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Qualifying for a DSCR Loan

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Qualifying for a DSCR loan can feel a bit different from qualifying for a traditional loan. This is due to the fact that a DSCR loan is based on the properties ability to pay for itself as opposed to being based on your income. Today we are going to walk through a quick guide to qualifying for a DSCR loan in order to help you to see whether or not your property qualifies. 

First: Understand the role of the property income: 

The property’s income must cover the mortgage payment, property taxes, insurance, HOA fees and other costs.

Second: Use the DSCR calculator:

The Cash Flow Company offers a free DSCR calculator tool that can see if a property qualifies.

Third: Adjust LTV Ratios if needed:

If your DSCR is below 1, consider adjusting your LTV. Dropping to 75% or even 70% can make a big difference.

Fourth: Use realistic rent numbers:

It is important that you use accurate rent numbers. An appraiser will check the rent for the neighborhood, so you need to be realistic with your calculations.

Fifth: Consider interest rates and how they affect DSCR:

Interest rates impact DSCR. If rates go up, your DSCR might drop below 1, meaning that the property may no longer qualify. 

Finally: Make sure it’s a good investment:

Once you have a DSCR above 1, double check that the property will either make money or cost you monthly. 

Contact Us Today! 

Is a DSCR loan right for you? Contact us today to find out more about DSCR loans!

Free Tools For You! 

We also have free tools available! Download the DSCR Quick Calculator today to see if a DSCR loan is the best option for your investment properties! 

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

 

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Understanding whether your rental property fits into a lender’s box is key to getting the financing you need. Each lender has specific requirements, and one of the big ones is seasoning. Let’s dive into what seasoning is, why it matters, and how you can navigate lender requirements for your property.

What Is Seasoning?

In lending, “seasoning” refers to how long you’ve owned a property. From the moment you buy a property, it starts “seasoning” in the lender’s eyes. The longer you own it, the more seasoned it becomes. Lenders often have rules about seasoning, especially when it comes to cash-out refinances.

  • Example: If you bought a rental property two months ago, it has two months of seasoning.

How Seasoning Affects Your Cash-Out Refinance

If you’re planning a cash-out refinance, most lenders want the property to be seasoned for a certain period. For example, many traditional lenders require 12 months of seasoning before they’ll allow you to take cash out. However, some DSCR lenders, who focus on a property’s income potential, have more flexible seasoning requirements.

Typical Seasoning Requirements:

  1. Traditional Loans: Usually require 12 months of ownership.
  2. DSCR Loans: Often require just 6 months of seasoning.
  3. Shorter Terms Available: Some DSCR lenders even go as low as 3 months and, in rare cases, 0 months.

Why Seasoning Matters for BRRRR Investors

For investors using the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy, seasoning plays a huge role. The goal is to buy, fix, and rent a property quickly, then refinance to pull your cash back out for the next deal. A shorter seasoning period lets you access the property’s appraised value sooner, which is ideal for keeping your investment cycle moving.

Example of Why Short Seasoning Matters:

Imagine you bought a fixer-upper for $275,000 and put $25,000 into rehab. After the work, the property appraises at $400,000. Here’s why you want a shorter seasoning period:

  • With 12-Month Seasoning: You’d have to wait a full year to access that $400,000 appraisal value.
  • With 6-Month Seasoning: You could refinance in half the time, freeing up funds to invest in your next project.
  • With 3-Month or No Seasoning: You’re moving even faster, which is ideal for BRRR investors aiming for quick turnaround.

Find the Right DSCR Lender for Your Project

Not all DSCR lenders are the same. Each has its own box of requirements, including different seasoning rules. Here’s what to look for:

  1. Know the Seasoning Requirement: Make sure the lender’s seasoning timeline matches your goals.
  2. Consider a Broker: Brokers often have access to multiple lenders, giving you options that a direct lender might not offer.
  3. Check for Flexible Terms: Some lenders allow for 0-3 months seasoning, which can be a game-changer if you want to move fast.

The Loan Cost Optimizer Tool

At The Cash Flow Company, we understand that finding the right lender box can be challenging. To help, we offer a Loan Cost Optimizer Tool. This tool lets you compare costs and options across lenders to find the best match for your deal, whether it’s a fix-and-flip, DSCR, or traditional loan.

Ready to Get Started?

If you’re ready to explore your options, visit The Cash Flow Company and use our Loan Cost Optimizer to see where your rental property fits best. And if you have questions, feel free to reach out—we’re here to help you make your investing journey smooth and profitable!

By knowing where your rental property fits in a lender’s box, you can move confidently from one project to the next without delay.

Watch our most recent video to find out more about: Does Your Rental Property Fit in a Lender’s Box?

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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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Buy and refi: here’s how BRRRR works.

Say you buy a house and rent it. What’s the big deal? Hopefully, your rental income is a little more than your mortgage payment, and you’re able to pocket the extra cash or save it for future real estate purchases.

How does BRRRR differ from this?

There’s a driving power behind BRRRR, making it a more profitable and fun process than simple rental investments.

BRRRR uses a two-loan strategy to capture maximum equity in value-add properties. Let’s go through these two loans and see how BRRRR works.

Buy: How the First BRRRR Loan Works

The first loan is the “B” of BRRRR – buy. There are 3 problems this first loan needs to solve.

1. Under-Market Property

To make this strategy work, the property you buy must be under-market. This is different from retail investing, where you buy and rent an at-market, rental-ready property.

An undervalued BRRRR property holds the potential to bring your net worth up. It’s a property that closes quickly and cheaply – even if it’s in rough shape.

Ideally, your BRRRR buy loan covers the entire cost of the house. This takes less out of your pocket and makes the process more profitable and repeatable.

2. Quick Closing

Why would there ever be a house selling for under-market? There are many conditions that bring a property to this point, such as a sudden move or foreclosure. Whatever the circumstance, the homeowner, wholesaler, bank, or whoever owns the house will want it gone and the money in their hand ASAP.

Your buy loan will need to close fast, with minimal underwriting, paperwork, or other hassles that come with traditional loans.

3. Rehab

Although profitable, an under-market property usually comes with a lot of necessary repairs. Many BRRRRs have construction budgets in the tens of thousands of dollars.

If that money comes out of your pocket, it almost defeats the purpose of a value-add property. It’s best to use the buy loan to leverage all rehab costs on a BRRRR.

What’s the Best Buy Loan?

An investor-specific loan, like a bridge loan or hard money, will check all three of these boxes.

While short-term investor-friendly loans make the perfect buy loan, you’ll need to refinance later in the BRRRR process.

Refinance: How the Second BRRRR Loan Works

The third “R” in BRRRR stands for refinance. At this point, we need a new loan on the property. There are 3 reasons.

1. Term Length

Hard money and bridge loans are useful when used right, but only good for a couple of months. How BRRRR works is that renting your property will require a second, longer loan. However long you’ll want to hold the rental unit is how long your refinance loan will need to be.

2. Rate

Hard money loans won’t have a good long-term interest rate. This second refinance loan should give you a much lower rate. Not only should a refinance create net worth, but it should also give you good cash flow on the property.

3. Capture Equity

BRRRR refinances tend to grab at least 25% of the house’s purchase price in added net worth. Check out this post to see how the numbers break down on a BRRRR refinance. 

Diving Deep Into How BRRRR Works

BRRRR is a powerful real estate investing strategy. We want to take away the mystery of how BRRRR works.

Download our free BRRRR map to put you on the right track with your next deal. And email us at Info@TheCashFlowCompany.com with any questions.

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