Tag Archive for: rental properties

Investing in Rental Properties: DSCR Loans

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If you’re new to investing in rental properties, understanding how DSCR loans work is essential.

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.

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 investing in rental properties 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. 

 

Read the full article here.

Watch the full video here:

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DSCR Loan Interest Rates: Explained

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What can you expect to pay on your DSCR loan interest rates? Here’s what it is (and why it matters).

You can still find a DSCR product for ratio 1 or negative cash flow properties.

DSCR loans have certain ratio thresholds. When you break these thresholds, your rate gets better. And better rates mean lower monthly payments. Which means… more cash flow!

Let’s go over some of these thresholds for DSCR loan interest rates.

Loans for a 1.25 DSCR

Say we have a property with $1,590 worth of monthly expenses, which we can charge a $2,000 rent on. Divide the rent by the expenses, and we get a DSCR of about 1.26.

One way of thinking about this is that the property is profiting 25% over the expenses. That’s good for the underwriter (and it’s good for you), so you’ll get a lower interest rate.

1.25 is a major threshold for DSCR lenders. In the current market at the beginning of 2022, the rate for a 1.25 DSCR is around 7.25%.

DSCR Loan Interest Rates for a 1 or Lower Ratio

If a property has negative cash flow, say 0.94, then the average interest rate would be 9+% on a DSCR loan.

For a breakeven ratio of 1, the typical interest rate right now would be more like 7.75%.

The Difference in DSCR Loan Interest Rates

Anytime you can lower the rate, that’s cash flow that goes into your pocket.

The difference between a negative DSCR and a 1.25 is about $220/month on your payment. Over the course of a year, that adds up to $2,600. If you have 5 rental properties, that’s $13,000/year. At 10 rental properties, it’s a $26,000 difference!

If real estate investing is going to be your career or retirement plan, buying properties that you know will cash flow is vital. A couple hundred bucks a month can snowball into hundreds of thousands over time.

This is why it’s important to know how to calculate DSCR quickly when you’re looking at buying a new property. Never put a contract on a rental property when you’re not sure if the cash flow fits your goals.

Read the full article here.

Watch the video here:

https://youtu.be/o5js06y–qM

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Quick ‘n Easy DSCR Calculation

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Your DSCR calculation made easy with our free loan calculator.

Don’t be intimidated by a DSCR loan. If the property cash flows, then you have a pretty good shot at getting approved.

And there’s a simple way to find out the cash flow of a rental property: the debt service coverage ratio.

Underwriters use this ratio to determine if a property is positively cash flowing. It’s an important metric to understand if you want to maximize your leverage and get the most out of your investments.

Now, let’s go over how to calculate DSCR quickly and understand what it means for your property.

What Is a DSCR in Real Estate?

Firstly, let’s define what DSCR is. It’s a ratio that compares a property’s income to its expenses.

You calculate DSCR by dividing the property’s income (rents) by its expenses (monthly mortgage payment, taxes, insurance, and HOA if applicable). A ratio of greater than 1 means the property is cash flowing, which is what both you and your lender want to see.

So, the higher the ratio, the better the cash flow, and the more money in your pocket.

For a DSCR loan, the higher this ratio is, the better the terms your loan will have.

Expenses & Income for DSCR Calculation

Next, to find out the expenses your DSCR loan will consider, you’ll add together four items:

  • Mortgage
  • Property Tax
  • Insurance
  • HOA Fees

Finally, to find out the income, you’ll need to check out what rents are in the area for comparable properties.

How to Calculate DSCR Quickly

To help keep all these numbers straight when you calculate DSCR, you can download our free, simple DSCR calculator at this link.

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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3 Key Fundamentals of BRRRR

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The top 3 fundamentals to keep in mind when learning BRRRR.

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

We’ve helped investors through this process for over 15 years.

Here are the 3 key fundamentals of BRRRR we’ve seen make these transactions successful.

Key Fundamental #1: Building a BRRRR Team

Firstly, you have to find off-market properties.

The really good under-market BRRRR properties won’t just jump into your lap. These properties require a little digging, and – more importantly – a team to help you.

You’ll need to know wholesalers, real estate agents, other investors, and anyone else who can help you locate good undermarket properties.

(It’s also an advantage to keep lenders on your team so you can close fast on these great properties once you find them.)

Key Fundamental #2: The Money Side

“It takes money to make money.”

If you can learn the basics about the costs of your BRRRR projects, then you can squeeze more money out of each project.

We always say that there’s money in the money. Do the research to learn about real estate before your first investment, and you’ll be miles ahead of other investors.

Key Fundamental #3: Using the Right Leverage

Yes, it takes money to make money, but it doesn’t have to be your money.

Plan for and understand the entire BRRRR process, and leverage can work to 10x your net worth.

For More on BRRRR

Overall, this only brushes the surface of BRRRR. Over the coming weeks, we’ll visit each of these topics in much more detail. Why do you use two loans? How can you do this with zero money down? How do you go about a refinance?

If you have a deal now you’d like us to look at for you, send us an email at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

https://youtu.be/JbO2YFxuPmw

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How BRRRR Properties Create Wealth Immediately

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What properties make you money as a real estate investor? Here’s how BRRRR properties create wealth instantly.

There’s no contest: BRRRRs create wealth WAY faster than retail properties.

In fact, the right BRRRR property can create a net worth increase of 25% of the value of the property nearly instantaneously.

To show this in action, let’s break down the examples of two houses with the same numbers – but one is a BRRRR property and one is retail.

Retail vs BRRRR: The Numbers

  • Value: We’re comparing two homes with the same value – same neighborhood, same block, same size. Let’s say the value is $400k.
  • Loan: For the BRRRR, our total costs would add up to $300k ($250k purchase price + $50k closing, rehab, etc). Our leverage 100% covers this amount. For the retail home, we could get an 80% LTV, so our remaining loan is $320k. On retail, we have less cash flow because we owe more money.
  • Cash Transfer: With BRRRR, you’re moving $0 of your own money. This is why properties with the BRRRR strategy are so popular for investors. With the retail property in our example, you need to transfer $80k of your money as a down payment. 

There are two problems with the cash transfer requirement in retail properties. 1) You need the cash to get into it. And, 2) The last “R” in BRRRR is repeat, so you’d have to have $80k again for your next property and your next. On under-market BRRRR properties, the zero out-of-pocket costs free you up to repeat the process over and over.

  • Payments: BRRRR payments will be lower than retail payments by about $25-$50/month, simply because the loan amount is lower.
  • WEALTH: The BRRRR strategy property immediately creates $100k. The retail property adds $0. It only has the loan + the $80k that was yours to begin with.

How BRRRR Properties Create Wealth

The wealth in BRRRR comes from the difference between the value of the property and what you owe on it. This usually ends up being 25% of the value of the home.

If you multiply this process by 5-10 properties? You’ve suddenly got half a million to a million dollars in net worth.

Have BRRRR properties create wealth like this isn’t just wishful thinking. In 2010, we helped multiple families buy 10 properties in one year using this method. Many of their properties tripled and quadrupled in value over the last 10+ years.

The 2023 market is shaping up to look a lot like 2010. The time to buy is coming soon.

Read the full article here.

Watch the video here:

https://youtu.be/_tMI_s4vSqA

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What Is BRRRR? 3 Simple Fundamentals to Maximize Cash Flow

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What is BRRRR? Here’s an intro to the most basic concepts.

BRRRR is one of the most powerful forms of real estate investing.

It’s not uncommon for people to retire, 10x their net worth, or become full-time investors with BRRRR.

Done wrong, though, BRRRR is a giant waste of time and money.

We want to help you have a positive experience with BRRRR. Getting BRRRR right is a matter of basic education. So let’s go over the 3 key fundamentals that explain: What is BRRRR?

What Is BRRRR?

“BRRRR” stands for “buy, rehab, rent, refinance, repeat.” It’s a process for capturing equity and creating cash flow on rental properties.

What Is BRRRR Step 1: Buy

BRRRR is not a retail-buy strategy. The properties you get for a BRRRR need to be off-market and under-market.

There are several considerations that go into a “good” BRRRR property:

  • The rent you can charge has to create cash flow.
  • The appraisal during the refinance will need to create a profit.
  • The property needs to be desirable enough to attract great tenants.

BRRRRs are bought with “sweat equity.” This doesn’t just refer to the physical work you put into a home once you have it… It also applies to the work you have to put in before purchasing the property to ensure it’ll make you money.

What Is BRRRR Step 2: Rehab

For the rehab of a BRRRR, there’s a balancing act to make the project “rental grade.” On the one hand, you have to stay within budget. Rental properties take some wear and tear, so your updates should account for that.

On the other hand, you still want quality. Why? Firstly, because better properties attract better tenants. And secondly, because your refinance depends on the appraisal. To get a good appraisal value, the property must show quality work.

What Is BRRRR Step 3: Rent

A BRRRR property’s cash flow is largely dependent on the amount of rent you can charge. Be aware of the rent range you can realistically charge in your property’s location.

Knowing the rent will help tell you what updates you should make to the property. For example, if adding an extra bedroom would get you an extra $500 per month, it may be worth the construction costs.

You can estimate an area’s rents by going to Zillow, Rentals.com, or talking to local property managers.

What Is BRRRR Step 4: Refinance

Part of the BRRRR strategy is to use two loans. You buy with a short-term hard money loan, then refinance into a long-term loan after all the rehab.

To make the most money, you’ll want to set yourself up for a rate and term refinance rather than cash out.

What Is BRRRR Step 5: Repeat

The true secret to how BRRRR can create so much wealth is the repeat-ability of the process.

We recommend people getting into real estate investing to buy 10 BRRRR properties in 3 years, or 5 in 2 years.

How can you possibly afford to buy so much real estate in such a short amount of time? The right BRRRR properties require zero money down. If you were pulling from your savings for every down payment, you wouldn’t be able to get as far.

So, what is BRRRR? It’s a method for building an investment rental property portfolio that requires no money out of your pocket.

3 Factors that Ensure a BRRRR Success

After helping investors through the BRRRR process for over 15 years, we’ve seen 3 key factors that make these transactions successful.

1. Building a Team

The really good under-market BRRRR properties won’t just jump into your lap. These properties require a little digging, and – more importantly – a team to help you.

You’ll need to know wholesalers, real estate agents, other investors, and anyone else who can help you locate good undermarket properties.

(It’s also an advantage to keep lenders on your team so you can close fast on these great properties once you find them.)

2. The Money Side

“It takes money to make money.”

If you can learn the basics about the costs of your BRRRR projects, you can squeeze more money out of each project.

We always say that there’s money in the money. Do the research to learn about real estate before your first investment, and you’ll be miles ahead of other investors.

3. Using the Right Leverage

Yes, it takes money to make money, but it doesn’t have to be your money.

Plan for and understand the entire BRRRR process, and leverage can work to 10x your net worth.

Where To Go From Here

This only brushes the surface of BRRRR. Over the coming weeks, we’ll visit each of these topics in much more detail. Why do you use two loans? How can you do this with zero money down? How do you go about a refinance?

If you have a deal now you’d like us to look at for you, send us an email at Info@TheCashFlowCompany.com.

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BRRRR Strategy Explained: Why These Properties 10x Your Net Worth

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Buying on-market properties is a money-suck for real estate investors. Here’s why to use the BRRRR strategy instead.

There are a lot of ways to mess up the BRRRR method.

But when you understand it right, this real estate strategy creates cash flow and net worth almost out of thin air.

We want to put the power of BRRRR in your hands. This is the start of a series walking through the BRRRR process step-by-step.

Let’s begin with the fundamental idea behind BRRRR – the thing that gives this method its money-making magic. How does the BRRRR strategy create cash flow out of seemingly nothing?

BRRRR Property vs Buying Retail

This is the basic concept behind real estate investing. There are two types of real estate properties:

  • Retail – When we think of a house as “on the market,” it’s a retail property. These houses are sold at market price, a cost determined by current market conditions. In real estate, this includes supply, demand, location, interest rates, and a number of other factors.
  • Undermarket – Properties that might be considered “off-market” are sold at an under-market price. There’s something preventing the house from being sold at market value as-is. The home could be outdated, damaged, foreclosed, or suffering from some other condition.

To break down exactly why and how BRRRR works, we need to look at the difference between buying retail and buying under-market as an investor.

Buying Retail with the BRRRR Strategy Doesn’t Work

The problem with buying retail as an investor is the house comes with no equity.

Let’s say you buy a property worth $400,000 (listed for that amount). With a conventional loan, the lender will cover up to 80% of the cost of the house. So you’ll need to put down 20%.

When you purchase the house and make the down payment, you’re transferring wealth, not creating it. You’re taking the money from your financial account and transferring it to the physical property.

So, you’ve moved $80,000 into the house, got a loan for $320,000, and created no additional wealth from the transaction.

There are three main disadvantages to retail properties:

  • The property may create cash flow or wealth in the future as a rental property, but there is no wealth created from the purchase.
  • You’ll require money up-front (in this case, $80,000 plus closing costs).
  • You can only repeat BRRRR retail properties as long as you have the money to fund them.

Buying Under-Market for BRRRR

True BRRRR properties, however, solve all three of those problems retail properties have. A BRRRR property:

  • Creates equity & cash flow immediately (and over time).
  • Can be done with zero money down.
  • Is a repeatable process.

BRRRR is all about buying under-market properties – the houses that are unwanted and unloved. In this market going into 2023, a lot of these types of homes will pop up, resulting in some great deals.

BRRRR Purchase

There are certainly some nuances to BRRRR, but let’s look at the bare basics. Let’s take the same example used for the retail property.

You, again, buy a property with a value of $400,000. However, since it’s valued under-market, you can purchase it for only $250,000.

The catch is that the house isn’t necessarily worth the $400k as-is. The potential is there, but you’ll have to update and rehab it. Between those fix-up costs and the closing costs, you’ll have to put $50,000 more into the property.

So the total cost of the property ends up being $300,000, or just 75% of the value of the home.

Cost of the BRRRR Strategy

That 75% number is not only realistic but recommended for BRRRR properties. In down markets, it’s not entirely uncommon to see houses at 65% or below.

In this example, our all-in price (purchase + closing + rehab) is $300k, and the property is worth $400k.

Right away, we’ve created $100,000 in net worth.

Retail vs BRRRR: The Numbers

Now that we’ve explained the initial numbers, let’s do a side-by-side comparison to see why BRRRR is powerful enough to create generational wealth.

  • Value: We’re comparing two homes with the same value – same neighborhood, same block, same size. Let’s say the value is $400k.
  • Loan: For the BRRRR, our total costs would add up to $300k. Our leverage 100% covers this amount. For the retail home, we could get an 80% LTV, so our remaining loan is $320k. On retail, we have less cash flow because we owe more money.
  • Cash Transfer: With BRRRR, you’re moving $0 of your own money. This is why properties with the BRRRR strategy are so popular for investors. With the retail property in our example, you need to transfer $80k of your money as a down payment. 

There are two problems with the cash transfer requirement in retail properties. 1) You need the cash to get into it. And, 2) The last “R” in BRRRR is repeat, so you’d have to have $80k again for your next property and your next. On under-market BRRRR properties, the zero out-of-pocket costs free you up to repeat the process over and over.

  • Payments: BRRRR payments will be lower than retail payments by about $25-$50/month, simply because the loan amount is lower.
  • WEALTH: The BRRRR strategy property immediately creates $100k. The retail property adds $0. It only has the loan + the $80k that was yours to begin with.

BRRRR Strategy Explained: Why These Properties 10x Your Net Worth

How BRRRR Creates Wealth

The wealth in BRRRR comes from the difference between the value of the property and what you owe on it. This usually ends up being 25% of the value of the home.

If you multiply this process by 5-10 properties? You’ve suddenly got half a million to a million dollars in net worth.

Using the BRRRR strategy like this isn’t just wishful thinking. In 2010, we helped multiple families buy 10 properties in one year using this method. Many of their properties tripled and quadrupled in value over the last 10+ years.

The 2023 market is shaping up to look a lot like 2010. The time to buy is coming soon.

Using the BRRRR Strategy

Thinking about testing the BRRRR strategy for yourself?

We’ll be walking through the entire BRRRR process over the next few weeks. BRRRR is a simple way to generate wealth – but only if you really understand how the process works!

Send us an email at Info@TheCashFlowCompany.com if you have any questions. Check out our YouTube channel for more free information on BRRRR and other real estate investing strategies.

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Private Loans: Invest in Real Estate without Flipping or Renting

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Become a Private Lender: Invest in Real Estate without Flipping or Renting

Private Loans: Invest in Real Estate without Flipping or Renting

Do you know about private loans?

And did you know you can invest in real estate without resorting to fixing and flipping or fixing and renting?

It’s true. Everyone can put their money to work, even if they don’t want to put their muscles to work. If you want, you can skip the hammers, ladders, and paint. There’s no need to groan over dust-covered floors, clothes, and, well, everything. And forget about stressing over contractors and delayed projects. Because you can invest in real estate without ever stepping foot inside a property.

https://youtu.be/BnIJ81doM-0

How is this possible? Well, it’s actually pretty easy.

Rather than rolling up your sleeves and searching, buying, fixing, and selling or renting properties, you can become a private lender.

What does being a private lender mean?

Simply put, you become a bank for fix and flippers or rental owners. And you get to charge them interest for using your money.

Interest rates vary in private lending, but one thing is for sure: you’ll earn A LOT more interest in real estate than in your bank account.

Now, there are a couple of ways to become a private lender.

#1: A Helping Hand

So, the easiest way to get started is through companies like our sister company, The Note Shop. Through our licensed company, we connect private lenders with real estate investors.

And when you use a company like ours, you don’t need to:

  • Search for real estate investors who need funding.
  • Interview them and review their portfolio to determine how much you can trust them with your money.
  • Analyze properties to make sure they’re worth the investment.
  • Prepare loan documents, like deeds of trust and mortgages.
  • Handle escrow draws.
  • Oversee the life of the loan, including all payments, extensions, and modifications.

Yes, you can skip ALL of that and let our team do the work for you. That means we handle the entire list above.

Not you.

#2: DIY

Or, if you’re experienced and confident in private lending, you can work directly with real estate investors. This is best known in the business as OPM (Other People’s Money).

OPM puts you directly in the driver’s seat. Because you get to decide how big of a risk you’d like to take with your money, and that risk is based on trust.

Like, do you trust them to:

  • Pay you back?
  • Buy, fix, and flip a property within your agreed upon timeline?
  • Sell or rent a property for what they claim it’s worth after they repair it?

In addition to trust, you also need to tackle the entire to-do list we mentioned above. This is completely doable! But, again, it comes down to how much risk and work you want to take on.

So, there you have it! You can invest in real estate without ever picking up a hammer.

And, believe us when we say, private lending is easy, lucrative, and EASY!

Ready to talk about investing your money in real estate without breaking a sweat? Great! Because our team is always here to chat.

Happy investing!

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