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A DSCR loan calculator is an invaluable tool for real estate investors.

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

What is a DSCR Loan?

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

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

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

What is a DSCR Ratio?

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

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

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

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

Raising the Ratio

You can get a higher DSCR ratio in a few ways.

1. Be mindful of your expenses.

Especially if you’re a new investor, make sure you’re shopping around for the best deals.

Before you buy a property, research the typical costs for the area. Is there an HOA? Will you need any specialized insurance? Typical taxes?

Knowing these things beforehand can help you make more informed decisions and keep your costs lower.

2. Set rents intentionally.

Look at the average rents in your area. Remember, the higher your income (rents), the higher your DSCR ratio.

Let’s look at an example:

When rents equal our cash out, lenders may see your loan as “safe,” but it’s not making you any money.

Instead, raising rents can help you end up with a higher DSCR ratio (and more money in your pocket).

When you raise rents, simply divide your expenses by your income (rents) to find your new ratio.

By raising rents by $200, we end up with a much better ratio (1.2) that actually creates wealth instead of simply covering expenses.

Use Our DSCR Loan Calculator

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

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

Finding a DSCR Loan

Banks typically like to see ratios of 1 or higher.

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

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

Here at The Cash Flow Company, we scour the market to make sure we offer competitive rates and connect good people with good loans.

If you have questions or want to talk about a loan, reach out to us at Mike@TheCashFlowCompany.com.

Fun fact: What the Fed is doing now will create more opportunities for generational wealth and income in the very near future.

Interest rates are currently high. This can create a discouraging market for new investors, but it’s important to look at the patterns of those interest rates so we can project where they’ll be over the next few years.

Real estate investing is one of the most accessible ways to create generational wealth. It takes two things to be successful:

Leverage: knowing how to use other people’s money (bank loans, etc.) to turn a profit
Math: know how the numbers work so you can use them to your advantage.

Even though interest rates are currently high, if we understand how to use leverage and math to our benefit, we’ll be creating wealth in no time.

It Comes Down to Numbers (and Interest Rates)

We’re all in real estate investing to create income, wealth, a better life. Interest rates are a significant aspect of that. We need to understand exactly how to leverage high interest rates to help you create the wealth you’re here for.

Here’s the good news: interest rates will likely go down soon.

If you buy a property when rates are high, you can refinance when rates drop to increase both your income and equity.

For Example…

Let’s say you have a 4-plex that you’re going to purchase with the following figures:

4-Plex (Initial Numbers)
- Loan Amount: $500,000
- Interest Rate: 8.5%
- Monthly Payments: $3,800

As we said earlier, rates are likely to decrease soon. We’re heading into a big election year which tends to drop rates, and the Fed is hitting their apex. So what happens when the rates decrease and we look at refinancing?

4-Plex (Refinanced!)
- Loan Amount: $500,000
- Interest Rate: 7.5%
- Monthly Payments: $3,496 (+ $360 income/month)

Even if interest rates only drop by 1%, you still end up with over $4,000/year more in your pocket.

Similarly, because of the shifting value, that initial $500,000 now has a value of $550,000 (10% higher than before).

If all you do is refinance when rates drop by 1%, you can easily build income and equity. Imagine the strides you can take when interest rates drop even further.

This same strategy applies to portfolio/multi-family homes. When rates drop, you can look into refinancing any investment property to explore these possibilities and take advantage of this opportunity to build generational wealth.

Falling Interest Rates Generate Generational Wealth… If You’re Prepared.

If you buy when interest rates are high, you’re going to increase your income as rates fall. You’re also going to increase your net worth even if you don’t sell them. It’s a great way to create the income you need to begin a sustainable investment cycle.

Also, this strategy also naturally lets you diversify lines of credit, cross liens, etc. that allow you to increase your portfolio.

Time to Buy

Here’s the bottom line: rates are going to fall, and if you buy now, you’ll build income without needing to invest in additional investments.

This is the time to be buying investment properties.

We’re moving into a market where there’s going to be a lot of demand for properties. As rates fall, more people will be looking to buy. Get ahead of that rush, and use the dropping rates to put money in your pocket.

Resources

It’s important to keep your finger on the pulse as a real estate investor — especially if you’re serious about generating wealth. We have a weekly Investor Mortgage Report that keeps you updated on DSCRs, bank rates, private money, and market trends so you can be an informed investor.

Things change rapidly. Rates may rise through the end of 2023, but the moment they start to fall, you want to be prepared.

If you’d like to be put on the Investor Report email list, or if you have questions about how to get started as an investor, reach out to us at Mike@TheCashFlowCompany.com.

You can also check out our YouTube channel for more investment tips and tricks.

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DSCR Loan Calculator: How to Find Your Ratio