Looking at DSCR Loans and Need Advice

[Michael Dickinson]

Hello all,

I am new to bigger pockets, but I do have experience in real estate investing with SFH rentals in Northeast PA. Due to horrible, and I mean horrible property managers in the area (the one known as being the best admitted to me she recently had an employee steal over a million from landlords and she didn't think it was her fault), I decided to hire a family member full time to start managing properties for me. With that said, I am looking to begin ramping up my buying now that I have someone I can trust out there (I am located out west now).

My goal (which is doable) is to buy properties with a DSCR score of 2 or more and go the DSCR route. I've spoken with a few lenders who are amicable to sub 100k loans, but the lender/broker fees total about 8% of the entire loan amount. Is this pretty average? I'm being quoted by one lender around 8% currently with 30% down and another lender with 20% down. Fees are somewhat similar.

My questions:

1. Are $4800 in lender fees on a $56,000 DSCR loan within range?

2. To preserve capital, can I make slightly higher offers on properties and have the seller pay toward these fees? 

3. Does anyone know if more competitive DSCR lenders who I should speak with about my situation? I also thought about buying two houses in the same deal, but my long term broker (the 30% broker) who said they can not do that. I could bundle multiple loans in a refinance situation down the road but not the initial deal to save on fees.

My next issue is finding a hard money lender who will lend less than 75K.  There are some sub 75k deals out there that would make great buy, repair, rent and hold properties but I'd prefer to be able to preserve my own capital as much as possible to knock out quite a few deals this year and in the next several years. 

Any help would be greatly appreciated.  

[Caroline Gerardo]

Loan of $50000 has same bottom level flat fees that $200000 does. Cost is much higher to finance under $150000 sales price. Title, appraisal, recording, insurance fees have the same floor of minimum costs. Getting insurance on lower cost is also a pickle. 

Our government has laws restricting lenders from closing loans that are small loan and high cost so many will not touch these even if investor. Look up HOEPA and High Cost laws. The laws apply to owner occupant but puts fear of regulation into any lender. 

The cost of all the vendors to process a loan: credit, audit, LOS, tax, Underwriting, processing, verifying every piece of paper is a range of $9000- $11000 per loan. 

Though it doesn't make sense, it's the reality today.

[Robin Simon]

Quote from @Michael Dickinson:

Hello all,

I am new to bigger pockets, but I do have experience in real estate investing with SFH rentals in Northeast PA. Due to horrible, and I mean horrible property managers in the area (the one known as being the best admitted to me she recently had an employee steal over a million from landlords and she didn't think it was her fault), I decided to hire a family member full time to start managing properties for me. With that said, I am looking to begin ramping up my buying now that I have someone I can trust out there (I am located out west now).

My goal (which is doable) is to buy properties with a DSCR score of 2 or more and go the DSCR route. I've spoken with a few lenders who are amicable to sub 100k loans, but the lender/broker fees total about 8% of the entire loan amount. Is this pretty average? I'm being quoted by one lender around 8% currently with 30% down and another lender with 20% down. Fees are somewhat similar.

My questions:

1. Are $4800 in lender fees on a $56,000 DSCR loan within range?

2. To preserve capital, can I make slightly higher offers on properties and have the seller pay toward these fees? 

3. Does anyone know if more competitive DSCR lenders who I should speak with about my situation? I also thought about buying two houses in the same deal, but my long term broker (the 30% broker) who said they can not do that. I could bundle multiple loans in a refinance situation down the road but not the initial deal to save on fees.

My next issue is finding a hard money lender who will lend less than 75K.  There are some sub 75k deals out there that would make great buy, repair, rent and hold properties but I'd prefer to be able to preserve my own capital as much as possible to knock out quite a few deals this year and in the next several years. 

Any help would be greatly appreciated.  

Generally the fees are going to be very rough on DSCR Loans of that size (as a percentage of loan amount) but probably no choice right now - the market for DSCR Loans under $100k is very small and less than $75k even smaller.  If you see a $56k DSCR Loan offer, its likely the only lender thats available for that..

[Brittany Minocchi]

It's typical for fees to be in the $5,000-$6,000 range for a loan of that size, and there aren't many lenders out there that will do DSCR loans under $100k. You can ask for seller concessions, the maximum contributions vary by lender but 2% is common. Keep in mind that the property still has to appraise for whatever you are offering. You may also be able to take a higher interest rate in exchange for lower closing costs, not sure what sort of rate you're currently being offered. There are different ways to structure a loan depending on what works best for the borrower's situation. I'm in OH and work with investors on these types of deals often - happy to assist if you'd like to connect.

[Rhett Kelton]

@Michael Dickinson

At that price point, have you looked into family/friends money? As long as you make the terms clear and on paper, it hasn't been an issue for me.

Otherwise, I would talk to a couple hard money lenders first, and see what they can do. Especially if you would pay the 2-3 points up front. Or get 2 properties under contract l, then borrow against both. If you have the experience, there will likely be several that would do this. And several I talk with will cover a large portion of the closing costs. But everyone of them want at least 10-20% of your own cash in the deal. But at that price point , that will be fairly minor.

Once you hold the hard money loans for the seasoning period the portfolio lender requires, just roll over into that.

[Rhett Kelton]

@Michael Dickinson

Following up. I am assuming your purchase price is in the 50-75k range.

1. Try going the friends/family route first. Next option will be the HML route. These 2 ways will normally cost you the least in upfront costs, and some will finance the rehab costs as well.

2. There are a number of DSCR lenders online (look through biggerpockets for a lot of options) that will give you some different options. You will likely have to borrow through an LLC so just know that is an additional cost up front.

The biggest thing, at least in my case, would be finding the multiple deals that work for you, that you can take down at the same time.

[Caroline Gerardo]

@Rhett Kelton all the hard money guys I know will not do a loan with sales price under $200000 - and they want huge down payment

[Julia Gramenz]

Hi there. I can lend in Florida and Ohio with loan amount right around $50,000.

It does have to meet the "high cost rules"

Total closing fees will be around 4%

The amount you put down is dependent upon the property and credit score etc. Many different factors.

I can connect you with someone outside of FL/Oh if interested.

Have you considered the fix & flip/refi route?

[Rhett Kelton]

Quote from @Caroline Gerardo:

@Rhett Kelton all the hard money guys I know will not do a loan with sales price under $200000 - and they want huge down payment

Maybe just a California vs Tennessee thing?  I haven't had problems- but it has been a little while since I have needed to go that route.  I do think I probably had to pay 4-5 points though.  But that still isn't too bad on a sub 100k loan.