Cash out DSCR for cash-built new construction?

Question

I have 2 parcels located in Virginia.  I am considering building two SFH each with an accessory apartment.  Construction will be completed with cash.  What are my options to get the most cash out of these properties while holding and renting long term?

I’m thinking a DSCR loan on each property but would like to hear other options.

Does the 6 month seasoning for DSCR start when the land is purchased or when construction is completed?

I plan to have these rented by the time I am looking to cash out if that makes a difference for underwriting.  Purchase to construction completion should be close to 6 months.

Tanner Johnson · Answer

I am doing the exact same thing you are doing now. I have struggled with finding financing especially through conventional banks and am now working with a dscr lender. If you are doing a lot of the work yourself and using cash you can really make a lot of money this way, as I built for about 1/3 of the appraised value and you can't really realize your gain on the project without doing a cash-out refi. But if you dont have a normal w2 or may not qualify at a bank, save yourself the headache and get some numbers from a dscr lender. Even with 8-9% rate property is still cashflow positive so I am realizing about 1 300% gain by doing it this way as rents easily make the payment with 65% cash out. Am in the early stages working with Easy Street and they seem very promising.

Chris Davidson · Answer

@John Stanaway DSCR doesn't require 6 months of seasoning. Without knowing your background it is hard to say your options. But you can do a conventional refi after the seasoning period, and likely get the most out with the best terms. or you could do a DSCR quickly and get pretty close to the same out just a bit higher. Also if you have a relationship with a bank see if they have a portfolio option that looks good to you. If you are floating it all with cash it should be really easy.

Cheeers!

Delwyn A. · Answer

If you are looking to maximize your cash flow and returns on investment while holding and renting long-term properties, there are several options to consider:

• * Refinancing: You can refinance your properties to take advantage of lower interest rates and increase your cash flow. This allows you to free up equity in the property and lower your monthly mortgage payments.
• * Renovation and Value-Add Strategies: Upgrading the properties, improving amenities and adding value can increase the rental income and overall property value. This can lead to higher rental rates and a potential increase in property value, allowing you to generate more cash flow when you eventually sell.
• * Tax Strategies: There may be tax deductions or credits that you can take advantage of as a rental property owner, such as depreciation and other expenses related to maintaining and managing the properties. Consult with a tax professional to determine the best tax strategies for your situation.
• * Short-term Rentals: If the properties are in desirable locations, short-term rentals such as vacation rentals or corporate rentals can generate more cash flow compared to long-term rentals.
• * Sale-Leaseback: You can consider a sale-leaseback arrangement where you sell your properties to a buyer who then leases them back to you. This allows you to free up cash while retaining ownership and control of the properties, and may also provide tax benefits.

It's important to carefully consider each option and consult with professionals such as real estate agents, financial advisors, and tax professionals to determine the best approach for your specific situation and goals.

Jennifer Frame · Answer

@Tanner Johnson, we are in nearly the same position. Owner/builder, SFH. Great credit, experienced landlords and builders. Build was completed for about 50% of the appraised value. Used cash plus construction loan. The problem we are having is that we will be holding the property and using for a STR. Right now, due to costs out for the build, DTI is a bit too high plus we are the builders, so can't use appraised value (direct cost only) for conventional loan and LTR appraisal doesn't support the 1.0 or 1.15 ratios for DSCR (rate and term vs cash out) - BUT, the STR market does... however, lenders don't use those until 1 full year reported on the tax return. Frustrating. Working with hard money lender now to close the deal, but I'm concerned about only have 12-15 month terms due to the above referenced. Basically going through the hoops of a bridge loan to ultimately get to conventional loan. That said, I have shopped around A LOT and of all the resources, local HML has been by far the best option.

Erik Estrada · Answer

Expect 3-6 months title seasoning for a DSCR loan. You will need a certificate of occupancy come time to refinance. 75% LTV cash out is the standard for Most DSCR lenders.

Robin Simon · Answer

DSCR Lenders are going to differ, six months is generally the standard, but some will go down to 3 months and some might have longer seasoning requirements.  New builds are also a bit of a new frontier for DSCR lenders so policies could vary even more.  Conventional lenders as of 4/1/2023 have moved the seasoning period for cash-out refinances to 12 months so while that was a popular option until very recently, likely won't work.  You are probably looking at a maximum of 75% LTV for a cash-out refinance and potentially up to 80% if you don't take any cash out when refinancing

Devin Peterson · Answer

6 months from purchase to be able to access the cash. You can get up to 80LTV cash out on each SFH

Cash out DSCR for cash-built new construction?

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