a bank for someone who needs cash. And, in the real estate world, that someone is a fix and flipper, rental owner, or another property investor.

These real estate investors can’t always rely on a traditional bank for funding.  Either because they can’t meet a bank’s strict qualifications, or because they need to buy a property super fast…and banks don’t close deals super fast.

So, they turn to private lenders. Private lenders, like you, lend them the money they need and charge them interest for it.

The amount of interest you charge is up to you. Most private lenders make between 5% and 12%. You can’t make that kind of interest by letting your money sit in a bank. And you can’t know for sure you’ll make it through the stock market.

So, how do you become a private lender? Well, there are a couple of ways to get going.

The easiest way is through companies like ours. We connect private lenders with real estate investors, and help with all the paperwork and other steps that secure your money.

Or, if you’d rather explore the private lending frontier on your own, then you can work directly with real estate investors. This is best known in the business as OPM (Other People’s Money). OPM puts you directly in the pilot’s seat, and you get to decide your path…and the risks that come with it.

Private lending is definitely a worthwhile adventure! If you’re ready to learn more about it and launch your retirement, then our team is always here to help.

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How to Invest the Ancient Way: Private Lending

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How to Make Money in Real Estate: Private Lending is Ancient

How to Invest the Ancient Way: Private Lending

Since the beginning of time, people have needed money, and they’ve always needed to borrow it from someone.

Why not you?

You see, when it comes to making money in real estate, most people assume they have to fix and flip or rent properties. But there are other ways that don’t involve picking up a hammer.

And one of those ways is private lending.

https://youtu.be/N4IYdAods3w

What is private lending?

Private lending is exactly what it sounds like: you lend money to someone who needs it.

In the real estate world that means you lend it to someone who’s looking to fix up a property and either flip it or rent it.

It’s just like in the olden days when a person needed a loan and got it from a bank, a business tycoon, or a neighbor. Or just about anyone else who had money to lend.

So, how do you make money in private lending? Well, it’s fairly simple. You:

  • Find someone you trust
  • Create a secured, private note
  • Collect interest payments.

Now, you might be thinking, “What is a private note?”

It’s basically an IOU.

Essentially, a private note is an agreement between you and your borrower, and it outlines things like:

  • Loan amount
  • Interest rate
  • How long you’ll let your borrower use your money (aka, the term)
  • And the date you expect them to pay you back in full.

And if a borrower can’t pay you back, then fear not. Your money is secured by the property. So, as long as you do your homework and make sure it’s a worthwhile investment, then your money is safe.

And if you’d rather someone else do the homework, including prepping the private note and overseeing the life of the loan, then you can use a licensed and experienced company like ours to handle it. All you have to do is kick back, relax, and watch your interest payments arrive in your bank account.

Ready to talk about investing your money in real estate without picking up a hammer? Great! Our team is always here to chat.

Happy investing!

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