Using DSCR or bridge loans instead of hard money.

[Joseph Haraszko]

Hi, I have flipped several properties over the last 5 years and held on to several. For my next flip, a friend mentioned using DSCR first, then if dscr not available, a bridge. Hard money has not required me to put any money down but looks like dscr does. Also seeing prepayment penalties for dscr. Not sure how to use a bridge for a flip. Any thoughts would be appreciated. Thanks.

[Mike Klarman]

Think of a bridge loan as being a literal bridge. It's stretches out for a small period of time but it allows you you to bypass a hurdle you couldn't drive over like water or a canyon. So in real estate a bridge loan allows you to acquire an asset, usually a distressed or out dated property, and stretches out the bridge for you to take this property from a dump to something new and market competitive. The loans even include the funds needed to turn around the property. These loans are usually interest only loans that have a balloon payment of the principle at the end but you usually can refinance out or sell with no pre-pay penalty. This is the best product HML have to offer. If you work with a good agent/wholesaler/contractor in a market you can have a push button flipping operation where you don't pick up a hammer. Would it matter if you made 15k or 30K really? After 4 - 6 months your real estate company you started is wealthier and you go right to the next deal. Some deals you will kill it, others you'll make less than you expected but if you're just churning out wealth then you take the good with the bad but as long as the figure in the books is "+" does it matter when you're building wealth?

DSCR loans are loans based on the spread between the loan payment and the rent. The difference between those numbers is the gross profit of the landlord. These are long term loans based on ongoing payment streams that people use to either purchase turnkey properties or refi cashout of something they own.