Tag Archive for: real estate investing

Benefits of DSCR Loans for Multi-Unit Properties

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Here are the requirements of a DSCR loan for a multi-unit property (plus 4 benefits of DSCR loans).

There are a few unique requirements for a DSCR loan on a commercial or multi-unit property.

  • Properties that have at least $50,000 in value or more.
  • Minimum loan size starts at $1 million to $2 million.
  • Units must be at least 75 to 90% occupied.
  • DSCR of 1.2 or higher.
  • Appraise and verify rents for each property.

This style of DSCR loan is not good for buying and fixing up value-add properties. To meet all of the requirements, the property must already be stable, rented, and bringing in rent.

4 Benefits of DSCR Loans for Commercial and Multi-Family Property

1. Portfolios

These loans not only work for commercial properties (ie, a 20-unit apartment building), but it also works for portfolios. So if you have five single-family homes you want to put under one loan, this product could also do that. The properties must appraise for $50k or higher.

2. Non-recourse

Non-recourse means you don’t have to personally sign or personally guarantee it – it all goes through your LLC. So your lender won’t come after you if something goes wrong.

3. Alternative to Banks

These DSCR-style loans are helpful while banks are tight. If you don’t want to go through the hassle of a bank (or even if you can’t qualify for a bank loan), a DSCR can be a great alternative.

4. Low Hassle

A DSCR loan won’t require your tax returns, proof of income, or any of the other paperwork that typically drags out the loan process. All you need is an LLC, a good credit score, and a qualifying property.

Read the full article here.

Watch the video here:

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The Impact of Credit Usage on a Real Estate Investor

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Investors get trapped in a credit usage cycle – here’s how it happens.

We get calls about this bad credit trap almost daily. Let’s go over the story of one client.

They were going for a DSCR loan. They owned the property free and clear – except they had put all the repairs on their personal credit cards, which they still owed. It’s not uncommon for investors to use credit cards to cover the rehab costs of a flip. In this case, they ran around $40,000 on the cards.

So they went to get their DSCR refinance of up to $210,000 on this property that was worth over $300,000. The LTV looked good, everything was checking out, and they actually got pre-qualified before they did all the work and got the tenants in the property.

Then the problem: their points rose from 1 to 3%. Their interest rate went from mid-7s to over 9.6%. Their LTV jumped from 70% down to 65%.

Why? Those credit card balances were on their personal cards, so it impacted their personal credit. The bad credit score impacted their rate and fees. Now, for this refinance they had already qualified for, they now owed over $6,000 in points alone.

What Is the Credit Usage Cycle?

On flips and BRRRRs, we see this credit cycle happen over and over again.

Investors put the fix-up costs (business expenses) on personal cards. This drives up the balances, and so increases credit usage, and so lowers their personal credit score.

In the earlier example, our client fully intended to use the money from the refinance to pay off the credit card balances. But they can’t get the refinance until the cards are paid off. This is the cycle.

In most instances, you expect to pay the personal cards off with the refinance. But when you go to refinance, you get the unexpected surprise that your credit score doesn’t qualify. In our client’s example, he had actually pre-qualified, but the rate and fees had changed drastically due to the bad credit score.

If this client had accepted the terms of that refinance, he’s going to get less cash out to pay off the cards and put into his next project. The next property will have hefty out-of-pocket closing costs. With all these extra costs, his real estate investing career will slow to a standstill, and he’ll be more dependent on the personal credit cards than ever.

Read the full article here.

Watch the video here:

https://youtu.be/ONa_nEQ0840

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Avoid The Real Estate Bad Credit Cycle With This Easy Trick

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Here are two solutions to get out of the bad credit cycle.

You might think of your credit score as a track record – something that describes your past.

But in the real estate investing business, your credit score is a bit more like a crystal ball – something that decides your future.

Your credit score determines what interest rates you qualify for, what amount a bank is willing to lend you, and whether traditional financing is available to you at all.

And unfortunately for real estate investors, there’s a nasty credit trap you can fall into.

Let’s talk about what this bad credit cycle is, how it impacts investors, and how you can get out and stay out of it.

A Real-Life Example of the Bad Credit Cycle

We get calls about this bad credit trap almost daily. Let’s go over the story of one client.

They were going for a DSCR loan. They owned the property free and clear – except they had put all the repairs on their personal credit cards, which they still owed. It’s not uncommon for investors to use credit cards to cover the rehab costs of a flip. In this case, they ran around $40,000 on the cards.

So they went to get their DSCR refinance of up to $210,000 on this property that was worth over $300,000. The LTV looked good, everything was checking out, and they actually got pre-qualified before they did all the work and got the tenants in the property.

Then the problem: their points rose from 1 to 3%. Their interest rate went from mid-7s to over 9.6%. Their LTV jumped from 70% down to 65%.

Why? Those credit card balances were on their personal cards, so it impacted their personal credit. The bad credit score impacted their rate and fees. Now, for this refinance they had already qualified for, they now owed over $6,000 in points alone.

What Is the Bad Credit Cycle?

On flips and BRRRRs, we see this credit cycle happen over and over again.

Investors put the fix-up costs (business expenses) on personal cards. This drives up the balances, and so increases credit usage, and so lowers their personal credit score.

In the earlier example, our client fully intended to use the money from the refinance to pay off the credit card balances. But they can’t get the refinance until the cards are paid off. This is the cycle.

In most instances, you expect to pay the personal cards off with the refinance. But when you go to refinance, you get the unexpected surprise that your credit score doesn’t qualify. In our client’s example, he had actually pre-qualified, but the rate and fees had changed drastically due to the bad credit score.

If this client had accepted the terms of that refinance, he’s going to get less cash out to pay off the cards and put into his next project. The next property will have hefty out-of-pocket closing costs. With all these extra costs, his real estate investing career will slow to a standstill, and he’ll be more dependent on the personal credit cards than ever.

Stopping the Bad Credit Cycle

High personal credit card usage → Bad credit score → No loan, or a loan with unfavorable terms → No or less cash out to pay off the cards → Difficulty getting a loan for the next project

What does this cycle start with?

High usage on personal credit cards.

So there are two solutions we recommend: 1) fixing the high usage, and 2) not using personal credit cards. Here’s how to do both.

Fixing High Usage with a Usage Loan

This is how we helped our client. He had the $40,000 on his personal credit cards reporting on his credit, so we gave him a $40,000 usage loan that does not report on his credit.

The $40k loan from us is secured by another piece of property, or he could have gotten a loan from a friend or family member that also wouldn’t report.

He uses the loan to pay down all the credit cards. Because usage makes up 30% of your credit score, lowering your usage will likely improve your score within 30 to 60 days.

Once our client has used the loan in this way, his score went from 680 back up to 720. He can get the DSCR loan with a half point rather than 3 points, saving him thousands of dollars on the transaction.

Using a Business Card for Real Estate Costs

The usage loan is the fix-it-quick solution. The long-term solution for this bad credit cycle is to use a business credit card for all costs associated with your real estate investing career.

The only difference between a business and a personal card is that it’s in your business’s LLC, and it doesn’t report to your personal credit.

So going forward, as our client uses his cards for future projects, it won’t affect his personal credit score or future financing, since he’ll now use his business cards.

Be aware that you’re getting the right business credit card. Some still report to personal credit, like Capital One.

How to Fix Your Credit

Stop spinning in this credit cycle. Let’s get you back on track.

If you need options to get out of this trap, we could help you with secured lines to pay off those credit cards and getting in the right business cards so this doesn’t happen. Just reach out at Info@TheCashFlowCompany.com. 

Want more information about real estate investing in general? Check out our YouTube channel.

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DSCR Loans: Single-Family Units vs Multi-Units

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What is the difference in DSCR loans: single-family vs multi-units.

A DSCR loan is a product that does not rely on income from the borrower or borrowing entity. The borrower could be an individual, an LLC, or a partnership. Regardless of who is borrowing, the lender does not require their income information.

Instead, a DSCR loan depends on the income (rent) from the property.

Traditionally, DSCR loans are used for single-family properties. However, there are products available for multi-family units as well. Here are some of the similarities and differences.

Ratio Requirements for a DSCR Loan

Debt service coverage ratio is the rent divided by the expenses of a property. If the DSCR is 1, that means the income perfectly covers the expenses, breaking even.

A DSCR loan for commercial property will likely require at least a 1.2 DSCR. This would mean your income is 120% more than your expenses.

For instance, if your mortgage, interest, taxes, and insurance add up to $1,000 per month, your rent must be $1,200 per month to have a DSCR of 1.2.

Differences Between DSCR Loans in Single-Family vs Multi-Units

There are some differences between a typical DSCR and a DSCR-style product for multi-family and commercial properties.

  • Loan size. The average DSCR loan is for single-family units, duplexes, and fourplexes, usually around $300k to $400k. A DSCR loan for commercial property, however, is a larger loan – typically anywhere between $1 million to $2 million.
  • LTV. For a typical DSCR loan, you could get an LTV of 80-85%. Commercial DSCR loans max out at 75%.
  • Terms. A DSCR loan for commercial property is amortized over 30 years or interest-only, like a traditional DSCR loan. They’re only fixed for a certain period, usually five, seven, or ten years.

Read the full article here.

Watch the video here:

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Which Credit Card Is Right For You: Business vs Personal vs Corporate

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3 types of credit – and why business vs personal cards are the right option for real estate investors.

Your credit score is the driving force behind your financing. Credit score decides:

  • How many lenders will offer you money
  • Your loan-to-values
  • All terms and rates.

By raising your score, you get better financing. Better financing opens up more options for buying deals – you have more money available to you, plus more flexibility and speed in getting that money to buyers.

The business credit card is the simplest way to make that credit score jump for investors. But let’s compare it to two other major forms of credit.

Business and Corporate Credit

Business credit cards are not like corporate credit.

You can apply for a business credit card and have it back in close to a week. However, corporate credit cards are a bit harder. It involves building corporate credit and going through Dun and Bradstreet – which all takes months or years.

Business credit cards are easy, fast, and can be used every day. All you need is a business, and business name, a bank account, and a decent credit score. (Need to lower your usage to improve your score before you get a business card? Ask us about a usage loan.)

As soon as you get a business card, you can start using it to pay for contractors and supplies, which will free up your personal credit cards and raise your score.

Business Credit Card vs Personal Credit Card

One main difference between a business and personal credit card is that a personal one reports on your score and the (right) business one doesn’t.

For a personal card, you must keep your balance less than 30% of your limit. On a business card, you can max it out. In fact, credit card companies actually like when you use more of your business’s limit, and they’ll give you more credit for doing it.

Using a lot of credit is actually a benefit on the business side.

Read the full article here.

Watch the video here:

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How to Use a DSCR Loan for Commercial Property

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What you need to know about the DSCR loan for commercial property or multi-family.

Maybe you have the chance to buy an apartment unit. It could have 40 units, or just five. But what if you still want the simplicity of a DSCR loan?

Most of the time, DSCR loans are only available for single-family rentals – or sometimes up to fourplexes. However, there is a product very similar to a DSCR loan that can be used for commercial property and multi-family apartment buildings.

Let’s explore how these loans differ in terms and requirements from other DSCR loans.

What Is a DSCR Loan for Commercial Property?

A DSCR loan is a product that does not rely on income from the borrower or borrowing entity. The borrower could be an individual, an LLC, or a partnership.

Regardless of who is borrowing, the lender does not require their income information.

Instead, a DSCR loan depends on the income (rent) from the property. A debt service coverage ratio is the rent divided by the expenses of a property. If the DSCR is 1, that means the income perfectly covers the expenses, breaking even.

Ratio Requirements for a DSCR Loan

A DSCR loan for commercial property will likely require at least a 1.2 DSCR. This would mean your income is 120% more than your expenses.

For instance, if your mortgage, interest, taxes, and insurance add up to $1,000 per month, your rent must be $1,200 per month to have a DSCR of 1.2.

Differences Between the Types of DSCR Loans

Let’s look at the differences between a typical DSCR and a DSCR-style product that is used for multi-family and commercial properties.

  • Loan size. The average DSCR loan is for single-family units, duplexes, and fourplexes, usually around $300k to $400k. A DSCR loan for commercial property, however, is a larger loan – typically anywhere between $1 million to $2 million.
  • LTV. For a typical DSCR loan, you could get an LTV of 80-85%. Commercial DSCR loans max out at 75%.
  • Terms. A DSCR loan for commercial property can be amortized over 30 years, or it can be interest-only. But they’re only fixed for a certain period, most commonly five, seven, or ten years.

Requirements for Commercial Property DSCR Loans

There are a few unique requirements for a DSCR loan on a commercial or multi-unit property.

  • Properties that have at least $50,000 in value or more.
  • Minimum loan size starts at $1 million to $2 million.
  • Units must be at least 75 to 90% occupied.
  • DSCR of 1.2 or higher.
  • Appraise and verify rents for each property.

This style of DSCR loan is not good for buying and fixing up value-add properties. To meet all of the requirements, the property must already be stable, rented, and bringing in rent.

4 Benefits of a DSCR Loan for Commercial and Multi-Family Property

  • Portfolios

These loans not only work for commercial properties (ie, a 20-unit apartment building), but it also works for portfolios. So if you have five single-family homes you want to put under one loan, this product could also do that. The properties must appraise for $50k or higher.

  • Non-recourse

Non-recourse means you don’t have to personally sign or personally guarantee it – it all goes through your LLC. So your lender won’t come after you if something goes wrong.

  • Alternative to Banks

These DSCR-style loans are helpful while banks are tight. If you don’t want to go through the hassle of a bank (or even if you can’t qualify for a bank loan), a DSCR can be a great alternative.

  • Low Hassle

A DSCR loan won’t require your tax returns, proof of income, or any of the other paperwork that typically drags out the loan process. All you need is an LLC, a good credit score, and a qualifying property.

More on DSCR Loans

A DSCR loan could be the right fit for your single-family, multi-family, or commercial property.

Left with questions about DSCR loans? Check out these videos.

Want more info for your deal or portfolio? Reach out at Info@TheCashFlowCompany.com.

Not sure your property’s DSCR qualifies? Use this free, simple DSCR calculator.

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5 Things To Do Before You Get a HELOC

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What should you know before you get a HELOC?

First, know where to go for HELOCs. This is typically local credit unions and large national banks.

But before you call these institutions, make sure you have these 5 things ready:

  1. How much your property is worth.
  2. How much you owe on it.
  3. Align your LTVs. So if it’s a rental property, make sure your current mortgage and your current value is 70-75% or less, or HELOCs are probably not going to be available to you.
  4. What your credit score is. Know what it is and know what it needs to be. Most places will require a minimum 680, but 700 is better. The higher your credit score, the higher your loan-to-value.
  5. What type of property it is. Especially with a rental, know its condition and whether it’s a single-family, duplex, etc.

A final tip on HELOCs: each bank or company will give you a HELOC on between one and three of your properties. So if you want a HELOC on five, ten, or twenty properties, you’ll have to set up accounts at different banks.

As an alternative, you could also look into lines of credit, which span multiple properties.

Help to Get a HELOC (and More)

We want to make it easier for you to get the best, cheapest leverage possible for your investments.

If you have any questions or have a loan you’d like us to price out, reach out to us at Info@TheCashFlowCompany.com. If you just want more information on real estate investing, you should check out the videos on our YouTube channel.

Read the full article here.

Watch the video here:

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The Benefits of a Business Credit Card for Real Estate Investing

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The real estate investor’s credit score solution: the benefits of a business credit card.

Business credit cards are a no-brainer alternative to using your personal cards for your real estate investments.

Most real estate investors use a credit card to pay for the expenses involved in fixing up properties. Doing this, however, raises your balance, which increases your usage. Usage makes up 30% of your credit score, so keeping high balances on your personal card can significantly lower your score.

Weigh the Credit Benefits of a Business Card

It’s important to get all investing expenses off your credit. It not only impacts your business, but it impacts your personal life, too. When you need a personal mortgage, or a new car, or a boat… Your lender will check your credit, and they’ll see the bad score if your usage is out of whack from your business.

A business credit card solves your credit problems in two ways:

  • It helps your credit score. Moving these balances onto a business card takes them off your personal credit. Business credit won’t impact your personal score. This will allow you to get better outside funding.
  • It’s a form of fast, easy, cheap funding. It still allows you the convenience of a credit card – and sometimes at a better rate.

The “best” business credit card for a real estate investor is one that does not show up on your personal report.

Making Real Estate Investing Easier and More Profitable

Our primary focus is making investing easier on the funding side. There are many ways to fill your “money buckets,” whether it’s business credit cards, HELOCs, real people’s money, or loans.

We want to help you with all of it. Reach out at Info@TheCashFlowCompany.com for more step-by-step help on business credit cards and other valuable funding sources.

Read the full article here.

Watch the video here:

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How a Business Credit Card Can Change a Real Estate Investor’s Career

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A business credit card for real estate investing: do you really need it?

There are two major things a real estate investor needs: easy, fast, and cheap funding and a good credit score to secure that funding.

Using a business credit card as a real estate investor can be the answer to both of these problems. Let’s go over exactly how a business card could change your career.

The Credit Benefits of Using a Business Credit Card

So, why business credit cards? They’re a no-brainer alternative to using your personal cards for your real estate investments.

Most real estate investors use a credit card to pay for the expenses involved in fixing up properties. Doing this, however, raises your balance, which increases your usage. Usage makes up 30% of your credit score, so keeping high balances on your personal card can significantly lower your score.

It’s important to get all investing expenses off your credit. It not only impacts your business, but it impacts your personal life, too. When you need a personal mortgage, or a new car, or a boat… Your lender will check your credit, and they’ll see the bad score if your usage is out of whack from your business.

A business credit card solves your credit problems in two ways:

  • It helps your credit score. Moving these balances onto a business card takes them off your personal credit. Business credit won’t impact your personal score. This will allow you to get better outside funding.
  • It’s a form of fast, easy, cheap funding. It still allows you the convenience of a credit card – and sometimes at a better rate.

The “best” business credit card for a real estate investor is one that does not show up on your personal report.

The Importance of Credit Score in Financing

In all financing, your credit score is the main driving force. Credit score decides:

  • How many lenders will offer you money
  • Your loan-to-values
  • All terms and rates.

By raising your score, you get better financing. Better financing opens up more options for buying deals – you have more money available to you, plus more flexibility and speed in getting that money to buyers.

The business credit card is the simplest way to make that credit score jump for investors.

Business Credit Card vs Corporate Credit

Business credit cards are not like corporate credit.

You can apply for a business credit card and have it back in close to a week. Corporate credit cards are a bit harder. It involves building corporate credit and going through Dun and Bradstreet – which all takes months or years.

Business credit cards are easy, fast, and can be used every day. All you need is a business, and business name, a bank account, and a decent credit score. (Need to lower your usage to improve your score before you get a business card? Ask us about a usage loan.)

As soon as you get a business card, you can start using it to pay for contractors and supplies, which will free up your personal credit cards and raise your score.

Business Credit Card vs Personal Credit Card

One main difference between a business and personal credit card is that a personal one reports on your score and the (right) business one doesn’t.

For a personal card, you must keep your balance less than 30% of your limit. On a business card, you can max it out. In fact, credit card companies actually like when you use more of your business’s limit, and they’ll give you more credit for doing it.

Using a lot of credit is actually a benefit on the business side.

Making Real Estate Investing Easier and More Profitable

Our primary focus is making investing easier on the funding side. There are many ways to fill your “money buckets,” whether it’s business credit cards, HELOCs, real people’s money, or loans.

We want to help you with all of it. Reach out at Info@TheCashFlowCompany.com for more step-by-step help on business credit cards and other valuable funding sources.

You can also check out our YouTube channel for more info on real estate investing and funding.

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How to Use a HELOC like Cash to Buy a Property

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If you want to buy properties quickly… here’s how to use a HELOC.

A HELOC allows you to buy properties with cash, without having the actual cash. So how does this work to buy properties with a HELOC?

Once you’ve set up a HELOC, you could go into the bank at any time and ask them to draw the money out or wire it.

Within hours of finding a property, it’s possible to go under contract, set up a closing, fund it, and own it. Once you own the property, you can always refinance later into a more traditional loan to pay back what you took from your HELOC.

This allows you to compete with cash buyers because this is exactly how they do it. Using a HELOC in this way gives you the power to get in front of the line.

How to Use Small HELOCs

HELOCs are a valuable tool in any investors’ toolbelt. It’s one of the easiest ways to ensure no good deal will get away from you.

Even if your HELOC isn’t big enough to fund the purchase of the whole property, you could still use it as a down payment. This way, you might not need to wait for lender approval to close.

Even if it’s not purchasing the whole property, maybe it’s putting the money down. So you don’t have to wait for your lender. You don’t have to figure out if they’re going to approve you or not.

How to Use Big HELOCs

If you want more HELOC power behind your investing punch, there are a few things to keep in mind.

First, if you own multiple properties, you can put HELOCs on each of them. More lines of credit equals more cash available to you.

Second, you want to ensure you’re getting the best HELOCs. What makes HELOCs the best for real estate investors who compete with cash buyers? There’s one thing: high loan-to-values.

You’ll want to shop around to get the maximum amount you can from these lines of credit. Money is power in real estate investing, so choosing the HELOC with an extra point in fees shouldn’t distract you from your highest LTV option.

The best lenders will be able to give you 70-75% LTVs on your rental properties and 80-85% on your owner-occupied home.

Where to Find the Best HELOC

So where do you find the best HELOC? It’s something you’ll have to do a little research on.

If you don’t want to do your own research, we do it every month. We call all the banks and credit unions in our markets to find out who has the best loan to values, lowest rates, and easiest qualifications. Reach out at Info@TheCashFlowCompany.com if you want this list!

Read the full article here.

Watch the video here:

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