Cannot find info anywhere about DSCR cash out refi - Pls help

[Jeffrey Guarino]

I purchased a single family home for $50,000 cash and it is currently rented for $1000 per month with an annual lease. While I wait for interest rates to come down, and for the property to season 6-12 months, I'm trying to find a lender to work with that can offer a DSCR cashout refinance on the property. I first want to make sure I fully understand this loan product. Can you please let me know if there's any mistakes in my calculations? I really want to understand the calculations and play-by-play of events so I can forecast properly.

Let's say 1.25 DSCR, 75% LTV, 30 year note, let's just say 5% interest

Purchase price: $50,000 cash

Rent: $1000

NOI: $7,450 ($620 per month)

NOI / 1.25 dscr / 12 months = $497 monthly debt service

(NOI accounts for property tax, gas, electric, water and sewer, trash, insurance, vacancy, repairs and maintenance, and replacement reserves. No management fees because I do it myself)

So, at 1.25 DSCR the property's cash flow calls for a loan that costs $497 per month

A loan that costs $497 per month at 5% for 30 years is valued $92,581.
So, do I receive a check for that amount (minus fees) from the bank, and that's it?

I assume there is no down payment because I own the home outright and am essentially selling 75% of its equity to the bank? Which would mean 75% of the equity is the $92,581 loan amount, therefore the property appraisal would be $123,441 total? And my remaining equity piece in the property would be valued at 25% of $123,441 which is $30,860?

Thank you!!

[Matt Devincenzo]

You're working the numbers backwards. A value based on NOI is applicable to commercial properties, and you don't use your desired DSCR to achieve a theoretical value. You use market cap rate with your NOI to determine the value, then apply your LTV limit of 75% for your maximum loan amount. If it also has a 1.25 DSCR in your case, then you would in theory qualify.

Now for your scenario. This it appears is a SFR or possibly a duplex? Both are valued by recent comps, so assuming you had recent comparable sales of 95K, your maximum loan would be 75% of that number. It doesn't matter if your property could support a larger loan amount, the maximum you can borrow will be 75% of the actual value. So find a few comparable sales to determine a ARV and work all of your numbers in reverse.