Tag Archive for: DSCR

What Is a DSCR Loan, and Why Does It Matter for Investors?

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If you’re a real estate investor, you may have heard about a DSCR loan. What is a DSCR loan? It stands for “Debt Service Coverage Ratio,” and it’s a type of loan that focuses on the income of the property, not your personal income. Why does this matter? Because it can make financing easier for investors who may not have a high personal income, or investors who use tax strategies that reduce their taxable income.

Imagine you have a rental property ready to go. With a DSCR loan, the lender looks at the income this property will bring in to cover the loan payments. If the income covers your costs, you could qualify! This setup is great for newer investors or for those who want to scale up without diving into personal financials.

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DSCR Loan: How Much Do I Need for a Down Payment?

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If you’re considering a DSCR loan, you might be wondering, “How much do I need for a down payment?” Unlike traditional loans, DSCR loans focus on the income of the property, not your personal income. This means your down payment depends on how well the property can cover its own expenses. Let’s dive into what that means and how you can figure out the right down payment for your investment.

What is a DSCR Loan?

A DSCR (Debt Service Coverage Ratio) loan is different from your typical loan. Instead of looking at your personal income, this loan focuses on the income of the property. So, how much do you need to put down? It depends on the property’s ability to pay for itself.

Why is the Down Payment Important?

When getting a DSCR loan, the down payment is based on how much income the property can bring in. In fact, a lot of people who come to us thinking they can put down 20-25% end up finding out that the property doesn’t qualify. That’s because, unlike a regular loan, the lender will look at the income and expenses of the property itself.

The Key Factor: Property Income

The key factor to remember here is that the property must make enough income to cover its own expenses. That means things like:

  • Interest rates
  • Property taxes
  • Insurance
  • HOA fees (if applicable)

Let’s walk through an example to show how this works.

Example: DSCR Loan Down Payment Calculation

Imagine you want to buy a rental property worth $300,000. You’re aiming for a loan-to-value (LTV) ratio of 80%, which means you’re looking to borrow $240,000. You also need to calculate the property’s income and expenses to see if it can cover the loan amount.

  • Loan Amount: $240,000
  • Interest Rate: 6.5%
  • Monthly Property Taxes: $250
  • Insurance: $200
  • Rent Income: $1,800

Now, using a DSCR calculator (you can download ours for free on our website), you’ll find out if the property qualifies. With an interest-only loan, the DSCR might be above 1, which means the property brings in enough income to cover its expenses. But, if you want a 30-year amortized loan, the DSCR may fall below 1.

When that happens, it means the property doesn’t qualify for the full 80% loan, and you’ll need to adjust the down payment.

What Happens if the Property Doesn’t Qualify?

If the property’s income isn’t enough, you have to increase your down payment. For example, instead of putting down 20%, you might need to put down 25% or even 30%. In our example, dropping the LTV to 70% (which means a down payment of 30%) brings the DSCR to 1, meaning the property just qualifies.

Does the Down Payment Change with Interest Rates?

Yes, it does. As interest rates go up, the property’s ability to cover its loan payments decreases. So, if rates are high, you might need to put down more to make the DSCR work. That’s why it’s important to play around with a DSCR calculator and see how different loan amounts and interest rates impact the property’s qualification.

Why You Need a DSCR Calculator

A DSCR calculator helps you figure out how much of a down payment you’ll need. It allows you to adjust factors like loan amounts and interest rates to see what works. For instance, in our example, lowering the loan-to-value to 70% made the property qualify for a 30-year loan.

So, before reaching out to lenders, use a calculator to make sure the property qualifies. This can save you time and help you avoid surprises later on.

Key Takeaways

  • The down payment for a DSCR loan depends on the property’s income, not yours.
  • If the property doesn’t make enough income, you’ll need a bigger down payment.
  • Use a DSCR calculator to see how much of a down payment you need for the property to qualify.

By understanding the DSCR and playing with the numbers, you can ensure you’re getting into a property that makes money, not one that costs you money each month.

If you have any questions about the process or how to use the calculator, contact us today! We’re here to help.

Watch our most recent video: DSCR Loan: How Much Do I Need for a Down Payment?

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Can I Get a DSCR Loan Faster Than a Traditional Loan?

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If you’re diving into real estate investing, you’ve probably heard of DSCR loans. One of the most common questions we get is: Can I get a DSCR loan faster than a traditional loan? The answer is usually yes! Let’s explore the three main reasons why DSCR loans often close quicker, helping you start growing your wealth sooner.

1. No Tax Returns Needed

One of the biggest hurdles with traditional loans is the paperwork. Most banks require personal and business tax returns to prove your income history. This can be a problem if you haven’t filed taxes recently or if you’re new to the business.

With a DSCR loan, there’s no need to provide tax returns! That means you can qualify even if you’ve just started your business or recently moved to a new city.

Example:

Imagine you just launched your real estate investing business. You haven’t filed taxes yet or moved from another city. With a traditional loan, you’d need to wait two years to prove your income. But with a DSCR loan, none of that matters—they only look at your property’s potential to make money.

This quick qualification makes a DSCR loan much faster than a traditional loan, allowing you to get started right away.

2. No Business History Required

Traditional lenders usually want to see a solid business history. If you recently switched from a W-2 job to being self-employed or changed your field of work, they might not approve your loan.

DSCR loans don’t have these strict rules. They focus on the income from the property, not your past job or business experience.

Example:

Let’s say you used to work a 9-to-5 job but decided to switch to a freelance role. Traditional lenders might say no because you don’t have a long history in your new career. But with a DSCR loan, all that matters is that your rental property can cover its costs or even generate cash flow.

This flexibility speeds up the process, making DSCR loans a smart choice when you’re eager to invest.

3. Start Building Wealth Faster

The biggest advantage of DSCR loans is how fast you can start building wealth. Traditional loans often force you to wait two years or more to prove your income on paper. In contrast, DSCR loans allow you to begin investing right away.

With a DSCR loan, you can start now and use your rental income to qualify. This means you don’t have to wait to grow your portfolio and start earning passive income.

Example:

Suppose you found the perfect rental property that’s ready to go. Instead of waiting years to build up your tax returns, you can use the property’s rental income to qualify for a DSCR loan today. This way, your journey to financial freedom starts now, not later.

Use Our DSCR Calculator to Plan Your Investment

At The Cash Flow Company, we offer a DSCR calculator to help you see if your rental property will cash flow. This tool lets you run the numbers on your potential investment, so you know if it’s a good fit for a DSCR loan. Visit our website to give it a try!

Conclusion

If you want to grow your wealth faster and start investing without the long wait, DSCR loans are a great choice. They’re perfect for new investors or anyone looking to build a rental portfolio quickly. While traditional loans might hold you back with their strict rules, DSCR loans let you focus on what matters most—the property itself.

So, why wait years when you can start now? Explore DSCR loans and see how they can help you achieve your real estate goals! Contact us today to find out more!

Watch our most recent video to learn more about: “Can I Get a DSCR Loan Faster Than a Traditional Loan?”

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Why DSCR Loans Are Great for Real Estate Investors

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When it comes to real estate investing, finding the right loan can make all the difference. DSCR (Debt Service Coverage Ratio) loans offer unique benefits that help you grow your portfolio faster than traditional loans. Let’s explore three key reasons why DSCR loans are great for real estate investors.

1. No Tax Returns Required

One of the biggest hurdles with traditional loans is the need to show personal or business tax returns. If you’re just starting your real estate journey or if your tax returns don’t reflect the income you need to qualify, this can be a roadblock.

Example: Imagine you’re new to real estate and haven’t filed tax returns for the past two years. With traditional loans, this could delay your investment plans. But with a DSCR loan, you can move forward because it focuses on the property’s income, not your personal tax situation.

2. No Business History Needed

Banks and traditional lenders often require a long business history to approve a loan. This can be a problem if you recently switched from a W-2 job to self-employment or moved to a new city.

Example: Let’s say you moved from Austin to Denver and started working as a contractor. Traditional lenders might turn you down because you lack the business history in that field. However, with a DSCR loan, you’re still eligible as long as the property you’re investing in can cover its costs with rental income.

3. Start Building Wealth Faster

With DSCR loans, you don’t have to wait years to build up your income or adjust your tax returns to qualify for a loan. Instead, you can begin investing in rental properties now, speeding up your journey toward financial growth.

Example: If you have a property that generates rental income, a DSCR loan allows you to invest right away. This means you’re not wasting time trying to make your financials look good on paper—you’re already growing your wealth.

Why Choose a DSCR Loan?

DSCR loans are an excellent option if you’re focused on growing your rental property portfolio. They let you start now, without waiting years to meet strict bank requirements. Plus, these loans are specifically designed for rental properties, ensuring that your investment has the best chance to succeed.

If you’re ready to dive into real estate investing, check out our DSCR calculator on The Cash Flow Company website. It’s a great tool to see if your property qualifies and how much you can potentially earn.

Ready to Grow Faster?

DSCR loans help you break free from the traditional loan restrictions, making it easier to start and grow your real estate investments. If you’re serious about building wealth, a DSCR loan might be the key to reaching your goals faster.

For more tips and tools to help you succeed in real estate investing, explore our resources or reach out to us with any questions!

Watch our most recent video to find out more about: Why DSCR Loans Are Great for Real Estate Investors

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DSCR Loan Approval: 3 Steps to Take with Your Property

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Today we are going to dive into DSCR loan approval by looking at the 3 steps you need to take with your property. Let’s take a closer look!

Step 1: Meet the DSCR Ratio Requirement

The property’s DSCR ratio is crucial. This ratio compares your rental income to the expenses. Most lenders want a ratio of at least 1:1, meaning your rental income should cover your mortgage, taxes, insurance, and other costs.

What to Do:

  • Calculate the ratio: Use a DSCR calculator to check that your property’s rental income meets or exceeds its expenses.
  • Know your numbers: Make sure the ratio is solid before you even make an offer on the property.

Example: If your property’s expenses total $1,500 per month, you’ll want your rental income to be at least $1,500 to hit the 1:1 ratio.

Step 2: Check the Location

Location matters for DSCR loans, especially if the property is in a rural area. Some lenders might hesitate to approve loans in areas with few comparable sales.

What to Do:

  • Verify the location: Make sure the property’s location is suitable for lenders.
  • Consider comps: Rural areas can make it harder to find comparable sales, which could affect loan approval.

Example: If your property is in a small town, double-check that there are enough recent sales in the area to support your loan.

Step 3: Ensure the Right Loan Size

The loan amount can also impact approval, especially if you’re dealing with a smaller property. Some lenders have minimum loan amounts that they require.

What to Do:

  • Check the loan size: Make sure the property’s value is high enough to meet the lender’s minimum loan amount.
  • Know your lender’s limits: Different lenders have different requirements, so find out their minimums.

Example: If you’re looking at a property valued at $80,000, confirm that your lender can finance this smaller amount.

Ready to Apply for a DSCR Loan?

Getting a DSCR loan approved involves two main steps: preparing yourself and checking that the property fits the requirements. Start by boosting your credit score, making sure you have the cash to close, and setting up your LLC. Then, focus on finding a property that meets the DSCR ratio, is in a suitable location, and fits the right loan size.

If you need help with the process, don’t hesitate to reach out to us at The Cash Flow Company or check out our DSCR calculator tool to see how your property measures up!

Watch our most recent video to find out more about: DSCR Loan Approval: 3 Steps to Take with Your Property

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DSCR Loan Approval: 3 Steps YOU Need to Take

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Today we will discuss the 3 steps you need to take for DSCR loan approval. By following these three simple steps, you’ll be well on your way to securing the funding you need. Let’s break it down step by step.

Step 1: Check Your Credit Score

The first thing you need to focus on is your credit score. A good credit score can help you to get approved as well as qualify for better rates. Here’s what you should do:

  • Find out where your credit score stands: Check your credit report to see your current score.
  • Aim to improve it if needed: The higher your score, the better your rates, so take steps to boost it before applying.

Example: If your credit score is at 680, you might get a decent rate. But if you work to raise it to 720 or higher, you could save a lot on interest over the life of the loan!

Step 2: Secure the Cash to Close

Next up is making sure you have enough cash to cover the down payment, closing costs, and reserves. You need to be ready to show that you have these funds available. Here’s what to consider:

  • Down Payment: Do you have at least 20% or even 25% of the property’s purchase price?
  • Closing Costs: Additional fees when finalizing the loan.
  • Reserves: Make sure you have enough in reserve to cover a few months of expenses.

Example: For a property priced at $250,000, you might need $50,000 for the down payment and additional funds for closing costs. It’s crucial to have these amounts in your account and ready to go.

Step 3: Set Up Your LLC Properly

The final step before applying for a DSCR loan is to make sure your LLC is ready to go. Many investors use an LLC to buy properties, so it’s essential to have everything in order.

  • Check your documents: The LLC needs to be set up correctly. This includes all the necessary documents including the operating agreement and EIN number.
  • Have it ready for the property: This will make it easier to put the property under contract when the time comes.

Example: If your LLC isn’t fully set up, it could delay the loan process. Getting everything ready upfront will save you a lot of hassle down the road.

Ready to Apply for a DSCR Loan?

Now that you know the steps, you can get yourself pre-approved for a DSCR loan. Start by making sure your credit score is solid, you have the cash ready to close, and your LLC is set up the right way. Then, you’ll be in a great position to move forward when you find the right property. If you’re unsure about your approval status or need help calculating your DSCR ratio, feel free to reach out to us at The Cash Flow Company. We’re here to help you get the best loan possible so you can build wealth and create the financial freedom you’re after!

Watch our most recent video to find out more about “DSCR Loan Approval: 3 Steps YOU Need to Take”

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DSCR: Do Lenders Care More About You or Your Property?

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If you’re considering a DSCR loan (Debt Service Coverage Ratio loan), you might wonder, “do lenders care more about you or your property?” It’s a common question, and understanding the process can help you get approved smoothly. Let’s walk through the exact steps.

What YOU Need to Get Approved for a DSCR Loan

Before you even think about a property, start with you. You’ll want to get pre-approved to ensure you’re ready when the perfect deal comes along. Here’s what lenders look at when they evaluate you:

  1. Credit Score
    Your credit score is one of the most important factors for getting the best DSCR loan rates. The higher your score, the better your rate. It’s smart to check where your credit stands now and see if there are ways to improve it before applying. For example, if your score is on the lower end, you might work on improving it before buying.
  2. Cash to Close
    Do you have enough money for the down payment, closing costs, and reserves? With DSCR loans, you typically need around 20–25% down. For instance, if you’re looking at a $250,000 property, you’ll need at least $50,000 plus closing costs. Make sure the cash is ready in your account, as lenders will check to see if it’s accessible.
  3. LLC Setup
    Most investors buy properties under an LLC. So, it’s important to make sure your LLC is set up correctly. Have your EIN, operating agreement, and other paperwork ready. This step will help speed things up when you put a property under contract.

What Your PROPERTY Needs to Get Approved

Now that you’ve got yourself ready, it’s time to think about the property. Lenders also care a lot about the property you’re buying, especially with DSCR loans. Here are the main things they’ll look at:

  1. DSCR Ratio
    The DSCR ratio is the most critical factor for your property. This ratio compares the property’s income to its expenses. A ratio of 1:1 means the property earns enough rent to cover its mortgage, taxes, insurance, and other costs. You can calculate this easily using a tool like the one available on the Cash Flow Company website. Make sure the property hits at least 1:1, or you might have to bring more money to the table.
  2. Location
    Where is the property located? Properties in rural areas can be tough to finance because lenders struggle to find comps (comparable sales) for the appraisal. If your property is too remote, it may be excluded by some lenders, which could limit your options.
  3. Size (Loan Amount)
    Lenders also consider the property’s value and loan amount. For example, if you’re buying an $80,000 property, it might be hard to find a lender because some have minimum loan amounts. Even though smaller properties can cash flow well, make sure the loan amount is big enough for the lender to approve.

Are You Ready to Apply for a DSCR Loan?

Before you start shopping for properties, it’s best to get pre-approved. This way, you’ll know your credit score is in order, you have the right amount of cash, and your LLC is ready to go. After pre-approved, you can focus on finding a property that qualifies based on its DSCR ratio, location, and size.

If the property you want doesn’t quite meet the ratio, don’t worry. There are options — but be aware the rates might be higher, and it could be trickier to get the property cash flowing.

Need Help with Your DSCR Loan?
If you’re unsure about your approval status or need help calculating your DSCR ratio, feel free to reach out to us at The Cash Flow Company. We’re here to help you get the best loan possible so you can build wealth and create the financial freedom you’re after!

Watch our most recent video to find out more about “Do lenders care more about you or your property?”

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Does Your Rental Property Qualify for a DSCR Loan?

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Investors often wonder: Does your rental property qualify for a DSCR loan? DSCR (Debt Service Coverage Ratio) loans are different from traditional loans because they focus on the property’s income instead of your personal income. So, to qualify, the rental property itself must meet certain criteria.

What DSCR Loans Look For?

When it comes to qualifying, your rental property’s cash flow takes center stage. The lender checks if the rental income can cover the mortgage payments, plus the usual expenses like taxes and insurance. Essentially, the property should generate enough income to pay its own way.

For example, imagine your property generates $2,500 a month in rental income, and your monthly mortgage payment is $2,300. In this case, your property may qualify because the rent covers more than the mortgage.

Property Income vs. Expenses.

Does your rental property qualify for a DSCR loan? One important factor is how much income the property brings in compared to its expenses. The lender will check things like the rental market in your area and calculate what rents are going for. If your property earns enough income, it has a strong chance of qualifying.

But if your expenses (like the mortgage, taxes, insurance, and HOA fees) are higher than the rental income, it might not qualify without adjustments. This could mean you need to increase your down payment or look for a different loan option.

What If the Property Isn’t Rented Yet?

You may wonder, “What if my property isn’t rented yet?” The good news is that your property can still qualify for a DSCR loan. In this case, the lender uses a rent schedule. An appraiser will determine the estimated rent by comparing similar properties in the area. This makes sure your property qualifies based on what it could rent for, even if you don’t have tenants lined up yet.

Know Your Numbers

Does your rental property qualify for a DSCR loan? It all comes down to understanding the numbers. Make sure you know your rental income, mortgage payment, and other property costs. If these numbers add up in the right way, your rental property will likely qualify for a DSCR loan.

If you’re unsure, using tools like a DSCR calculator can help you plug in numbers and check the property’s potential. That way, you can see if it meets the criteria before moving forward.

In the end, the key to qualifying for a DSCR loan is making sure your property’s income outweighs its expenses.

Watch our most recent video to find out more about: “Does your rental property qualify for a DSCR loan?”

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Close Your DSCR Loan EASILY with 3 Key Steps

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Are you looking to purchase a property using a DSCR loan? Great choice! These loans are all about the property’s income, as opposed to your personal income, therefore they are ideal for real estate investors. But how do you close your DSCR loan easily? Let’s take a closer look! 

Step 1: Get Yourself Approved

The first step to close your DSCR loan easily is to make sure you are personally qualified. This part is straightforward and comes down to a few key things:

  • Credit Score: Typically, a credit score of 740 or higher gets you the best rates. However, a score below 640, will alter the loan terms.
  • Experience: By having a seasoned landlord it will help you qualify for better loan-to-value ratios.
  • Funds: Finally, you need to show where your down payment, closing costs, as well as document where the reserves are coming from. Having this money in place will speed up the approval process.

Step 2: Get the Property Approved

The lender will look at the rental income the property can generate, along with its key expenses like:

  • Property taxes
  • Insurance
  • HOA fees (if applicable)
  • Flood insurance (if necessary)

To determine the rental income, an appraiser will complete a rent schedule based on local rents for similar properties. Therefore you don’t need a lease in place to get approved. Make sure you know the property’s potential income and expenses to avoid surprises.

Step 3: Know Your Numbers

Finally, knowing your numbers is the last crucial step to closing your DSCR loan. You’ll need to understand:

  • Loan-to-Value (LTV): How much of the property’s value can be covered by the loan? In some cases, a higher LTV may lead to higher rates.
  • Down Payment: The amount you need to put down may vary depending on the property’s cash flow. If the income doesn’t quite cover the expenses, you may need to put more money down to make the numbers work.
  • Closing Costs: These usually range between $1,500 and $2,500, but they can vary by location. You’ll also need to budget for things like appraisal fees, title costs, and reserves.

By having a clear idea of these costs and your LTV, you’ll avoid any surprises and close your DSCR loan easily. If you have more questions, contact us today to find out more.

Watch our most recent video to find out more about how to: Close Your DSCR Loan EASILY with 3 Key Steps

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DSCR Loan: Market Update for Real Estate Investors

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The DSCR (Debt Service Coverage Ratio) market is evolving, and the good news is that it’s shifting in favor of investors. Rates are dropping, and new loan options are making it easier to qualify for deals. Here’s a market update for real estate investors!

What’s New in DSCR Loans?

40-Year Mortgage Options

A major shift in the market is the introduction of the 40-year mortgage. This option lowers monthly payments compared to a 30-year mortgage, which can make it easier for you to qualify for more properties. Here’s how:

  • Lower Payments: A 40-year mortgage spreads out the loan over a longer period, reducing your monthly payment.
  • Amortization: With a 40-year loan, you get a mix of amortization and lower payments, which can help you pay down the loan while keeping cash flow in mind.

For Example:

A $250,000 loan with $2,000 in monthly rent. With a 30-year mortgage at a 6.65% interest rate, your monthly payment would be about $1,596. After adding taxes and insurance, the expenses would leave you with around $246 left for the DSCR calculation. The property wouldn’t qualify.

However, if you switch to a 40-year mortgage with a 6.9% interest rate, your payment drops to $1,535. This difference could help you qualify for the loan. The 40-year option is designed to help investors like you get into more deals with less cash out of pocket each month.

No Prepayment Penalty Options

Traditionally, DSCR loans come with a prepayment penalty. However, new options in the market offer no prepayment penalty. This flexibility can benefit you if rates continue to drop and you want to refinance. Here’s what to consider:

  • Zero Prepayment Penalty: This option allows you to refinance at any time, but it comes with a catch—a higher interest rate, typically around 1% more.
  • 1-Year Prepayment Penalty: If you’re unsure about how long you’ll hold the loan, this might be a better option. You’ll get a lower rate than the zero prepay but still have the flexibility to refinance after one year.

These options let you pick the best path for your portfolio without worrying about being locked into a loan for several years.

Should You Go With a 40-Year Loan?

If you’re focused on cash flow or qualifying for more deals, the 40-year loan could be a great tool. For example, a client looking to buy a property with $2,000 in rent wouldn’t qualify with a 30-year loan. But by moving to a 40-year option, they could make the deal work.

More properties qualifying means more opportunities to build wealth.

What’s Next?

The DSCR market is becoming more flexible, and as rates go down, more products will continue to emerge. We’re here to provide a market update for real estate investors on a regular basis. If you want to explore options like the 40-year mortgage or no prepayment penalty, it’s a great time to look at how these products could boost your portfolio.

If you have any questions or want to run your numbers through our DSCR calculator, head over to our website. You’ll find tools to help you determine whether your property qualifies and how much cash flow you can expect.

Watch our most recent video to find out more!

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