Tag Archive for: DSCR

Avoid These 4 Credit Score Mistakes for Your DSCR Loan

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Avoid These 4 Credit Score Mistakes for Your DSCR Loan

DSCR (Debt Service Coverage Ratio) loans are a game-changer for real estate investors. However, credit score does play a crucial role in the process. By avoiding some common credit score mistakes it can make all the difference. Let’s dive into four key credit score mistakes that you need to avoid and see how they impact your DSCR loan.

1. Cash Flow

Your credit score directly affects your loan interest rate, which in turn impacts your cash flow.

Example:

For this example we will use a loan amount of $250,000. If you have a good credit score (mid to high 700s), you might get a 30-year fixed rate at 7.375%. The monthly payment would be around $1,727. With taxes and insurance, your total payment would be $2,027. If the rent is $2,100, you have a positive cash flow.

However, if your credit score is lower (around 660), the interest rate might rise to 8.375%. This increases the monthly payment to $1,967, making your total payment $2,267. Now, your expenses exceed your rent, leading to negative cash flow. Therefore, keeping a good credit score is essential for maintaining a healthy cash flow.

2. Loan to Value (LTV)

Your credit score also affects how much you need to put down on a property, which is known as the loan to value ratio (LTV).

Example:

If you have a strong credit score, you might only need to put down 15-20% of the property’s value. For a $300,000 property, this means a down payment of $45,000 to $60,000. But with a lower credit score, your down payment requirement might increase to 25-30%, or $75,000 to $90,000. This higher down payment can limit the number of properties you can purchase and tie up more of your capital.

3. Approval

A higher credit score makes it easier to get your DSCR loan approved. Lenders view you as less risky, increasing your chances of approval.

Example:

Consider a scenario where your DSCR loan application is on the edge of approval. With a good credit score, your lower interest rate ensures your property has a positive cash flow, making it more likely for the loan to get approved. On the other hand, a lower credit score increases your interest rate, potentially leading to negative cash flow, and thus, your loan application might be rejected.

4. Options

A good credit score gives you more options. As a result, more lenders will compete for your business, which results in better loan terms.

Example:

With a high credit score, you will find multiple lenders who are eager to offer you a DSCR loan. This competition can lead to lower origination fees and better interest rates. Conversely, a lower credit score means fewer lenders will be willing to work with you, and those who do may charge higher fees and interest rates, reducing your overall profitability.

Conclusion

In conclusion, your credit score is a vital tool in real estate investing. It affects your cash flow, LTV, loan approval, and the options available to you. By avoiding these common credit score mistakes, you can make your investment journey smoother and more profitable. Always remember, maintaining a good credit score is within your control and can significantly impact your success as a real estate investor.

For additional tips and tools that will improve your credit score, visit our website at The Cash Flow Company and check out our Credit Score Checklist.

Finally, watch our most recent video to find out more about how you can:Avoid These 4 Credit Score Mistakes for Your DSCR Loan

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Maximizing Rental Profits: Ensuring Your Property Makes Money

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Maximizing Rental Profits: Ensuring Your Property Makes Money

In order to be successful in real estate investing it is crucial that you maximize your profits on rental properties. Previously we discussed the roadblocks in real estate investing and what needed to be done in order to avoid them. Today we are going to focus on the 4th roadblock, which is rentals. How can you ensure your property makes money? Let’s dive in and find out more.

What makes up monthly costs?

In real estate investing it is important to know your numbers. What exactly does that mean? It all begins by calculating the monthly costs and subtracting them from the rental income. The monthly costs include interest, taxes, insurance, HOA, and flood. Another thing to keep in mind if you plan on using a DSCR loan is the DSCR ratio. This value would be added into the monthly costs as well. Here at The Cash Flow Company we know that numbers are not for everyone! We are happy to help walk you through things to ensure that the property will make money before you dive in! 

Does the property cash flow?

Real estate investors need to make sure that the property will make money before diving into the deal. By taking the time to do the calculations, you can quickly determine if the property will have a positive cash flow. Just to clarify, a positive cash flow is created when the rental income is greater than the monthly costs. It is imperative to determine this before purchasing a property, closing on a loan, or beginning a BRRRR. Don’t get into properties if you can’t afford to take losses. You never know what expenses may come up in the future.

The impacts of today’s market.

In today’s market, you need to break even if not make a little money monthly on the rental property. Predictions indicate that rates will be going back down this year to 5.5%. When rates decrease, it allows you to make even more on your investment property by refinancing. This is the ideal situation for a BRRRR, because you will have the opportunity to refinance. It creates the opportunity to take advantage of a lower rate, while capturing the equity. A DSCR on the other hand has prepayment penalties that could affect your ability to refinance. What do we mean by prepayment penalties? A prepayment penalty is a percentage of the remaining balance that will be charged if you pay off the loan early, refinance, or sell the property. While no one has a crystal ball predicting the future, it is important that you take everything into consideration beforehand.

The fine line between being approved or denied for a loan.

For a DSCR loan as well as many others, loan approvals are becoming more challenging. Whether it’s changes in your credit score or the DTI, investors walk a fine line. Being denied could cost $5K to $10K in earnest money. In looking at a BRRRR, if you have a fix and flip loan, bridge loan, or even a hard money loan, you may not be able to refinance it due to the bank’s requirement changes. The increased interest rates that are associated with the requirement changes could cause your property to have a negative cash flow as opposed to a positive one. When you are looking at investing in rental properties it is imperative that you are approved for financing prior to going shopping.

In conclusion.

Real estate investing is heavily reliant on funding and leverage. It is a high intensity business that is reliant on someone else giving them money at a rate that makes sense. Whether you are just starting out or you are a  seasoned investor, it is important that you understand numbers. In doing so, you will create the wealth you need to  succeed in this business. 

How can you start Maximizing Rental Profits and  Ensuring that Your Property Makes Money? Watch our most recent video to find out more!

Not sure where to begin or how to do the calculations to ensure cash flow? Contact us today! We are happy to walk you through the numbers.

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What is an Interest-Only Loan?

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What is an Interest-Only Loan?

Are you a real estate investor looking for ways to boost your cash flow and make your investments more manageable? If so, you might want to consider an interest-only loan. These loans are becoming more popular among investors who want lower monthly payments and more flexibility with their finances.

How Does an Interest-Only Loan Work?

For the first few years (usually 5, 7, or 10 years), you only pay interest. After this period, you start paying both interest and principal. This means your payments will go up, but by then, you might be earning more rent or have other ways to cover the higher payments. Consequently, you can plan your finances better knowing when the higher payments will begin.

When is an Interest-Only Loan a Good Idea?

Interest-only loans can be great for:

  • Investors wanting to improve cash flow: Lower payments mean more money in your pocket each month. Therefore, you can handle your financial obligations more easily.
  • People planning to sell or refinance soon: If you plan to sell or refinance before the interest-only period ends, you can benefit from lower payments without worrying about the higher payments later. Thus, this can be a strategic move to maximize your investment.
  • Short-term projects: If you’re working on a project that will increase your income soon, like renovating a property to increase rent, this can help bridge the gap. As a result, you can complete your projects without financial strain.

Example:

Let’s say you own a rental property, but your current loan payments are too high compared to your rental income. By switching to an interest-only loan, your monthly payments go down. This helps you qualify for more loans, improve cash flow, and even take out more money to invest in another property. Consequently, you can grow your investment portfolio more effectively.

Conclusion

In conclusion, interest-only loans can be a powerful tool for real estate investors. They offer better cash flow, easier loan qualification, and more flexibility with your money. If you think an interest-only loan might be right for you, talk to a lender or financial advisor to explore your options. Therefore, taking advantage of interest-only loans can help you achieve your real estate investment goals more efficiently.

Ready to explore interest-only loans further? Visit our website, TheCashFlowCompany.com, to learn more. We offer a simple inquiry form where you can share your details. Don’t worry, we don’t do hard credit pulls or make frequent calls. We’re here to provide helpful advice and see if an interest-only loan is right for you. If it works, great! If not, no pressure.

Watch our most recent video to find out more about: What is an Interest-Only Loan?

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Top 3 Benefits for Real Estate Investors

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Intro to Interest Only Loans: Top 3 Benefits for Real Estate Investors

Interest-only loans are becoming a popular choice for real estate investors. Why? Because they offer unique advantages that can make a big difference in your investment strategy. Today we will explore the top three benefits of interest-only loans and how they can help you qualify more easily, improve your cash flow, and access larger loan amounts. Let’s dive in and see why an interest-only loan might be the right move for your next investment.

What is an Interest Only Loan?

An interest-only loan is exactly what it sounds like. You only pay the interest on the loan for a set period of time. Unlike typical mortgages where you pay both interest and a bit of the principal, an interest-only loan keeps your payments low by only covering the interest.

Benefits of Interest Only Loans

Interest-only loans offer several advantages, especially in today’s market. Here are the top three benefits for real estate investors:

1. Easier Qualification

One of the biggest benefits of an interest-only loan is that it can make it easier to qualify for financing.

Example: Let’s say you want to buy a rental property, but the current rent isn’t high enough to qualify for a regular loan. By switching to an interest-only loan, your monthly payments are lower. As a result, this reduces your expenses and improves your chances of meeting the lender’s requirements.

2. Improved Cash Flow

Next, interest-only loans can significantly boost your cash flow. With lower monthly payments, you have more money available each month.

Example: Imagine you own several rental properties. With an interest-only loan, your payments are smaller, giving you more cash each month. Consequently, this extra money can be used for renovations, paying off other debts, or simply enjoying a higher income.

3. Greater Loan Amounts

Finally, interest-only loans can help you access larger loan amounts. Since your payments are lower, you might qualify for more money.

Example: Suppose you’re an investor looking to cash out on a property to fund another project. By opting for an interest-only loan, you reduce your payments and can pull out more cash. This gives you the capital needed to start your next investment sooner.

How to Get Started with an Interest Only Loan

Ready to explore interest-only loans further? Visit our website, TheCashFlowCompany.com, to learn more. We offer a simple inquiry form where you can share your details. Don’t worry, we don’t do hard credit pulls or make frequent calls. We’re here to provide helpful advice and see if an interest-only loan is right for you. If it works, great! If not, no pressure.

In conclusion, interest-only loans are a fantastic tool in the right market and for the right investor. They help you qualify easier, improve your cash flow, and access more funds. Whether you’re building, renovating, or just want better cash flow, consider if an interest-only loan fits your strategy.

Watch our most recent video to find out more about: Intro to Interest Only Loans: Top 3 Benefits for Real Estate Investors

 

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What Does Debt Service Coverage Ratio Mean?

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What Does Debt Service Coverage Ratio Mean?

Today we are going to discuss what debt service coverage ratio means and how a DSCR loan can help you achieve your investment goals. Thankfully there are a multitude of products that are available for investors to not only purchase new properties, but to refinance as well. Whether or not you have a job, just changed jobs, or write everything off on your taxes, there are products out there for you. How can a DSCR loan help you? Let’s take a closer look!

What does debt service coverage ratio mean?

The debt service coverage ratio is where your property breaks even. Just to clarify, that is when the income from the property and the expenses break even. While every property has a different break even point, this is the value that lenders will be looking at to determine whether or not the property qualifies for a DSCR loan. The expenses that lenders take into consideration are the mortgage payment (including interest), taxes, insurance, flood, and HOA. For example, if your rent is $1,000, then your expenses need to be $1,000 or less in order to qualify for a DSCR loan. The best scenario would be if your rents were $1,500 and the expenses were $1,000. This would create a $500 cash flow for the property.

A DSCR is the best loan option!

One of the most versatile loan options available for investors is a DSCR loan. How do you qualify? As long as your rental property will cover the debt, you will be able to qualify for a DSCR loan. Unlike traditional loans, a DSCR loan will not take into consideration when you started your job or how long you’ve been self-employed. Instead, the lender’s primary focus is whether or not the income from the property qualifies for the loan.

Contact us today!

Here at The Cash Flow Company we are happy to run through the numbers with you to see what product is best for you. Contact us today to find out more about how you can qualify!

Watch our most recent video: What Does Debt Service Coverage Ratio Mean?

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Funding strategies for PadSplits

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Funding strategies for PadSplits

Today we are going to discuss some funding strategies for PadSplits. PadSplits are something that will be growing more and more popular in the near future due to affordability. Creating a PadSplit property will double and even triple your income off of a property.  How can you fund a PadSplit? Let’s take a closer look! 

What is a PadSplit?

A PadSplit takes a regular house that is a 3 bedroom/1 resident, and converting it. The property will then have 6 to 8 bedrooms/6 to 8 residents. To clarify, individuals rent the property by the bedroom as opposed to renting the whole house. These bedrooms are a suite and would have a private bathroom attached. Only the kitchen is a shared space. Each bedroom can then be rented by the week, month, or year depending on individual needs. A PadSplit property creates an affordable property for investors because they get 2 to 3 times the rent for the same property.

How do you finance a PadSplit?

PadSplits are a newer concept in real estate investing. That means that they are new to the lending community as well. Investors need to approach this strategically to get the funding they need to be successful. Right now there is a more limited market for PadSplits, however, down the road, it will become a more common. Here at The Cash Flow Company we receive a lot of inquiries regarding PadSplits and the financing options that are available. Let’s take a look at some of the options that are available for pad splits.

  1. The most important thing that you need to do is to get it funded before splitting it up. Get the property locked into a 30 year loan before dividing it into multiple units.
  2. There are also options under commercial for DSCR that could be used for PadSplits. These options are continuing to grow and there will be more available in the next few months.
  3. If you are looking for a refinance and you already have a PadSplit it is important that you have 12 months of experience and can show the numbers from bank statements or PNL from your company. This would allow us to use the income from the property to refinance the property

Is a PadSplit right for you?

We are here to help answer your questions regarding PadSplits and run through the numbers with you to see if it’s right for you. If you do it right and make your payments, you will have the opportunity to make a lot of money! Contact us today to find out more and get in before everyone else does! 

Watch our most recent video to find out more about Funding strategies for PadSplits.

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PadSplit: Introducing the Newest Real Estate Investment

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PadSplit: Introducing the Newest Real Estate Investment

Today we are going to discuss the newest real estate investment concept, PadSplit! This is something that will be growing more and more popular in the near future due to affordability. By creating a PadSplit property, investors will be able to double and even triple their income off of a property.  How do you create affordable homes that are cash flowing?  Let’s take a closer look! 

What is a PadSplit?

A PadSplit is where you take a regular house that is a 3 bedroom/1 resident, and convert it to a property that has 6 to 8 bedrooms/6 to 8 residents. In doing so, individuals are renting the property by the bedroom as opposed to renting the whole house. To clarify, these bedrooms would be a suite and would have a private bathroom attached with only the kitchen being the shared space. Each bedroom can then be rented by the week, month, or year depending on individual needs. By creating a PadSplit property it creates an affordable property for investors because they are getting 2 to 3 times the rent that they would have before. Also, no need to worry about rooms not being rented. There are companies available that can help to ensure your property is full. 

For example:

Regular investment property: 4 Bedroom with 1 stream of income totalling $2,300 

PadSplit property: 6 Bedroom with 6 streams of income totaling $4,800

Affordability is key

Nowadays, more people are only able to afford $800 per month for housing. This includes young people, old people, singles, and others who are traveling for work. Families are typically the ones who want the full house, as opposed to those who are just searching for affordability. PadSplits are becoming a bigger part of the real estate community because there is such a need in the community to create affordable housing. By putting 6 to 8 units into a property, investors can then afford to buy properties where people want to live. 

A growing need in our community.

There is going to be a greater need for PadSplits and smaller units in order to help people afford housing. With the ever increasing taxes, insurance, and rising rates, affordability means less. Also, there are a lot of people who need less and don’t want to take care of a whole house. That is where PadSplit can really make a big impact not only for investors, but for the public as well. It provides both affordability and the opportunity to interact with real people on a regular basis.

How do you finance a PadSplit?

PadSplits are a newer concept in real estate investing and because of that, they are new to the lending community as well. It is important that investors approach this strategically in order to get the funding they need to be successful. Keep in mind that there is a more limited market for PadSplits when you decide to sell the property down the road. However, it is just a matter of time before this concept becomes more common within our community. Here at The Cash Flow Company we are receiving a lot of inquiries regarding PadSplits and financing options. Let’s take a look at some of the options that are available for pad splits.

  1. The most important thing that you need to do is to get it funded before splitting it up. Get the property locked into a 30 year loan before dividing it into multiple units.
  2. There are also options under commercial for DSCR that could be used for PadSplits. These options are continuing to grow and there will be more available in the next few months.
  3. If you are looking for a refinance and you already have a PadSplit it is important that you have 12 months of experience and can show the numbers from bank statements or PNL from your company. This would allow us to use the income from the property to refinance the property

Is a PadSplit right for you?

We are here to help answer your questions regarding PadSplits and run through the numbers with you to see if it’s right for you. If you do it right and make your payments, you will have the opportunity to make a lot of money! Contact us today to find out more and get in before everyone else does! 

Watch our most recent video to find out more about PadSplit: Introducing the Newest Real Estate Investment.

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Create Generational Wealth with a Portfolio Loan

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Create Generational Wealth with a Portfolio Loan

Real estate investors enter into this community with the goal of creating generational wealth. Generational wealth can be achieved by creating a portfolio of homes, as opposed to just acquiring just a few properties. Many investors wonder what needs to happen financially in order to successfully create a portfolio. Success begins by finding the right portfolio loan for your needs. Let’s take a closer look at how you can create generational wealth today by using a portfolio loan!

Changes in lending options. 

Investors who expand from a few properties to a portfolio of properties will need to open the door to other loan products. Those who invest in single family homes or have 1 to 2 units are using traditional loans, conforming loans, bank loans, or single DSCR loans. If you are transitioning to a portfolio loan it is important to take everything into consideration before diving in. 

Conforming loans:

Conforming loans limit investors to 10 properties and have a lot of qualifications that you need to meet. 

Bank loans:

Many people use bank loans when they have a portfolio, however, banks normally write their products for 5, 7, or 10 years. This means that every 5, 7, or 10 years investors have to refinance. Some clients are having to refinance properties every year depending on how their cycle is set up.

Portfolio loan:

A portfolio loan is used for 5 to 100 properties and covers all of the properties in one loan. This umbrella loan can not only help investors who have mixed properties, but it also prevents you from needing multiple loans. Another benefit is that a portfolio loan will provide you the support you need as you expand the number of doors per unit. 

Is a portfolio loan right for you?

Benefits to a portfolio loan:Work smarter not harder! 

  1. All mixed properties are under one blanket
  2. One monthly payment
  3. Some have nonrecourse (Nonrecourse does not require a personal guarantee)
  4. Commercial based
  5. The loan is bases on the income from the properties
  6. Don’t have to pay for underwriting on each property
  7. Typically there is a better rate on a larger loan
  8. Can clear up some slots for you.
  9. Can use another person’s credit score if they are under your LLC 

Cons to a portfolio loan:

  1. Lower LTV
  2. Individual appraisals are needed for each property
  3. Pulling a property out is a hurdle (You won’t be able to sell properties to generate money)

Flexibility of a commercial loan.

A commercial loan can provide the flexibility you need to create generational wealth. One of the biggest benefits is that it provides the opportunity for you to use another person’s credit score as long as they are under your LLC. In doing so, a higher score can not only keep the transaction going, but it can open more doors. Another thing to keep in mind is that commercial loans are primarily based on the cash flow and the property value. This allows you to lock them in when rates are good so that you can use the slots to build up some additional properties on the side.

Create generational wealth.

By using a portfolio loan you are creating a bigger asset. More importantly commercial loans, unlike traditional loans, will not show up on your credit. Another thing to keep in mind is that banks often restrict your growth either by the number of properties or the loan amount. Those who are aggressive and use a portfolio loan have the flexibility they need to create the generational wealth that they want.

Is a portfolio loan right for you?

Real estate investors who have 20 properties or more need to start searching for other lending options. A portfolio loan is an excellent way to put all of your properties under one blanket loan. Is this the right loan for you? Contact us today to find out more about portfolio loans and other ways you can create generational wealth. 

Watch our most recent video to find out how you can  Create Generational Wealth with a Portfolio Loan.

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Better Credit, Better DSCR Loan

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Better Credit, Better DSCR Loan

Today we are going to explore how better credit results in a better DSCR loan. Here at The Cash Flow Company we have a magical solution that can easily solve this problem, which is the 911 usage loan! Our goal is to help people raise their score immediately so that they can get the loan they need. On average we see 7 out of 10 people struggle with a usage problem. This prevents them from being successful in real estate investing. Don’t fall into this trap! Improve your credit today and get the DSCR loan you need.

Usage problem uncovered.

Usage loans are very common in this business because many investors have a usage problem. The usage problem is created when investors excessively use their personal credit cards or personal loans to pay for their business expenses. This will affect you everywhere you go, whether it’s a flip project or you’re applying for a DSCR loan. Here at The Cash Flow Company we deal a lot with credit score struggles, fix and flip properties, and rental properties. No matter what the project is, having good credit is the key to getting the funding you need.

Credit score struggles.

The percentage that is used on your credit card is referred to as the credit utilization rate. If you are above 30% usage on your credit cards, your  score  will begin to decrease. Investors who come in with a 640 or a 660 credit score often need to increase their score to 700. In doing so, they will be able to get either the LTV or rate they need to create cash flow. Nowadays rates are still in the 7’s or 8’s. That is why it is so important to get the best rate you can in order to maximize both your LTV and cash flow. 

How can a private loan help your credit?

One quick way to increase your credit score is to use a 911 loan. The 911 loan pays down credit card debt by using private money. These funds are secured with a property to guarantee the repayment of the loan. As a result of removing the credit cards from the personal credit report, the credit score will reflect the changes after the statement cycle.

Where do you get started?

The first thing that you need to do is run a simulation. We ask investors to do a simulation on MyFico, Credit Karma, or Experian to see how paying off a credit card will impact their credit score. We have seen people max out their credit cards at $3K, while others are maxed out at $175K. These maxed out credit cards not only impact credit scores, but they also impact DTI as well. To clarify, DTI stands for the debt to income ratio. 

For example: A client in Texas just went through a simulation and his credit score went up 100 points. He went from 653 to over 753 by simply paying off the credit cards that he had maxed out. 

We are here to help!

Here at The Cash Flow Company we are here to help you get on the right path. Remember better credit will result in a better DSCR loan! Get your credit card debt off of your personal credit report today! Contact us today to find out more about usage loans and how they can set you up for long term financing. To clarify, the usage loan is a private loan that does not show up on your credit for 60 to 90 days and won’t affect your DTI. Now is the time to set yourself up for success! 

Watch our most recent video to find out how Better Credit, can get you a Better DSCR Loan. 

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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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