DCSR, LLC, and Trusts

[Melissa Odom]

Hello,

I am new to real estate investing.  I currently have 3 LTR and soon will be remodeling a small family-owned shopping center in Wimberley, Texas.  My question is how can I leverage my 3 rental properties to cash out money for the remodel?  Doing a conventional loan for each property is out of the question due to my debt-to-income ratio.  I have recently been learning more about DCSR loans.  All three properties have positive cash flow - not a lot, but I am not losing money.  

One lender I have spoken with stated that the DCSR loans are not regulated. In my situation I can only borrow 70% of LTV. He also stated a 3% origination cost. Is this for all DCSR loans or can these items vary?

I have also been told by multiple people that I should create an LLC or Trust. Maybe one LLC for all 3 properties or one LLC for each property? And then I think you can put an LLC into the Trust. I know with conventional loans the property cannot be in a trust or LLC when you go to refinance. That seems to be different with a DCSR loan?

Just reaching out for some feedback from people with more experience than I have in this area.  

Thank you in advance for your time and information!

Melissa

[Robin Simon]

Quote from @Melissa Odom:

Hello,

I am new to real estate investing.  I currently have 3 LTR and soon will be remodeling a small family-owned shopping center in Wimberley, Texas.  My question is how can I leverage my 3 rental properties to cash out money for the remodel?  Doing a conventional loan for each property is out of the question due to my debt-to-income ratio.  I have recently been learning more about DCSR loans.  All three properties have positive cash flow - not a lot, but I am not losing money.  

One lender I have spoken with stated that the DCSR loans are not regulated. In my situation I can only borrow 70% of LTV. He also stated a 3% origination cost. Is this for all DCSR loans or can these items vary?

I have also been told by multiple people that I should create an LLC or Trust. Maybe one LLC for all 3 properties or one LLC for each property? And then I think you can put an LLC into the Trust. I know with conventional loans the property cannot be in a trust or LLC when you go to refinance. That seems to be different with a DCSR loan?

Just reaching out for some feedback from people with more experience than I have in this area.  

Thank you in advance for your time and information!

Melissa

Hi Melissa, welcome to BP - some great questions, I've actually published an 11-part (soon to be 12-part) series here on BP on all about DSCR Loans, linking below - hopefully this will help!

As for your initial questions:

One lender I have spoken with stated that the DCSR loans are not regulated. In my situation I can only borrow 70% of LTV. He also stated a 3% origination cost. Is this for all DCSR loans or can these items vary?

These items will vary from DSCR Lender to DSCR Lender and can also be determined by things like your credit score, property type and its DSCR ratio, etc. 3% origination cost is very high for DSCR as well unless you are essentially "buying down" the interest rate quite a bit (trading fees for a much lower rate over the life of the loan)

I have also been told by multiple people that I should create an LLC or Trust. Maybe one LLC for all 3 properties or one LLC for each property? And then I think you can put an LLC into the Trust. I know with conventional loans the property cannot be in a trust or LLC when you go to refinance. That seems to be different with a DCSR loan?

Yes, one of the big advantages that DSCR Loans have over conventional is that they are LLC-friendly and even friendly towards other entity types like corporations, partnerships, TIC or even most types of trusts! Unless you have a specific need for a trust, many DSCR borrowers just create one or multiple LLCs for the loans (this has gotten to a point where it is very easy and affordable to create LLCs, especially in TX)

BP-Published DSCR Guide!

DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...

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12 Frequently Asked Questions (And Answers) About DSCR Loans

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