Tag Archive for: DSCR loans

DSCR Loans: What Type of Properties Qualify?

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

Unique properties require unique loans.

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

The lending box.

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

We are here to help!

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

Contact us today to find out more about DSCR loans! 

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

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DSCR Loans: How Flexible Are the Rules and Guidelines?

Many investors wonder how flexible the rules and guidelines are for DSCR loans. Do all DSCR lenders have the same guidelines or follow universal rules? The answer is no! Unlike Fannie and Freddie, or traditional lenders, DSCR loans do not have the same guidelines. Instead, DSCR loans are regulated by a few big investors and do not force people to fit into a computerized box. This creates the opportunity for investors to find the perfect loan to meet their needs. 

Every lender is different.

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

Unique properties require unique loans.

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

The lending box.

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

What to look for?

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

We are here to help!

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

Contact us today to find out more about DSCR loans! 

Watch our most recent videoDSCR Loans: How Flexible Are the Rules and Guidelines?” to find out more! 

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DSCR Loan Explained – Easy Rental Loan for Investors

Are you looking for a lightning fast easy loan for your rental properties? Something that comes with affordable, long term fixed rates? Then we have your solution. We call it the Easy Rental Loan that is for investors, but other lenders in the industry call it a DSCR loan. A DSCR is also known as a debt service coverage ratio loan, measures your ability to cash flow in order to pay your monthly costs. There are two key items that you need to know about the Easy Rental Loan for Investors. Let’s take a look.

Two key items:

  1. A decent credit score
  2. A lease that covers the monthly cost of your property

The Monthly costs include:

  1. Mortgage payment
  2. Property taxes
  3. Insurance
  4. HOA fee

Benefits for investors:

If your property positively cash flows, meaning that you are making more than you spend on the property, then you can qualify for an easy rental loan. Better yet, you can still qualify for good rates and a 30 year fixed term. 

What makes it Easy:

This is an amazing product for investors. Unlike traditional lenders you don’t have to worry about submitting tax returns, being in business for two or more years, or having too many financed properties. It really doesn’t get easier than that

Contact us today!

So if you’re looking for a fast, efficient, and easy solution to fund your rental properties, then look no further. We have the easy rental loan waiting for you.

Ready to chat? Great! Our team here at The Cash Flow Company is here to help. We are eager to set you on a path that helps you make the kind of money you need to live the life you want.

Watch our most recent clip to find out more about the Easy Rental Loan.

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Why You Should Buy Rental Properties Now

Investors are asking why they should buy rental properties with interest rates being so high. While no one has a crystal ball to see the future of interest rates, there is a market trend that many seasoned investors follow. They buy when rates are high, and then refinance when the rates drop again. In doing so, the seasoned investors put themselves ahead of the game. Consequently, by already having a property in hand, it takes the pressure off not having to rush into deals when rates drop. You too will be able to take advantage of the lower rates without scrambling to find properties. Below is an example of how cash flow is being affected by the current interest rates. Our focus is on the future. The ultimate goal is to buy now in order to create optimum cash flow later. 

DSCR Loan

Today we are going to dive into an example illustrating why purchasing rental properties now will increase your cash flow in just a few years when using a DSCR loan. What is a DSCR loan? A DSCR loan are loans focused on the rents from a rental property and the credit worthiness of the borrower. While the increasing interest rates are making it harder for investors to qualify for a DSCR loan, those who are able to find good properties will in turn set themselves up for success when rates go back down.  

Example:

$250K DSCR Loan 
Time Frame Percentage Expected Payment Change Over Time
Couple years ago 3.75% $1,158
Now 9% to 11% 

(depending on LTV)

$2,011 $853 

Payment Increase 

In the Future 7% 

(you refinance $2,011 principle)

$1,663 $348

Cash flow increase 

The Optimus  5%

(Looking if it dropped from 9% to 5%)

$1,342 $669 

Cash flow increase 

What is a “good property” to buy now?

My suggestion for investors is that they need to find something that has good equity and at 25% to 30%. As long as it is breaking even, then in a year or two when rates go back down, you will be able to refinance to increase your cash flow without buying another property. The more affordable the homes are, the bigger the market becomes. The good news is that buyers are going to start buying again, and the values around you are going to increase. While no one can predict that the interest rates will go back down to 2.5% for owner occupied and 3.75% for investors, there are indications that interest rates will drop in 2024. 

What else can you do to succeed in this market?

You’re not alone! There are a lot of people who are questioning if they should buy now. Navigating this market can be overwhelming for many investors. By doing your research and investing wisely, you will not only increase cash flow, but create generational wealth as well. I will be doing a follow up video that will further show you the effect that interest rates have on cash flow. This will include a look from the buyers side, and how the market is going to push up your values. 

Watch our most recent video about why rental properties fail to cash flow and how you can set yourself up for success by investing now.

Do you have questions about DSCR loans or how you can create generational wealth? Contact us today!

 

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How Rising Interest Rates Impact Cash Flow

Today we are going to look at an example of how rising interest rates impact cash flow for real estate investors who are using a DSCR loan. To clarify, a DSCR loan is a loan that focuses on the rents from a rental property and the credit worthiness of the borrower. In today’s market, the increasing interest rates are truly affecting payments and more importantly they are negatively impacting cash flow. 

Example:

$250K Loan 
Time Frame Percentage Expected Payment Change over Time
Couple years ago 3.75% $1,158
Now 9% to 11% 

(depending on LTV)

$2,011 $853 

Payment Increase 

In the Future 7% 

(you refinance $2,011 principle)

$1,663 $348

Cash flow increase 

The Optimus  5%

(Looking if it dropped from 9% to 5%)

$1,342 $669 

Cash flow increase 

This example allows us to visualize why rental properties are failing to cash flow while using a DSCR loan. As a result to higher interest rates, investors are experiencing increasing payments for their properties. This is in addition to rising taxes, and increasing insurance expenses as well. As a result, investors are struggling to break even, let alone create cash flow. In sum, all of these pressures are making it harder to be successful in real estate investing. 

What’s next?

I will be doing a follow up video that will further show you the effect that interest rates have on cash flow. This will include a look from the buyers side, and how the market is going to push up your values. While we don’t have control over the interest rates, we can instead use this time to make the most of the market. By investing in undervalued properties now, you can then refinance when rates go down. This in turn will create the cash flow you need to succeed in the years to come.

Watch our most recent video about why rental properties fail to cash flow and how you can set yourself up for success by investing now.

Do you have questions about DSCR loans or how you can create generational wealth? Contact us today!

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DSCR Loan: Why Rental Properties Fail to Cash Flow

Today we are going to dive into an example illustrating why rental properties fail to cash flow using a DSCR loan. A DSCR loan are loans focused on the rents from a rental property and the credit worthiness of the borrower. In today’s market, the increasing interest rates are truly affecting payments and more importantly they are impacting cash flow. As a result, it has become harder and harder to qualify for a DSCR loan. Likewise, DSCR ratios are changing also. What used to be a 1:1 ratio (rents compared to expenses), has now increased depending on your LTV. Therefore, many investors can no longer qualify because there is no cash flow for the property. So, what does this look like numbers wise? Let’s take a closer look.

Example:

$250K Loan 
Time Frame Percentage Expected Payment Change Over Time
Couple years ago 3.75% $1,158
Now 9% to 11% 

(depending on LTV)

$2,011 $853 

Payment Increase 

In the Future 7% 

(you refinance $2,011 principle)

$1,663 $348

Cash flow increase 

The Optimus  5%

(Looking if it dropped from 9% to 5%)

$1,342 $669 

Cash flow increase 

In this example it is clear to see why rental properties fail to cash flow, especially with a DSCR loan. The increasing rates have caused payments to increase as well. When combined with ever rising taxes and insurance expenses, investors are struggling to break even, let alone create cash flow. All of these pressures are making it harder to be successful in real estate investing. 

Why is it a good time to buy?

So, why is it a good time to buy? My suggestion for investors is that they need to find something that has good equity and at 25% to 30%. As long as it is breaking even, then in a year or two when rates go back down, you will be able to refinance to increase your cash flow without buying another property. The more affordable the homes are, the bigger the market becomes. The good news is that buyers are going to start buying again, and the values around you are going to increase.. While no one can predict that the interest rates will go back down to 2.5% for owner occupied and 3.75% for investors, there are indications that interest rates will drop in 2024. 

What’s next?

I will be doing a follow up video that will further show you the effect that interest rates have on cash flow. This will include a look from the buyers side, and how the market is going to push up your values. If you can find a good undervalued property now, then you are going to not only create cash flow, but create generational wealth as well. You’re not alone! There are a lot of people who are questioning if they should buy now. 

Watch our most recent video about why rental properties fail to cash flow and how you can set yourself up for success by investing now.

Do you have questions about DSCR loans or how you can create generational wealth? Contact us today!

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What do you need to know about your DSCR loan so your investing is easy, lucrative, fun, and fast?

We want to give you the tools you need to win in the real estate game. 

In a recent article, we learned how lenders look at your credit score to determine the maximum loan they’ll offer. Today, we want to apply the same principles specifically to DSCR loans.

Some investors focus on fixing and flipping properties, while others create wealth through rentals. DSCR loans are one of the most useful tools for investors that are specifically designed for rental properties.

Understanding Leverage

Leverage is what we call using other people’s money. This typically comes in the form of bank loans, but it’s not limited to that.

Things like financial gifts, small loans from friends and family, your credit score, and loans from companies like Hard Money Mike can all give you leverage.

This leverage creates an equal playing field in the investing world. You don’t need to be wealthy to use leverage well.

Credit Score as Leverage

In this day and age, credit scores matter a lot. A good credit score is a powerful tool that you can use to increase your leverage.

We also sometimes talk about money buckets. Your ‘money bucket’ is the money you bring to the table. Obviously, if you’re a newer investor, your money bucket might not have as much personal money to fill it, in which case credit score matters even more.

However, strategically using your credit score, credit cards, business cards, HELOCs, etc. to fill your money bucket now is a great way to make sure you’re ready for future investing.

How Does Credit Score Impact a DSCR Loan?

DSCRs are investor-friendly loans. Banks calculate these loans based on the break-even point between the income of the property (rents) and the payments for that property (taxes, insurance, HOA, etc.). 

Let’s look at an example to see how credit score can impact your DSCR loans:

Once you subtract your expenses from the monthly rent, you’re left with $2,100. This means that, in order to maintain a DSCR ratio of 1 (the minimum to break even), you need a loan that has monthly payments of $2,100 or lower.

In the following example, Investor 1 has maintained a high credit score while Investor 2 has dipped below most banks’ minimum requirements.

In the two examples above, everything is the same except for the credit scores, and the effect is significant. Investor 2 can’t get a loan to refinance, and they’re either going to have to sell the property or keep their original loan for far longer than they wanted. 

Regardless, the person with the higher score is able to move through the investing process easily, lucratively, and quickly.

A bad credit score can tank your leverage and sabotage your investing by creating unnecessary roadblocks for your projects. 

How to Fix a Bad Credit Score

In the example above, Investor 2 struggled with a usage issue. This means that, even though they paid off their balance on time every month, excessive use of their personal credit card ended up driving down their score.

Here’s the deal: personal credit cards are not built to handle consistent real estate investing expenses. If you’re doing consistent real estate investing, we recommend looking into business credit cards.

Business cards often have higher usage limits which are ideal for the constant wear and tear of this industry.

You can also look into secured usage loans as a way to quickly boost your credit score.

Main DSCR Loan Takeaways

Leverage is king, and credit scores are an important piece of your leverage.

A good credit score makes it easier for you to qualify for and refinance your DSCRs. They can also help you put less money down on a property and increase your cash flow. 

Take care of your money buckets and credit score on the front end so you can succeed when deals come your way.

To help you get prepared, you can explore our website where we have free tools you can download to help you get organized, including a DSCR calculator and a business credit card marketplace.

If you’re interested in learning more about how you can E.L.F.F. your investing, feel free to reach out to us at Info@TheCashFlowCompany.com or fill out a contact card.

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If you’re new to investing in rental properties, understanding how DSCR loans work is essential.

In the investment world, rental properties are a great source of wealth. The financial potential in fixing up places to then rent out is a very lucrative model, especially in the current housing economy.

What is a DSCR Loan?

DSCR loans are specifically designed for real estate investors who hold rental properties. 

The acronym literally stands for Debt-Service Coverage Ratio which is a fancy way of saying that the loan cares about the cash flow of a property.

The great news, especially for new investors, is that accessing these loans is less dependent on personal or business income. Even if you’ve just begun a new business, qualification for DSCR depends almost entirely on the potential value and expenses of the rental property itself. 

What is a DSCR Ratio?

The DSCR ratio is a simple calculation that compares income to expenses—the cash flowing in vs. the cash flowing out—on a single property.

Essentially, a DSCR ratio of 1 simply means that the income and expenses equal each other.

The DSCR ratio measures the break-even point of your investment. So long as you bring in the same amount of money as you invest, you won’t lose anything.

However, a DSCR ratio of higher-than-1 is even better. A higher ratio means that you’re bringing in more money than you’re spending—generating cash flow and building wealth.

Use Our DSCR Loan Calculator

To help you find your projected rents, expenses, and ratio, you can use our DSCR loan calculator. It’s a free, user-friendly download that will help you estimate your DSCR ratio to see if your investment property is going to break even.

Once you have an estimate for your ratio, it’s time to start looking for loans. 

Finding a DSCR Loan

Banks typically like to see ratios of 1 or higher. 

However, if you’re investing in rental properties that might not break even, you can often still find a loan, but you might be stuck with higher rates.

You can also check out our website and inquire about the DSCR options we offer

 

Read the full article here.

Watch the full video here:

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How can your credit score impact DSCR loans in the real estate investing world?

Credit score impacts investors potentially more than anything else. Lenders will adjust the rates and terms of loans based purely on the three digits of credit score on a person’s financial records. 

Leverage is the key to successful real estate investing, and understanding the impact of credit score is a critical facet of that leverage. 

This article uses real-life examples to illustrate the difference a good credit score makes in the investment world.

How Can Credit Score Impact DSCR Loans?

Let’s look at how DSCR loans can be impacted by a low credit score using two example clients:

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

We see a lot of clients looking at cash out refinancing, so we’ll look at that type of project.

What’s the Difference?

If Person 1 has a 660 credit score, not only will they likely struggle to find lenders, but 65% is about the best they could look for. This directly translates into less money out of that property.

In contrast, Person 2 with a 740 score should be able to fairly easily get 75%. The more money out, the better your leverage.

As you can see in the chart above, not only does the person with a lower credit score get less cash out, but their rate is also higher which raises their monthly payments. 

Credit Score Matters

Although at first glance, it’s tempting to just look at the monthly payments and think, “It’s not that big of a difference,” don’t fall into that trap!

The person with the higher score not only has a lower monthly payment, but because they also got a higher Cash Out % which gave them an additional $35,000 out. 

Having that good credit score makes it possible to keep cash flowing. If you’re serious about investing, your credit score matters.

Read the full article here.

Watch the full video here:

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DSCR Loans vs. Local Banks

Categories:

Should you look for DSCR loans or are local banks going to have what you need? 

Whenever we’re talking about rentals, we’re always going to come back to cash flow, and it’s important to find the best cash-flowing loan.

We want to look at the pros and cons of each type of rental loan to help you understand which might be the best option to help your cash flow for a specific deal.

DSCR Rental Loans

DSCR stands for debt-service coverage ratio. You’ll often see these loans come up for anything from a single family home to a larger multi-unit property.

Pros of DSCR

1. Flexibility. While traditional loans find strength in their consistency, investors sometimes find themselves needed a lot more flexibility. That’s where DSCRs come in. 

DSCRs are significantly more flexible because lenders and investors can negotiate unique terms that fit a project’s specific needs.

2. Ease! The biggest benefit of DSCR is ease. It doesn’t matter if you’re employed, what your tax return says, or how much income you have flowing. DSCR lenders only care about the rental property and whether it has the potential to produce cash flow.

3. Close in an LLC. Another big thing in the real estate investor world is closing in an LLC. Unlike traditional bank loans, you can both buy and refinance in an LLC, so you’re protected all the way through.

4. Available in all 50 States. No matter where you are, you will be able to find available DSCR rental loans. However, the details might vary.

Each lender offering DSCRs have their own terms, guidelines, etc. This makes it incredibly important to shop around to make sure you find the right fit.

5. Unlimited Number of Properties. You will find so many options in the DSCR world. You can find loans for specific properties or do a blanket loan for $50 million that could cover as many units as you wanted.

Always make sure that the lender and loan are the right fit for you, and remember that there are a ton of options available!

Cons of DSCR

1. Prepayment Penalties. The number one downside of DSCR loans are the prepayment penalties. If you’re looking to get in and out of a property within the first three to five years, there’s a prepayment penalty unless you buy it out.

2. Higher Rates. Rates for DSCRs typically run anywhere from 1%-3% higher than traditional bank loans, depending on credit score, size of loan, etc.

3. Might Disappear or Change Quickly. DSCR loans are prone to change quickly. When shifts happen in the real estate market, they might even disappear for a brief time before showing up again.

While traditional bank loans are more slow-moving, DSCR moves quickly, and sometimes that can become an issue to real estate investors.

4. Can’t Home Hack. DSCR also does not allow you to live in any of the units you’re working on as you could with an owner-occupied traditional loan.

Local Banks for Rental Loans

Another option that fewer people consider is looking at loans from small, local banks. These local banks sometimes offer in-house products that can offer more flexible loans to people investing in their local area. 

Pros of Small Bank Loans

1. More Flexibility. Depending on your area, some local banks love real estate investors. If you shop around and find a small bank willing to invest, these loans often offer more flexibility than larger traditional loans. 

Because local banks are more likely to understand the area, unique properties that might seem strange to larger lenders might be more seriously considered by locals.

2. Decent Rates. Rates for local banks typically fall between traditional loans and the higher DSCR rates. However, you do keep more flexibility (the appeal of DSCR) for a lower rate.

3. No Prepay Penalties. Most local banks don’t have the extensive prepay penalties like DSCRs.

4. Good for Smaller Towns and Loans. Banks often want to invest in their local areas, and they’re often more willing to give out smaller loans for those areas as well. Of course, these banks still want to see good income and good credit.

Cons of Local Bank Loans

1. Each is Different. Every small bank makes their own rules. Because of this, its so important to shop around to find a bank that will offer you good rates for your specific project.

2. Lending Limits. Local banks also have lending limits. If you’re putting a portfolio together or doing multiple properties, you might hit up against that lending limit, and the bank might have to step away from offering you a loan.

3. Shop Around. As we already mentioned, one of the big negatives is you have to shop around. Small bank loans can also change like DSCR loans, so just because you talked to a bank at one point doesn’t exclude them from being considered again in the future.

4. Limited Areas/Regions. They also limit their areas and don’t want to go too far out of that market. Look for banks in the local area of your investment property.

5. Callable. Loans from small banks are callable. This means that, if they feel like the values have gone down, they could call the loan and make you pay it off or refinance it somewhere else. Neither traditional nor DSCR loans have this feature.

This gives small bank loans a bit more risk than other types of rental loans.

 

Read the full article here.

Watch the video here:

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