Tag Archive for: DSCR ratio

How Can I Qualify for a Loan for My Real Estate Investments?

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How Can I Qualify for a Loan for My Real Estate Investments?

Today we are going to answer one of the biggest questions that real estate investors have, “How can I qualify for a loan for my real estate investments?” Thankfully there are a multitude of products 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. What are your options and how do you get started? Let’s take a closer look!

Your best loan option!

One of the most versatile loan options available for investors is a DSCR loan. A DSCR loan is only available to investors and stands for the debt service coverage ratio. 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.

What does DSCR 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.

Find the versatility you need to succeed.

Nowadays, DSCR loans are not only for 1 to 4 unit  properties. Instead DSCR loans can cover 8 to 10 unit properties and even mixed use properties! That’s not all! There are also a lot of refinancing options available for investors who want to get cash out of their properties. Don’t miss out on this best kept real estate secret! Find the best product today that not only provides ultimate flexibility but meets all of your investment needs as well. 

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: How Can I Qualify for a Loan for My Real Estate Investments? 

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What Documents Do I Need for a DSCR Loan?

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What Documents Do I Need for a DSCR Loan?

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

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

If you are doing a refinance, you will need:

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

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

There is something for everyone!

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

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

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

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How to Calculate Your Maximum DSCR Loan Amount

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How to Calculate Your Maximum DSCR Loan Amount

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

What do you need to know before purchasing a property?

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

Example: Calculating how much you would qualify for. 

Value of the property is $200K

Refinance is 75% rate and term

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

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

Example: Calculating monthly payment.

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

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

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

Example: One property qualifies and one does not.

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

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

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

In conclusion,

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

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

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

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How Your DSCR Ratio and BRRRR Work Together

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How Your DSCR Ratio and BRRRR Work Together

Today we are going to talk about how your DSCR ratio and BRRRR work together. Just to clarify, BRRRR stands for buy, repair, rent, refinance, and repeat. The main purpose of BRRRR is to get into properties using little to no money out of your pocket. Here at The Cash Flow Company we are averaging 10 to 15 calls a day regarding the fundamentals. This includes knowing where to start, what you need to do, and how to be successful. In order to be successful, it is imperative that you go over the numbers first to make sure that you are getting into a good property. 

Two loans, one goal!

With BRRRR you need one loan for the purchase and repair, plus a long term loan for the refinance. The short term loans are often a hard money loan or a private loan ranging from 10% to 12% interest rates. It is important to keep in mind that these loans are only temporary, lasting 6 to 12 months. After that time, the loan balloons. That is why it is so important to have a long term loan option available when using the BRRRR strategy. Unfortunately,  many people do not do the research up front or run through the numbers before making the purchase. Don’t wait until the refinance! Take a look ahead to make sure that the property you want to buy will be able to cash flow later on. 

What is a DSCR loan and how can it work with BRRRR?

A DSCR loan is based solely on the property and your credit score. If the property’s income or rents are not very high, then you’re not going to get that big of a loan. The lenders will decrease the LTV until the break even point or sometimes higher. In the end, the lenders need the income and the expenses to be the same. This is referred to as the DSCR ratio. Just to clarify, expenses include the monthly payments, taxes, insurance, HOA, and flood insurance. One thing to keep in mind is that the LTV is different for each person and for each property. In the end you need to determine if your expenses equal your income prior to purchasing the property. 

For example:

An investor is using a DSCR and buys something where the purchase, rehab, and everything puts them at 80%. However, the property itself only qualifies for 70% because of its break even point. While many think that they are good because they bought it and are into it for 75% to 80%, this is not always true. When it comes to refinancing the property, lenders can only do 70% to 75%. It is confusing and often daunting because there are so many moving parts. However, by laying it out and making sure that the property cash flows, you will be successful.

We are here to help!

Here at The Cash Flow Company, we are happy to run through the numbers with you to make sure that you are setting yourself up for success. That would include checking your rents, taxes, insurance, and LTV to make sure that you would qualify for a long term loan in the future. Start by making sure you know what your DSCR ratio is and how it can work with the BRRRR strategy. 

Contact us today to see if a DSCR loan and the BRRRR strategy are right for you!

Watch our most recent video DSCR Loans and BRRRR Properties – Fundamentals Explained to learn more!

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DSCR Loan: How to Qualify for The Maximum Loan Amount

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DSCR Loan: How to Qualify for The Maximum Loan Amount

Many investors wonder how they can qualify for the maximum loan amount when using a BRRRR strategy or DSCR loan. When you are looking at a DSCR, there are two different qualifiers that you need to keep in mind. This includes the break even point and the LTV for the property. Whether you are using the DSCR loan for a BRRRR, refinance, or a purchase, it is important that you look at the qualifiers first. 

How much money can you get when using a DSCR loan?

The guidelines say that on a DSCR loan you can get 80% for a purchase or 75% to 80% for a refinance. Just to clarify, that means that you can get 75% to 80% of the current appraised value. While the DSCR guidelines say that you can receive that percentage, we always advise customers to hold off. We recommend that they wait because there are additional underwriting guidelines that need to be taken into consideration.One of which is a concern as to whether or not the property will qualify for 75%. Remember, DSCR loans are based on a ratio that indicates where the property breaks even. What does break even mean? Breaking even is determined by comparing the money coming into the property to the expenses. The expenses include the principal, interest, taxes, HOA, and flood. 

Each property is unique and each situation is unique.

A property appraised for $400K and the customer wants 75% cash out or rate and term. If their credit is good, property is good, and it is rented, then they could get 75%. However, we also have to determine whether or not the property breaks even. While it is appraised for $400K, is it bringing in $3K or $2K a month in rent? This amount can vary greatly depending on where the property is located and the current market. Each property is unique and each situation is different. Not only will the rents be different, but the taxes and insurance will be different as well. It is imperative that you run the numbers and find the DSCR ratio prior to purchasing. Now just imagine that the taxes and insurance are the same, but the rents are $1K off. The $2K rent is going to qualify for a smaller loan amount. 

Break even point and LTV go hand in hand.

Each property is different on where it can break even and the LTV you can get on the property. Even if the guidelines say 75% to 80%, we have to take into account the rents, credit score, and rate. The higher the rates, the higher the payment, and the faster you hit the threshold where you break even. When comparing a $300K property to a $200K property, maybe the $300K property gets 75% because their DSCR ratio is above 1. This is because the property is either breaking even or greater. However, the $200K would only get $250K because the property breaks even at that loan amount. Just to clarify, the $50K difference is not impacted by the customer’s credit score. It is dependent on the break even point.

Maximize your loan amount today!

In order to maximize your loan amount you need to understand your numbers beforehand! Whether or not you are purchasing, refinancing, or using the BRRRR strategy, you need to know what loan amounts will be available to you. For those using the BRRRR strategy, knowing your numbers ahead of time is going to be the key to your success. If you are using a DSCR, you need to make sure that the property qualifies based on rents so that you can refinance in the future. Don’t run the risk of being $50K short! Always keep in mind that each property is unique and every situation is different. Watch for our next video as we walk through the numbers to show different scenarios that will affect your maximum loan amount.

Do you have a property that you would like to run the numbers on? Contact us today to see what your DSCR ratio would be for your next property. 

Watch our most recent video to find out more about DSCR Loan: How to Qualify for The Maximum Loan Amount.

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DSCR Loans: Top 3 Questions Everyone Is Asking

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DSCR Loans: Top 3 Questions Everyone Is Asking

DSCR has really been taking off in the last 6 months! Today we are going to talk about the top 3 DSCR loan questions everyone is asking. As rates continue to come back down and properties start to cash flow again, many investors are coming back to DSCR. It is an excellent product for real estate investors to use for their next property!

First, can you get a DSCR loan for more than 4 units?

Typically there is a lending box that you fit into when you own a 1 to 4 unit. As a result, those who have 1 to 4 units have a lot of loan options available. We have had a lot of questions regarding lending options for properties that are not in that range. Anything over 5 units is considered a commercial property. Here at The Cash Flow Company we are working with a few investors who have an 8 plex, 12 plex, and even a 24 plex. For these customers, there are DSCR options, however they are considered commercial loans. Commercial loans are just a little bit different, but there are more options available now then there were in the past.  

Second, what kind of documents do you need when you are applying for a DSCR loan?

If you are doing a refinance, you will need:

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

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

Third, what happens if the property doesn’t break even?

The DSCR ratio is what everything is based on. The DSCR ratio is the breakeven point where the rents equal the expenses on that property. Just to clarify, expenses include your payments (principle and interest), taxes, insurance, HOA, and flood insurance. When the rents are equal to the expenses, there is a DSCR ratio of 1. If the property is not cash flowing, then the DSCR ratio will be less than 1. While there are still options available for investors whose ratio is less than 1, it is often at a higher interest rate and lower LTV. There are options for no income as well that will go down to 75%, while other lenders might not even check income. 

There is something for everyone!

DSCR loans have a lot of options available to fit your investment needs. Whether or not you have a break even property, or one that is struggling to cash flow, there is something for everyone. DSCR is becoming more of a mainstream option for investors. What types of properties are growing in DSCR popularity? The answer is commercial, 5 units, rural properties and many others. These properties no longer have to fit in the lending box. DSCR is opening the doors to endless possibilities. Do you have a unique rental property and are looking for more lending options? If so, contact us today to find out more about DSCR loans and how you can get under the DSCR umbrella! 

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

Watch our most recent video DSCR Loans: Top 3 Questions Everyone Is Asking to find out more!

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DSCR Loan – Interest Only vs Amortized

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Discover Your Best Option: DSCR Loan – Interest Only vs Amortized

Today we are going to discuss DSCR interest only products and compare them to an amortized loan. Our goal is to not only look at the flexibility of an interest only loan, but to also demonstrate how it will help with cash flow. Which is best for you? Let’s start by comparing an interest only loan vs an amortized loan. 

What is interest only DSCR?

Interest only loan products are loans where you are only paying on the interest that is owed on the loan. However, principal on these types of loans never goes down unless you decide to put a  little money towards it. One thing to keep in mind with DSCR loans is that there are prepayment restrictions for the first 3 to 5 years. In most cases this means that you have a 20% cap during this prepay period. Paying a little extra doesn’t normally create an issue. It is just something that you need to keep in mind when working with an interest only loan.  

What is an amortized loan?

An amortized loan on the other hand requires you to pay not only the interest, but a little bit towards the principal as well. In this market, the rates are a little bit higher than they have been in years past. While an amortized loan typically has lower rates, it is important to keep in mind that the principal payment will be added to the monthly payment. In many cases the monthly payment for the amortized loan will end up being greater than the interest only loan. This difference can affect your ability to qualify for the loan because the property will not be a cash flowing investment. 

Example:

Loan amount: $200K

Rent: $1,700

DSCR ratio 1.1 

Loan Type Rate $200,000 x rate = annual interest Annual interest ÷ 12 = monthly payment Payment amount to mortgage company  Taxes, Insurance, HOA, and Flood = $150.00 

Creating Grand total for the month
Interest Only 8.25% $16,500 $1,375 $1,375 $1,525
Amortized 8% $16,000 $1,333 $1,333 Interest + principle = $1,468 $1,618

One more step. Adding the DSCR ratio.

What you will normally find is that the interest only rates in this market will be a little higher than the amortized loan rate. However, we still have one more step before we can determine if you can qualify for the DSCR loan on this property. We will need to multiply the grand total for the month by the DSCR ratio. This will help us to determine if the property will qualify for a DSCR loan based on the current rent amount of $1,700. Just as a reminder, the rents are based on what is happening in the market and the assessments done by an appraiser.

DSCR ratio 1.1 Grand total for the month  Grand total for the month x 1.1 = Difference after adding the  DSCR ratio compared to the $1,700 rent
Interest only  $1,525 $1,677.50 Will qualify for DSCR
Amortized  $1,618 $1,779.80 Will not qualify for DSCR

With DSCR loans you will have the flexibility of a 5, 7, or 10 year period. A DSCR interest only loan also provides an excellent opportunity for you to cash flow on the property. 

If you have any questions or want to run though the DSCR numbers, contact us today. We can help you compare a DSCR loan to an amortized loan. This will help you determine which is a better fit for your needs. 

Watch our most recent video to Discover Your Best Option: DSCR Loan – Interest Only vs Amortized.

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DSCR Loans: Does Your Rent Cover Your Costs?

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DSCR Loans: Does Your Rent Cover Your Costs?

Today we are going to discuss the importance of asking “does your rent cover costs” when considering a DSCR loan. Getting a DSCR loan can be both easy as well as rewarding. Let’s take a closer look! 

First and Foremost: Check Your Rent Coverage

First, ask yourself: does your rent cover all your costs? This includes:

  • Mortgage payment
  • Taxes
  • Insurance
  • HOA fees

While it’s not always necessary, by having your rent cover these costs can in turn help you get better rates as well as higher loan-to-value products. At the very least, aim to charge rent that covers your monthly payments. However, if it does, then you’ve passed the first step!

Example: Begin by imaging that you own a rental property. Your mortgage payment is $1,200, your taxes and insurance are $200, and your HOA fee is $100. Therefore, your total monthly cost is $1,500. However, if you charge $1,600 in rent, you are even able make a little extra.

Conclusion

In sum, determining your DSCR ratio you can determine if a DSCR loan is right for you. And that’s it! If you find any step challenging, don’t worry. Our team is here to help you. We’re eager to set you on a path that helps you make the money you need to live the life you want. Here at The Cash Flow Company we want to ensure that all of your questions are answered prior to purchasing a property. Contact us today to find out more! 

Watch our most recent video to find out more.

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Why a DSCR Loan is Perfect for Real Estate investors

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Why a DSCR Loan is Perfect for Real Estate investors

Many investors ask why a DSCR loan is perfect for real estate investing. To clarify, a DSCR loan stands for Debt Service Coverage Ratio loan and is designed specifically for real estate investors. This type of loan helps you buy rental properties, whether they are long-term or short-term rentals. However, It’s not for flips or homes you plan to live in.

Why Choose a DSCR Loan?

Choosing a DSCR loan can be a smart move for several reasons:

  1. Easy Qualification: You don’t need to worry about how long you’ve been in business or your personal income. Even if you started your business yesterday, you could qualify.
  2. Focus on Property Income: The loan qualification is based on the income generated by the property, not your personal income.
  3. 30-Year Loan Options: You get a good 30-year loan product, which can provide stability and predictability.

How Does a DSCR Loan Work?

The key to a DSCR loan is that it focuses on the property’s ability to generate enough income to cover its expenses. Here’s how it works:

  1. Property Income: The income from the rental property should at least cover the mortgage, property taxes, insurance, and any HOA or flood insurance fees.
  2. Credit Score: Your personal credit score is important. The higher your score, the better the terms and rates.
  3. Loan-to-Value Ratio (LTV): This is the amount of the loan compared to the property’s value. Lower LTV means less risk for lenders and better terms for you.

Who Can Benefit from a DSCR Loan?

DSCR loans are perfect for:

  • New Investors: If you’ve just started your real estate investment journey, you can qualify even without a long business history.
  • Tax Savvy Investors: If you write off a lot of expenses on your taxes, which can reduce your reported income, this loan can still work for you.
  • Expanding Portfolios: Investors looking to add more rental properties can benefit from the flexible qualification criteria.

Example

Imagine you are an investor who just started a year ago. You found a great rental property, but traditional lenders won’t approve your loan because you don’t have two years of business income. A DSCR loan can help. As long as the rental income covers the mortgage and other expenses, you can get the loan and grow your investment portfolio.

Get Started with a DSCR Loan Today

A DSCR loan is an excellent loan for real estate investors. Is it right for your investment needs? Contact us at The Cash Flow Company. We have the tools and expertise to help you understand your options and find the best loan for your needs.

Watch our most recent video to find out more about: Why a DSCR Loan is Perfect for Real Estate investors

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3 Factors to Think About When Considering a DSCR Loan

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3 Factors to Think About When Considering a DSCR Loan

What is a DSCR Loan?

There are 3 factors to think about when considering a DSCR loan that we are going to discuss further today. First and foremost, a DSCR loan stands for Debt Service Coverage Ratio loan and is an excellent loan for real estate investment. It’s designed specifically for real estate investors. This type of loan helps you buy rental properties, whether they are long-term or short-term rentals. However, it’s not for flips or homes you plan to live in.

Why Choose a DSCR Loan?

Choosing a DSCR loan can be a smart move for several reasons:

  1. Easy Qualification: You don’t need to worry about how long you’ve been in business or your personal income. Even if you started your business yesterday, you could qualify.
  2. Focus on Property Income: The loan qualification is based on the income generated by the property, not your personal income.
  3. 30-Year Loan Options: You get a good 30-year loan product, which can provide stability and predictability.

Important Considerations

Before jumping into a DSCR loan, consider these factors:

  1. Prepayment Penalties: These loans often come with penalties if you pay them off early. Make sure to understand these terms before committing.
  2. Higher Interest Rates: DSCR loans can have slightly higher interest rates compared to traditional loans. This is because they are easier to qualify for.
  3. Not for Flips or Personal Use: These loans are strictly for rental properties, not for homes you plan to flip or live in.

Is a DSCR Loan Right for You?

If you’re a real estate investor looking for a flexible loan option that doesn’t rely heavily on your personal income, a DSCR loan could be the perfect fit. It’s especially useful if you’re new to the business or if you maximize your tax deductions. Always run the numbers and shop around for the best terms.

Get Started with a DSCR Loan Today

A DSCR loan is an excellent loan for real estate investors. Is it right for your investment needs? Contact us at The Cash Flow Company. We have the tools and expertise to help you understand your options and find the best loan for your needs.

Watch our most recent video to find out more about: 3 Factors to Think About When Considering a DSCR Loan

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