Tag Archive for: Investor loans

DSCR Loan vs Conventional Loan: 5 Main Differences

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5 key differences between a DSCR loan vs a conventional loan.

Conventional loans have a uniform underwriting process – which is usually long, detailed, and requires a lot of paperwork. DSCR loans, on the other hand, can be simpler. They’re more relaxed on income requirements, and they generally care more about the property itself than you as a borrower.

But what are some other differences between these two loan types? Let’s look at 5 ways a DSCR loan differs from a conventional loan.

1. Loan Limit

DSCR loans are great if you’ve maxed out the amount of conventional loans you can get. Conventional loans have a limit of 10 per person. Once you’ve reached that limit, you need to start looking for alternative options (like DSCR loans).

2. Credit Score

With most conventional loans in this economy, you’ll have a hard time getting any loans if your credit score is lower than 660.

With DSCR loans, the higher your credit score, the better. However, even people with lower credit scores (660 and below) have options with DSCR.

Keep in mind, a lower credit score means a more expensive loan. A more expensive loan will lower your cash flow. Lower cash flow might disqualify you for the loan.

For example, instead of a 7.5% interest rate, a poor credit score could only get you a 9.5%. A 9.5% interest rate might raise your monthly payment by $250. An extra $250 per month might put your debt ratio at 1 or below.

3. Holding a Property with a DSCR Loan vs Conventional

This is another area where DSCR loans differ from conventional loans: DSCRs come with prepayment penalties. This means if you pay them off before 3 or 5 years (whatever period is decided by the lender), then you get charged a hefty fee.

DSCR loans are best for people who want to hold the property, and not refinance or sell within the prepay period. Conventional loans have no restrictions on when you pay them off.

4. Property Condition

DSCR loans aren’t good for fix and flip properties. A DSCR property should need no work – it should be turnkey, totally ready. This means you should use a DSCR loan on either rental-ready purchases or a refinance on a completely renovated BRRRR-style rental.

Conventional loans are much the same. Your ability to use a traditional loan on a value-add property is restricted by the purchase price, fix-up price, and more.

5. Interest-Only Options

Lastly, DSCR loans are good for someone looking for interest-only payments. Banks and conventional loans don’t offer interest-only options. Doing interest-only improves your cash flow, giving you 5-10 years where you don’t have to pay any principal.

More on DSCR Loan vs Conventional Loan

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Where to Find Small Town Real Estate Loans

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Most lenders won’t fund low loans for small town real estate. We do.

It’s tough to find a lender who will lend in a rural area. It can also be a struggle to get a real estate loan for lower than $75,000.

When you find a great small town real estate loan for under $75k? Double whammy.

But for the last 23 years, we’ve helped thousands and thousands of investors fund billions of dollars – and one of our specialties is small loans just like this.

Funding Small Town Loans

We help a lot of clients with small town real estate, whether they’re from those communities or just investing there. A lot of properties in these areas are available for less than $75k, so other lenders aren’t interested in funding them.

Just last month, we funded 3 properties like this. The number for each of them broke down like this:

  • Purchase: <$40,000
  • Rehab: ~$20,000
  • All-in: <$60,000
  • ARV: $100,000 – $110,000

There is a lot of money to be made on these properties, yet most lenders wouldn’t fund a deal like this.

We don’t care if a property is rural or agricultural. If the numbers make sense, our loan can be secured on a property, and there’s money to be made for you… Then we’d love to help you with small town real estate loans.

Getting a Loan for Small Town Real Estate

Have any questions about how these small loans work? Need a smaller loan like this? Reach out at Info@TheCashFlowCompany.com, and we’d love to see how we could help.

We offer real estate investing loans in Colorado, Oklahoma, Florida, parts of Texas, and other parts of the Midwest.

Read the full article here.

Watch the video here:

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Why You Need To Refinance a BRRRR

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Why can’t you just keep the first loan on your BRRRR? Here are the reasons to refinance a BRRRR.

The BRRRR strategy uses two loans. The second one is for the refinance – the third “R” in BRRRR.

You buy with a hard money or bridge loan, but eventually you need new funding for the property. There are 3 reasons why you need to refinance.

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 When You Refinance a BRRRR

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.

When To Refinance a BRRRR

Want the greatest profit on your project? Have the refinance loan ready by the time you buy your under-market property.

If you need help finding the right refinance loan, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

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What You Need In Investor Loans for a BRRRR Buy

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Using investor loans to make your BRRRR profitable.

The BRRRR strategy uses two loans. The first is the “B” of BRRRR – buy. Does it matter what kind of loan you use?

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 eliminates the need for a down payment, making the process more repeatable (and profitable).

2. Quick Closing with Investor Loans for BRRRR

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 bank account, then it almost defeats the purpose of a value-add property. But if you use the buy loan to leverage all rehab costs on a BRRRR, more cash stays in your pocket.

The Best Investor Loans for BRRRR

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.

Read the full article here.

Watch the video here:

https://youtu.be/_cdQkaaXxAw

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How BRRRR Works: The Two-Loan Strategy

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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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Why Are DSCR Loans Good? Top 5 Reasons Why Investors Love Them

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It’s “the easy loan.” But are DSCR loans good for your investments?

DSCR loans are becoming one of the most popular investor tools out there. 

But why are they so well-loved? Let’s go over 5 reasons investors like DSCR loans. 

Are DSCR Loans Good?

Firstly, let’s go over what a DSCR loan is.

DSCR stands for “debt service coverage ratio.” They’re a loan for rental properties that are based on the debt ratio of rent income to the property’s expenses.

These loans can be flexible and hassle-free. This makes them the go-to choice for investors financing a rental property or turning a fix-and-flip project into a rental at the last minute in bad markets.

But are DSCR loans really as good as they seem? Let’s take a closer look at 5 reasons why DSCR loans are a solid choice for investors. 

#1: You can start investing now.

DSCR loans are great for new investors. Traditional loans often require you have two years of real estate investing experience.

Because there are no experience requirements, a DSCR loan is a great opportunity to get into your first investment rental property. Don’t wait to apply for your first DSCR loan.

#2: No income requirements.

With a DSCR loan, you don’t have to have a W2 job, or show any tax returns or other income documentation.

This means DSCR loans are good for minimizing your tax liability. You can write everything off, pay the IRS as little as you want, and still get a great loan.

#3: Less paperwork.

The investor’s dream: less paperwork. Applications and approvals are simple with DSCR loans. There are no income requirements, employment verification, or any other intensive qualifications.

Not only is it less hassle to skip some paperwork – it also means the entire loan process is much faster.

#4: DSCR works for short-term rentals too.

DSCR loans don’t just work for traditional rentals, but they work for all real estate investment properties. DSCR loans are flexible and work with a variety of rental options. This includes VRBO, Airbnb, or renting out a traditional long-term property.

There are a few things to take into consideration with short-term rentals and DSCR. But it’s still a simple and often profitable loan for these types of properties.

#5: Great for BRRRRs.

Many investors wonder – are DSCR loans good for BRRRR-style properties? The answer is yes.

DSCR loans are great for the long-term, refinance loan at the end of your BRRRR project. The combination of a quick and easy loan and a structure designed for rental properties makes DSCR and BRRRR the perfect pair.

Want to find out how a DSCR loan might work with your BRRRR rental? You can download our free DSCR loan calculator here. It can help you learn your ratio and get an idea of the kind of terms your property may qualify for.

Are DSCR Loans Good for Your Property?

If you’re in the market for a loan on a rental property, you can reach out to us to help with the numbers. Send us a deal or ask us a question at Info@TheCashFlowCompany.com.

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Credit Score Problem: What is the Big Credit Dilemma?

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Credit Score Problem: What is the Big Credit Dilemma?

Let’s talk about a major credit score problem and how it impacts cash flow.

Every day, we hear about common roadblocks that prevent our real estate investors from making the kind of positive cash flow they need.

Today, we’re going to explore the number one roadblock that we hear about from clients:

A low credit score caused mainly by high credit card balances. Because the lower your credit score, the higher your rate and the fewer loan options you have available.

 

But, here’s the kicker: You need a loan to pay off your credit cards to raise your score.

Not only that, but a higher interest rate might kick you over the allowed debt-to-income ratio and prevent you from getting approved for a loan.

How do you win at this game? The deck is stacked against you.

It’s okay. Really!

We’ve seen this problem a hundred times in our business because every real estate investor uses their credit to finish renovating a value-add property or run a business. It’s a cycle that’s downright hard to get out of.

Our solution? Take it private.

Like the many other clients we’ve helped, we can help you fix your credit score problem by setting up a private loan. That way you can:

  • Pay off your credit cards
  • Raise your score
  • And get the loan and rate you need.

Once you do all of that, you can pay off your private loan and resume normal business with the best loan you can get. Signed, sealed, and delivered.

We also can help you build your business credit and take your credit cards completely off your score.

Either way, this little trick can help you and thousands of others get better rates, pay less to the banks, and make life more profitable.

Happy investing!

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How To Refinance and Boost Your Cash Flow

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How To Refinance and Boost Your Cash Flow

Today, let’s explore how to refinance and boost your cash flow.

It’s probably pretty safe to say that in the real estate world, cash flow is KING!  Because cash flow makes life flow.

But what does cash flow mean to you? Because it comes in all shapes and sizes.

What cash flow means to one investor might be very different from another.

Let’s look at an example.

We have 3 real estate investors: John, Jane, and Jack.

John likes to focus on putting less money down so he can keep more money in his pocket.

Jane likes to focus on making consistent monthly income.

And Jack likes to focus on using cash-out refinancing to gain the most leverage.

Today, let’s take a closer look at Jack’s strategy.

It’s a simple one, but popular, especially during a refinance boom.

Essentially, Jack likes to refinance all of his value-add properties every 3-5 years so he can unlock his equity and bring more money into his life. He can use this money for personal or business matters, but it’s usually for something personal.

Now let’s break this simple strategy down a bit more.

So, Jack owns 3 properties.

He bought each one for $100K.

After 3 years, each property gains $25K in equity. So, Jack refinances and takes the $25K out of each property. All because he wants to use the money for…whatever! Maybe he wants to pay off his credit cards, buy another value-add property, or go on an epic skiing trip to the Alps. The sky’s the limit.

Well, mostly.

Once Jack has this money, he relaxes for another 3-5 years. Then, if interest rates drop, or he gains more equity, or both, he’ll refinance again. And, again, he’ll use the money for whatever he needs or wants in life.

The process repeats over and over until Jack decides to sell his properties or find a different cash flow strategy.

Now, Jack’s method of refinancing isn’t for everyone. But it’s definitely a popular cash flow strategy that many investors enjoy using.

Is it the right strategy for you? Our team is here and ready to help you discover the best path for you.

Happy investing!

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Mortgage Investor Report 6 23 2020

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Mortgage Investor Report 6 23 2020

Conforming rates are hot, and underwriting is loosening up.

What are other current options available for investors?

Most of these type loans are slowly coming back.  Lets hope there is not another countrywide closure so they stay around.

We all need options.

Non-conventional loans for investors.

 

If you are an investor and your taxes don’t allow you to obtain a traditional standard conventional loan or any loan that requires returns, what do you do?

 

Look for the two most frequently used options for investors:

 

  1. Bank statement programs. These loans base your income on the last 12 to 24 months of personal or business banks statements.  Simply put they add up your deposits each month and average them over the number of months.  This will be the income they use for your qualifying for the mortgage.
    1. Rates are 2 to 3 points higher than a conforming loan
    2. The higher the credit score the better the rate
    3. The lower the loan to value the better the rate
    4. Cash out vs rate and term is 5% lower for cash out
  2. Investor cash flow. These loans use lease payments for the income.  They require a minimum of your lease payment covering all your monthly costs for the rental.  This includes mortgage payment, taxes, insurance, HOA, property management, utilities, etc…
    1. Better pricing for better credit scores
    2. Better pricing when your rent is larger than monthly costs
    3. Higher ltv based on how much more your rent payments cover your monthly costs

 

 

Note: The Cash Flow Company doesn’t currently lend in all states, but we are always happy to help and make sure you understand your numbers!

*All non-commercial and construction loans offered by TNS Loans NMLS #1719349

 

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