Tag Archive for: The Cash Flow Company

How to Get a DSCR Loan in 3 Steps

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How to Get a DSCR Loan in 3 Steps

Getting a DSCR loan can be not only easy but rewarding as well. If you want to close a real estate deal fast and easy, simply follow these three simple steps. Begin by answering these questions, and you’ll be on your way to getting a loan that’s perfect for you and your cash flow.

Step 1: Check Your Rent Coverage

First, ask yourself: does your rent cover all your costs? This includes:

  • Mortgage payment
  • Taxes
  • Insurance
  • HOA fees

While it’s not always necessary, having your rent cover these costs can help you get better rates as well as higher loan-to-value products. At the very least, aim to charge rent that covers your monthly payments. However, if your rent does cover these costs, then you’ve passed the first step!

Example: Imagine you own a rental property. Your mortgage payment is $1,200, your taxes and insurance are $200, and your HOA fee is $100. Your total monthly cost is $1,500. If you charge $1,600 in rent, you cover all your costs and even make a little extra.

Step 2: Review Your Credit Score

Next, consider your credit score. You can get a DSCR loan with a score in the low 600s, but it will cost you more. Therefore a lower credit score can add up to one or more percentage points to your interest rate. This in turn can increase your monthly payment by $200 to $400.

Example: Let’s say you have a credit score of 620. You might get a loan with a 7% interest rate instead of 6%. On a $200,000 loan, that extra 1% could mean paying $2,000 more per year in interest.

If you need tips to raise your score, check out resources like our YouTube channel for advice on improving your credit.

Step 3: Choose the Right Lender

Finally, work with a lender who offers many options and programs. Every mortgage company has an ideal client, and you want to make sure your lender has an option that fits your needs at the lowest cost.

Example: You find a lender who offers various DSCR loan programs. One program might have a lower interest rate but higher fees, while another might offer a higher interest rate but lower closing costs. Choosing the right program can save you money and boost your monthly cash flow.

Conclusion

And that’s it! Those are the three key questions you need to answer before diving into a DSCR loan. If you find any step challenging, don’t worry. Our team is here to help you. We’re eager to set you on a path that helps you make the money you need to live the life you want.

Watch our most recent video to find out more about: How to Get a DSCR Loan in 3 Steps

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The Importance of Setting Goals Before Investing

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The Importance of Setting Goals Before Investing

Today we are going to discuss the importance of setting goals before investing. Being prepared is not only important to being successful in the BRRRR method, but in all real estate investment methods as well. Let’s break it down step-by-step.

Setting Your Goals

Every journey begins with a destination in mind. Before diving into the BRRRR method, ask yourself:

  • Why do I want to invest in real estate?
  • Where do I want to invest?
  • How many properties do I want to own?
  • How much cash flow do I want to generate?

Take a moment to think about your answers. These goals will guide your entire investment journey.

Searching for Properties

Now, let’s start our search. Look for under-market properties through:

  • Wholesalers
  • Investor-friendly Realtors
  • Real estate professionals who specialize in off-market deals

These properties are not listed on the MLS and usually require quick action.

Getting Long-term Loan Approval

Before buying, secure a pre-approval from a long-term lender. This step ensures you know the maximum loan amount you qualify for, which is crucial for the refinancing stage later on.

Buying with a Short-term Loan

Next, use a short-term loan, like a hard money loan, to purchase the property. These loans are essential for fast closings, often within days or weeks.

In Sum

It is imperative that you set your goals, search for the right properties, secure financing, and repeat the process in order to be successful. Need help getting things set up correctly? Contact us today!  

Would you like to find out more about the BRRRR method? Watch our most recent video: The Importance of Setting Goals Before Investing

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What is the Best Loan for Your Fix and Flip?

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What is the Best Loan for Your Fix and Flip?

Today, let’s dive into a topic we talk about daily: What is the best loan for your fix and flip? Is it a hard money loan, a private loan, a bank loan, or even OPM (Other People’s Money)? Each situation is different, and it’s essential to know what works best for you. Let’s get started!

Understanding Leverage

Leverage is key in real estate investing to create wealth. Think of leverage like a tool. When used right, it helps you build faster and better. Here’s what you need to know to ensure you get the best leverage:

Consider the Cost and Value

Just like hiring a contractor, you need to look at what you’re paying for and what you’re getting. It’s not always about the cheapest option but the best value. Typically, you might hear that hard money is more expensive than private money, but let’s dig deeper to see if that’s true.

Types of Loans for Fix and Flips

Hard Money Loans

Hard money loans are popular for fix and flips because they are quick to get and don’t require perfect credit. They are usually more expensive, but they can fund faster.

Example: If you find a great deal that needs to close in a week, a hard money loan might be your best option.

Private Money Loans

Private money loans come from individual investors. These can be more flexible with terms but may take longer to secure.

Example: Your friend or a local investor might lend you money with terms you both agree on.

Bank Loans

Bank loans usually have the lowest interest rates but come with strict qualifications and a longer approval process.

Example: If you have a great credit score and plenty of time, a bank loan can save you money on interest.

Other People’s Money (OPM)

OPM can be funds from partners or investors. This type can be highly flexible but depends on your agreements with them.

Example: Partnering with an investor who puts up the cash while you manage the flip.

Factors to Consider

Speed of Funding

In real estate, speed can make or break a deal. Sellers prefer buyers who can close quickly with no hassle. So, you need to know which lender can fund the fastest.

Down Payment

Down payments can vary. With hard money, you might get 100% financing, but usually, you’ll need 10-20% down.

Example: If you’re buying a $300,000 property, a 10% down payment means you need $30,000 upfront.

Points and Interest Rates

Points are fees paid to the lender, usually as a percentage of the loan amount. Interest rates can range from 10% to 12% or more.

Example: On a $270,000 loan with 1 point, you’ll pay $2,700 upfront. At 12% interest, you’ll pay $2,700 monthly.

Additional Fees

Lenders may charge other fees like escrow fees, draw fees, underwriting, and appraisal fees. These can add up, especially on smaller loans.

Example: A $200,000 loan might come with $1,900 in fees, affecting your overall cost.

How to Choose the Best Loan

  1. Compare Costs: Use our free Loan Cost Optimizer tool on our website to compare lenders and see who offers the best deal.
  2. Check Funding Speed: Make sure your lender can close the deal quickly to avoid losing it.
  3. Evaluate All Fees: Look at points, interest rates, and other fees to get the full picture.

Conclusion

In sum, the best loan for your fix and flip is the one that costs you the least and funds on time. At The Cash Flow Company, our goal is to help you get the best lending options available. If you have a question or a deal to discuss, reach out to us. Visit our website, download our Loan Cost Optimizer, and compare lenders to find the best deal for you.

Watch our most recent video to discover more!

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3 Factors to Think About When Considering a DSCR Loan

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3 Factors to Think About When Considering a DSCR Loan

What is a DSCR Loan?

There are 3 factors to think about when considering a DSCR loan that we are going to discuss further today. First and foremost, a DSCR loan stands for Debt Service Coverage Ratio loan and is an excellent loan for real estate investment. It’s designed specifically for real estate investors. This type of loan helps you buy rental properties, whether they are long-term or short-term rentals. However, it’s not for flips or homes you plan to live in.

Why Choose a DSCR Loan?

Choosing a DSCR loan can be a smart move for several reasons:

  1. Easy Qualification: You don’t need to worry about how long you’ve been in business or your personal income. Even if you started your business yesterday, you could qualify.
  2. Focus on Property Income: The loan qualification is based on the income generated by the property, not your personal income.
  3. 30-Year Loan Options: You get a good 30-year loan product, which can provide stability and predictability.

Important Considerations

Before jumping into a DSCR loan, consider these factors:

  1. Prepayment Penalties: These loans often come with penalties if you pay them off early. Make sure to understand these terms before committing.
  2. Higher Interest Rates: DSCR loans can have slightly higher interest rates compared to traditional loans. This is because they are easier to qualify for.
  3. Not for Flips or Personal Use: These loans are strictly for rental properties, not for homes you plan to flip or live in.

Is a DSCR Loan Right for You?

If you’re a real estate investor looking for a flexible loan option that doesn’t rely heavily on your personal income, a DSCR loan could be the perfect fit. It’s especially useful if you’re new to the business or if you maximize your tax deductions. Always run the numbers and shop around for the best terms.

Get Started with a DSCR Loan Today

A DSCR loan is an excellent loan for real estate investors. Is it right for your investment needs? Contact us at The Cash Flow Company. We have the tools and expertise to help you understand your options and find the best loan for your needs.

Watch our most recent video to find out more about: 3 Factors to Think About When Considering a DSCR Loan

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BRRRR: How to Buy Rental Properties Quickly and Easily

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BRRRR: How to Buy Rental Properties Quickly and Easily

Today we are going to discuss the BRRRR method and how it can help you buy rental properties quickly and easily. If you’re new to real estate investing, BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. It’s a popular strategy used by many investors to build a rental property portfolio with minimal upfront costs. So, let’s break it down step-by-step.

Setting Your Goals

Every journey begins with a destination in mind. Therefore, before diving into the BRRRR method, ask yourself:

  • Why do I want to invest in real estate?
  • Where do I want to invest?
  • How many properties do I want to own?
  • How much cash flow do I want to generate?

Take a moment to think about your answers. After all, these goals will guide your entire investment journey.

Searching for Properties

Now, let’s start our search. Look for under-market properties, which are often found through:

  • Wholesalers
  • Investor-friendly Realtors
  • Real estate professionals who specialize in off-market deals

These properties are not listed on the MLS and usually require quick action.

Getting Long-term Loan Approval

Before buying, secure a pre-approval from a long-term lender. This step ensures you know the maximum loan amount you qualify for, which is crucial for the refinancing stage later on.

Buying with a Short-term Loan

Next, use a short term loan, like a hard money loan, to purchase the property. These loans are essential for fast closings, often within days or weeks.

Rehabbing the Property

Once you own the property, it’s time to rehab it. Focus on making necessary repairs to meet the After Repair Value (ARV). Remember, this is a rental property, so avoid high-end finishes. Instead, just make it appealing and functional.

Renting the Property

After the rehab, find a reliable tenant. Therefore, renting the property begins your journey to generating monthly cash flow.

Refinancing

Finally, refinance your short-term loan into a long-term mortgage. This step reduces your monthly payments and locks in a lower interest rate. Having pre-approval helps speed up this process, saving you money.

Repeating the Process

Congratulations! You’ve reached the wealth-building stage. Now, repeat the BRRRR method to continue growing your rental portfolio. Each cycle brings you closer to your financial goals.

Need help getting things set up correctly? Contact us today!  

By following the BRRRR method, you can build a robust rental property portfolio with little to no money out of pocket. So, set your goals, search for the right properties, secure financing, and repeat the process. Happy investing!

Would you like to find out more about the BRRRR method? Watch our most recent video that will further discuss how to buy rentals quickly and easily.

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DSCR Loan – Is It Right For Your Real Estate Investment?

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DSCR Loan – Is It Right For Your Real Estate Investment?

What is a DSCR Loan?

A DSCR loan stands for Debt Service Coverage Ratio loan and is an excellent loan for real estate investment. It’s designed specifically for real estate investors. This type of loan helps you buy rental properties, whether they are long-term or short-term rentals. It’s not for flips or homes you plan to live in.

Why Choose a DSCR Loan?

Choosing a DSCR loan can be a smart move for several reasons:

  1. Easy Qualification: You don’t need to worry about how long you’ve been in business or your personal income. Even if you started your business yesterday, you could qualify.
  2. Focus on Property Income: The loan qualification is based on the income generated by the property, not your personal income.
  3. 30-Year Loan Options: You get a good 30-year loan product, which can provide stability and predictability.

How Does a DSCR Loan Work?

The key to a DSCR loan is that it focuses on the property’s ability to generate enough income to cover its expenses. Here’s how it works:

  1. Property Income: The income from the rental property should at least cover the mortgage, property taxes, insurance, and any HOA or flood insurance fees.
  2. Credit Score: Your personal credit score is important. The higher your score, the better the terms and rates.
  3. Loan-to-Value Ratio (LTV): This is the amount of the loan compared to the property’s value. Lower LTV means less risk for lenders and better terms for you.

Who Can Benefit from a DSCR Loan?

DSCR loans are perfect for:

  • New Investors: If you’ve just started your real estate investment journey, you can qualify even without a long business history.
  • Tax Savvy Investors: If you write off a lot of expenses on your taxes, which can reduce your reported income, this loan can still work for you.
  • Expanding Portfolios: Investors looking to add more rental properties can benefit from the flexible qualification criteria.

Example

Imagine you are an investor who just started a year ago. You found a great rental property, but traditional lenders won’t approve your loan because you don’t have two years of business income. A DSCR loan can help. As long as the rental income covers the mortgage and other expenses, you can get the loan and grow your investment portfolio.

Important Considerations

Before jumping into a DSCR loan, consider these factors:

  1. Prepayment Penalties: These loans often come with penalties if you pay them off early. Make sure to understand these terms before committing.
  2. Higher Interest Rates: DSCR loans can have slightly higher interest rates compared to traditional loans. This is because they are easier to qualify for.
  3. Not for Flips or Personal Use: These loans are strictly for rental properties, not for homes you plan to flip or live in.

Is a DSCR Loan Right for You?

If you’re a real estate investor looking for a flexible loan option that doesn’t rely heavily on your personal income, a DSCR loan could be the perfect fit. It’s especially useful if you’re new to the business or if you maximize your tax deductions. Always run the numbers and shop around for the best terms.

Get Started with a DSCR Loan Today

A DSCR loan is an excellent loan for real estate investors. Is it right for your investment needs? Contact us at The Cash Flow Company. We have the tools and expertise to help you understand your options and find the best loan for your needs.

Watch our most recent video to find out more about: DSCR Loan – Is It Right For Your Real Estate Investment?

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Are HELOCS risky?

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Are HELOCS risky?

Today we are going to discuss whether or not HELOCS are risky. Here at The Cash Flow Company we have over 20+ years of experience in the business. This has allowed us to  help many investors to get correctly set up with HELOCs in order to move forward with their real estate investment goals. Remember, leverage is your best friend in real estate. A home equity line of credit can be some of the quickest, most flexible money available.

First and foremost, what Is a HELOC?

A HELOC is like a big line of credit based on the equity you have in a piece of real estate. You can think like a big credit card on a property.

If a property you own is worth more than the amount you owe on it, then you could be eligible for a HELOC. You can use this line of credit for anything you want.

This line of credit is typically in second position. It works similarly to a credit card in the sense that you can use it and pay it off over and over.

Next, where Do You Get a HELOC?

If you’re an investor, the number one place to look for a HELOC is credit unions. Next, is national banks. Those are the two best resources for HELOCs.

Finally, are HELOCs Risky?

Are they dangerous? Is there a big risk in taking out a HELOC? The answer is yes and no.

It’s the same as any other line of credit. If you use it wrong (for personal use, living life, etc.), the debt accumulates with no way to pay it off. This becomes a burden not only for your credit but also for your home.

However, used correctly, HELOCs are a low-risk, high-value tool. Use them for a real estate project, then pay them off right after your project sells or refinances.

Now is the time!

Get a HELOC today and achieve your real estate goals! Want a personalized list of the best HELOCs for you? We’ve reached out to hundreds of credit unions and banks to find the best, highest-LTV HELOCs on the market.

Reach out to us at Info@TheCashFlowCompany.com to get this report.

You can also download this free checklist of questions to ask lenders to get the best deal on a HELOC.

 

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DSCR ratio and interest rates explained

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DSCR ratio and interest rates explained

Today we are going to discuss the DSCR ratio and explain interest rates. Many investors are intimidated by DSCR loans and are unsure as to where to start. However, the main thing that you need to take into consideration is whether or not the property cash flows. This in turn will have a significant impact on the interest rates for you DSCR loan. Let’s take a closer look! 

Calculating a DSCR ratio. 

Let’s go over how to calculate DSCR quickly and understand what it means for your property. The DSCR ratio is found by comparing a property’s income to its expenses. To clarify, the property’s income is the rent that is received for the property. On the other hand, the expenses include the monthly mortgage payment, taxes, insurance, and HOA. A ratio of greater than 1 means the property is cash flowing, which is what both you and your lender want to see. Also, for a DSCR loan, the higher this ratio is, the better the terms your loan will have.

Negative DSCR Loans

Contrary to popular belief, you can still find a DSCR product for negative cash flow properties. However, these loans come at a higher interest rate.To clarify, a negative DSCR loan is used when someone gets stuck with a property they can’t sell. Under these circumstances, having very little income on the property would be better than none at all. This is why it is imperative that you have a cash flowing property from day one! By taking your time and working through the numbers, you can in turn avoid being stuck with a property that is not helping you to move forward.

Knowing your thresholds! 

There are certain thresholds when you calculate DSCR loans. When you break these thresholds, you get a better rate. And better rates mean… more cash flow! Your monthly payments will lower.Let’s go over what some of these thresholds will look like.

Property Income Property Expenses DSCR ratio  Profit  Interest Rate for DSCR
$2,000 $1,590 1.25 25% 7.25%
$1,500 $1,590 .94 9%+

Remember, anytime you can lower the rate, that’s cash flow that goes into your pocket. In this example, 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!

Know your numbers to get ahead! 

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.

How can you calculate a DSCR ratio quickly?

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

Watch our most recent video to find out more about: How to calculate a DSCR ratio

If you have any other questions about how to calculate DSCR (or how to get a DSCR loan!), send us an email at Info@TheCashFlowCompany.com.

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How to fund with lines of credit

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How to fund with lines of credit

Today we are going to discuss how to fund your real estate investments with lines of credit. With lenders cutting back, there is a greater need for investors to find alternative financing. Don’t let this lending squeeze affect you! Let’s take a closer look at your options and how you can ensure success.

What is a lending squeeze?

If you’re a real estate investor, you’re probably familiar with the concept of shrinkage in the loan business. During economically turbulent times, lenders cut back the amount of money they’re willing to lend. As a result, this affects how much money you get for your project (aka, your LTVs).

For example: If the typical bridge lender offers you 80-90% of the purchase, you’ll need something to help you cover the other 10-20%. It’s up to savvy investors to find alternative sources of funding to fill that gap left by your loan. 

What Determines Your Gap Financing in Real Estate?

Firstly, there are a few ducks you’ll need in a row before diving into gap financing. Most gap funding will determine whether to lend to you based on three things: credit, assets, and experience. Both the amount of primary funding you’ll receive from your lender and the amount of gap funding you’ll be able to get will be dependent on credit. Also, you can get other lines of credit by putting up your assets as collateral. Finally, having experience or knowing what you’re doing may incline some gap funding lenders to give you a loan.

1. HELOC

If you have good credit and real estate assets (owner-occupied or not), you should always have a line of credit called a HELOC available to you. HELOC stands for “home equity line of credit.” These funds will typically be the safest, easiest, and cheaper you can get. All real estate investors who have property and good credit should have a HELOC. This is going to be your safest, easiest, and cheapest source of funds because they’re always available to you.

2. Lines of Credit from Banks

But what if you have good credit but no real assets? In that case, you’ll need to look at other, unsecured options to fill the gap. One option is to use an unsecured line of credit from a local bank or national company. These lines of credit typically have higher interest rates than a HELOC, but they’re still a good option if you have good credit. 

Don’t Misuse Your Funds

One thing needs to be clear with gap funding: dDo not abuse it. If you use a line of credit that was intended for a real estate investing project, then make sure it’s used for that purpose. It should also be entirely paid off after each transaction is completed. Treat credit like a lender, and treat your investments like a business. Never use real estate lines of credit for personal use. It will kill your credit, your financial future, and your investing career.

How to Get Gap Financing in Real Estate

We’re happy to help with any questions you have about funding or gap financing on real estate projects.

We’ve helped with thousands of transactions worth millions of dollars using OPM. You can download our free OPM guide here.

Watch our most recent video to find out more about: How to fund with lines of credit

Any other questions? Send us an email at Info@TheCashFlowCompany.com.

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How to calculate a DSCR ratio

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How to calculate a DSCR ratio

Today we are going to discuss how to calculate a DSCR ratio. Many investors are intimidated by a DSCR loan and are unsure as to where to start. However, the main thing that you need to take into consideration is whether or not the property cash flows. Properties that do cash flow will in turn have a pretty good shot at getting approved.

Where do you start? 

To clarify, DSCR stands for the debt service coverage ratio. This ratio is used by underwriters to determine if a property is positively cash flowing. It’s an important metric to understand how to maximize your leverage by getting the most out of your investments.

Calculating a DSCR ratio. 

Let’s go over both how to calculate DSCR quickly, as well as discovering what it means for your property. The DSCR ratio is found by comparing a property’s income to its expenses. The property’s income is the rent that is received for the property. On the other hand, the expenses include the monthly mortgage payment, taxes, insurance, and HOA. If the ratio of greater than 1, that means the property is cash flowing. This is good for not only you, but your lender as well. The better the DSCR ratio the better the loan terms.

Example 1:

Property Income Property Expenses DSCR ratio
$1,700 Mortgage payment $1,290

Taxes: $100

Insurance: $100

HOA: $100

 Income / Expenses

$1,700 / $1,590
$1,700 $1,590 Total: 1.07 

In this example the ratio is great! The break-even point for a DSCR is a ratio of 1. Underwriters and lenders like to see a ratio of at least 1 because it ensures that the property can take care of itself. In doing so, the lenders know that you won’t need to take money out of your pocket to cover the expenses. This is assurance for them, and makes them more likely to approve the loan with good terms. In sum, a 1.07 ratio means the property is positively cash flowing, and it’s a good investment.

Example 2:

Property Income Property Expenses DSCR ratio
$1,500 Mortgage payment $1,290

Taxes: $100

Insurance: $100

HOA: $100

 Income / Expenses

$1,500 / $1,590
$1,500 $1,590 Total: .94

In this example the DSCR ratio is less than 1, which means that the property is negatively cash flowing. This is why it is imperative that you estimate the rent on a property before purchasing it. By having a property with a $1,500 income, it wouldn’t be a good investment. Also, it wouldn’t qualify for a good DSCR loan. However, the same property with a rent of $1,700 would be a good investment because it cash flows..

Know your numbers to get ahead! 

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.

How can you calculate a DSCR ratio quickly?

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

Watch our most recent video to find out more about: How to calculate a DSCR ratio

If you have any other questions about how to calculate DSCR (or how to get a DSCR loan!), send us an email at Info@TheCashFlowCompany.com.

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