Are DSCR loans good to scale a rental business?

Tyler, Texas
Multi-Family and Apartment Investing
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Are DSCR loans good to scale a rental business?

Corwyn Oliver
Investor · Missouri City, TX · Member since 2015 · 3 posts · 2 votes

Hi BP pros,  

I have some buy and hold rental property, some acreage and several lots that are good for building new SFR or multifamily. If I build, I would like to sell or maybe hold them and pull the equity out to keep buying new rentals. I haven't been investing long but I have about 990,000 in equity (estimated based on sales price of comps in the area). I need about $130,000 to do some repairs. I would like to use my equity to buy more rentals, or build more properties or expand outside of the rentals into rv parks, storage, or tiny home villages. My 'thing' is to make sure I use the equity correctly to keep scaling up and to move towards financial independence. I am looking at a DSCR loan (75-80 ltv plus FEES) but I wonder if there are better products that can allow me to utilize a bigger chunk of my equity to move forward. Would you use the DSCR loan or is there a better product out there? What would be your strategy? What I think I want to do is pull enough money out for the repairs, find a lender that will allow new builds with 0% down since I own the land I mentioned and then buy other multifamily properties with creative loan products they you guys may posts about after reading this or else buy them with (insert ominous music here) the remaining cash with from my DSCR cash out. So I wand to build and I want to buy. The problem I think I have is after do repairs and buy a couple of multifamily complexes will that grind me to a halt once all of that equity is gone - or am I missing something here? So again my questions are would you use DSCR or something else? And what would you advise as a strategy.

Thanks!!

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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Corwyn Oliver:

Hi BP pros,  

I have some buy and hold rental property, some acreage and several lots that are good for building new SFR or multifamily. If I build, I would like to sell or maybe hold them and pull the equity out to keep buying new rentals. I haven't been investing long but I have about 990,000 in equity (estimated based on sales price of comps in the area). I need about $130,000 to do some repairs. I would like to use my equity to buy more rentals, or build more properties or expand outside of the rentals into rv parks, storage, or tiny home villages. My 'thing' is to make sure I use the equity correctly to keep scaling up and to move towards financial independence. I am looking at a DSCR loan (75-80 ltv plus FEES) but I wonder if there are better products that can allow me to utilize a bigger chunk of my equity to move forward. Would you use the DSCR loan or is there a better product out there? What would be your strategy? What I think I want to do is pull enough money out for the repairs, find a lender that will allow new builds with 0% down since I own the land I mentioned and then buy other multifamily properties with creative loan products they you guys may posts about after reading this or else buy them with (insert ominous music here) the remaining cash with from my DSCR cash out. So I wand to build and I want to buy. The problem I think I have is after do repairs and buy a couple of multifamily complexes will that grind me to a halt once all of that equity is gone - or am I missing something here? So again my questions are would you use DSCR or something else? And what would you advise as a strategy.

Thanks!!

@Corwyn Oliver If you are trying to max your cash out of the existing rental properties really the 75% loan to value is going to the max for most DSCR products and conventional lending as well assuming they are single family. There are some products that will allow you to go to 80% BUT they often are some much higher priced in upfront costs they usually do not make sense. For example, it is costs you 2% more of the loan amount to go to 80% vs 75% you are only netting 3% extra cash in hand. is that worth? Not likely.

So, pretty much the 75% loan to value is going to be the max no matter what the program is. So, that being said, DSCR vs Full doc, the full doc will ALWAYS be better terms if you can qualify for it.  

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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Corwyn Oliver:

    Hi BP pros,  

    I have some buy and hold rental property, some acreage and several lots that are good for building new SFR or multifamily. If I build, I would like to sell or maybe hold them and pull the equity out to keep buying new rentals. I haven't been investing long but I have about 990,000 in equity (estimated based on sales price of comps in the area). I need about $130,000 to do some repairs. I would like to use my equity to buy more rentals, or build more properties or expand outside of the rentals into rv parks, storage, or tiny home villages. My 'thing' is to make sure I use the equity correctly to keep scaling up and to move towards financial independence. I am looking at a DSCR loan (75-80 ltv plus FEES) but I wonder if there are better products that can allow me to utilize a bigger chunk of my equity to move forward. Would you use the DSCR loan or is there a better product out there? What would be your strategy? What I think I want to do is pull enough money out for the repairs, find a lender that will allow new builds with 0% down since I own the land I mentioned and then buy other multifamily properties with creative loan products they you guys may posts about after reading this or else buy them with (insert ominous music here) the remaining cash with from my DSCR cash out. So I wand to build and I want to buy. The problem I think I have is after do repairs and buy a couple of multifamily complexes will that grind me to a halt once all of that equity is gone - or am I missing something here? So again my questions are would you use DSCR or something else? And what would you advise as a strategy.

    Thanks!!

    @Corwyn Oliver If you are trying to max your cash out of the existing rental properties really the 75% loan to value is going to the max for most DSCR products and conventional lending as well assuming they are single family. There are some products that will allow you to go to 80% BUT they often are some much higher priced in upfront costs they usually do not make sense. For example, it is costs you 2% more of the loan amount to go to 80% vs 75% you are only netting 3% extra cash in hand. is that worth? Not likely.

    So, pretty much the 75% loan to value is going to be the max no matter what the program is. So, that being said, DSCR vs Full doc, the full doc will ALWAYS be better terms if you can qualify for it.  

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  • Ko KashiwagiPro Member
    Lender · Los Angeles, CA · Member since 2022 · 967 posts · 445 votes
    2y

    Hi Corwyn,

    Either a full-doc conventional cash out refinance or a DSCR cash out refinance would make sense here. DSCR would usually allow you to cash out refinance at 75% LTV max, but conventional will provide better terms and rates. Using the equity you build from your next property, you can keep on refinancing to roll the money to the next property.

    In regards to construction financing, you would need experience in group-up construction or heavy rehabs to qualify for the best rates and terms.

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  • Michael Shea
    Lender · Glastonbury, CT · Member since 2023 · 7 posts · 2 votes
    2y

    I agree with KO ... Cash out Conventional refi if the numbers work. If you can't go Fannie / Freddie i would use a DSCR Cash out. Regarding the land you have I would recommend a ground up construction loan. Land is not worth much without anything on it; I would stay away from tiny homes, and RV Parks. Financing is not easy to come by for tiny homes and RV parks and your cash out options down the road will be very limited. Best to build something that has value that you can borrow against in the future.

    0Reply
  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y
    Quote from @Corwyn Oliver:

    Hi BP pros,  

    I have some buy and hold rental property, some acreage and several lots that are good for building new SFR or multifamily. If I build, I would like to sell or maybe hold them and pull the equity out to keep buying new rentals. I haven't been investing long but I have about 990,000 in equity (estimated based on sales price of comps in the area). I need about $130,000 to do some repairs. I would like to use my equity to buy more rentals, or build more properties or expand outside of the rentals into rv parks, storage, or tiny home villages. My 'thing' is to make sure I use the equity correctly to keep scaling up and to move towards financial independence. I am looking at a DSCR loan (75-80 ltv plus FEES) but I wonder if there are better products that can allow me to utilize a bigger chunk of my equity to move forward. Would you use the DSCR loan or is there a better product out there? What would be your strategy? What I think I want to do is pull enough money out for the repairs, find a lender that will allow new builds with 0% down since I own the land I mentioned and then buy other multifamily properties with creative loan products they you guys may posts about after reading this or else buy them with (insert ominous music here) the remaining cash with from my DSCR cash out. So I wand to build and I want to buy. The problem I think I have is after do repairs and buy a couple of multifamily complexes will that grind me to a halt once all of that equity is gone - or am I missing something here? So again my questions are would you use DSCR or something else? And what would you advise as a strategy.

    Thanks!!


    Definitely DSCR for your refis . Can also do refi ground up construction loans for the builds . No income no doc . Super convenient

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    2y
    Quote from @Corwyn Oliver:

    Hi BP pros,  

    I have some buy and hold rental property, some acreage and several lots that are good for building new SFR or multifamily. If I build, I would like to sell or maybe hold them and pull the equity out to keep buying new rentals. I haven't been investing long but I have about 990,000 in equity (estimated based on sales price of comps in the area). I need about $130,000 to do some repairs. I would like to use my equity to buy more rentals, or build more properties or expand outside of the rentals into rv parks, storage, or tiny home villages. My 'thing' is to make sure I use the equity correctly to keep scaling up and to move towards financial independence. I am looking at a DSCR loan (75-80 ltv plus FEES) but I wonder if there are better products that can allow me to utilize a bigger chunk of my equity to move forward. Would you use the DSCR loan or is there a better product out there? What would be your strategy? What I think I want to do is pull enough money out for the repairs, find a lender that will allow new builds with 0% down since I own the land I mentioned and then buy other multifamily properties with creative loan products they you guys may posts about after reading this or else buy them with (insert ominous music here) the remaining cash with from my DSCR cash out. So I wand to build and I want to buy. The problem I think I have is after do repairs and buy a couple of multifamily complexes will that grind me to a halt once all of that equity is gone - or am I missing something here? So again my questions are would you use DSCR or something else? And what would you advise as a strategy.

    Thanks!!


    When you are talking about best ROE (return on your equity), DSCR Loans are generally going to be a best bet ***as long as you don't qualify for conventional options*** - typically DSCR Loans will have better leverage than more traditional Multifamily financing, but when starting out and starting to scale - the leverage options for the Agency-backed conventional Multi-unit loans are going to be your highest leverage option by far - however, people typically max out on these options pretty early on - until truly working with large multifamily (like 200+ unit properties) that qualify under Freddie

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