Investor · New York City, NY · Member since 2018 · 2 posts · 2 votes
I am in the process of acquiring our initial Multifamily Home (MFH) investment, utilizing an LLC in which my business partner and I share equal ownership. Our first acquisition is focused on properties in the $400-600k price range within Tennessee.
I am seeking advice regarding financing options. Should we opt for a local lender, or would an out-of-state lender be just as viable? It's worth noting that I am based in New York, though I'm uncertain if this has an impact on the decision.
I would greatly appreciate any recommendations or insights you can provide. Thank you in advance!
Real Estate Consultant · Chattanooga, TN · Member since 2018 · 384 posts · 330 votes
3y
@Sidney L. congrats on getting into real estate investing!
What city or region are you focusing in? For your situation I think a commercial lender at a local/regional bank would be a good fit. The options would depend on where you're going to buy.
There are a few mortgage brokers that service TN that also may have loan products for you. That may be another option.
I am in the process of acquiring our initial Multifamily Home (MFH) investment, utilizing an LLC in which my business partner and I share equal ownership. Our first acquisition is focused on properties in the $400-600k price range within Tennessee.
I am seeking advice regarding financing options. Should we opt for a local lender, or would an out-of-state lender be just as viable? It's worth noting that I am based in New York, though I'm uncertain if this has an impact on the decision.
I would greatly appreciate any recommendations or insights you can provide. Thank you in advance!
We are located in Long Island and would welcome the chance to discuss some options face-to-face. I also can gladly provide some options via email after a brief discovery call as well. Please reach out if interested in advancing to the next stage.
Lender · Atlanta, GA · Member since 2015 · 1k+ posts · 200 votes
3y
If you don't want your Personal DTI impacted and loan reported to the credit bureaus, then our DSCR loans will be the way to go. We UW strictly based on the rental income coming in. Up to 30 year fixed, with even up to 10 years I/O on the front-end.
I'm based in Southern California, but I have started my out-of-state real estate journey in Indianapolis. Now, I have a portfolio of Short Term Rentals and Long Term Rentals.
I've also helped other investors with their DSCR loans and flip projects. Happy to share my experiences and chat with you more if you're interested.
I am in the process of acquiring our initial Multifamily Home (MFH) investment, utilizing an LLC in which my business partner and I share equal ownership. Our first acquisition is focused on properties in the $400-600k price range within Tennessee.
I am seeking advice regarding financing options. Should we opt for a local lender, or would an out-of-state lender be just as viable? It's worth noting that I am based in New York, though I'm uncertain if this has an impact on the decision.
I would greatly appreciate any recommendations or insights you can provide. Thank you in advance!
Hey Sidney,
You may be able to use a DSCR loan on 1-12 unit MFH homes. You could also explore commercial loans for anything over 5 units. What kind off terms are you looking for on the lending side?
Lender · Member since 2022 · 1k+ posts · 497 votes
3y
@Sidney L., You should opt for a mortgage broker that can shop your loan to multiple lenders so you get the best rates and terms for your financial goals. DSCR loans are useful for your scenario and there are 30 year fixed options or 40 year options with 10 years of interest only payments followed by 30 year fully amortized (if you have the loan for that long). Many banks don't offer a 30 year fixed DSCR option since this isn't their primary business / they aren't comfortable with the product so their loans usually come with worse terms and more fees such as adjustable rate terms after 5 years.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth as it doesn't consider borrower income or borrower debt to income (DTI) ratios.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.
4. Length of prepayment penalty- Generally prepayment penalties run from 1-5 years. The longer the prepayment penalty term the less of an impact on the rate.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350 Insurance = $100 Association Dues = $50
Total PITIA = $2200
Rent = $2000 DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100 Association Dues = $25
Investor · New York City, NY · Member since 2018 · 2 posts · 2 votes
3y
Thank you all for the great response and suggestions. I will explore these and hopefully be able to find a loan product that is suitable for me - it does seem like DSCR loan is one of the better suited product out there!
Thank you all for the great response and suggestions. I will explore these and hopefully be able to find a loan product that is suitable for me - it does seem like DSCR loan is one of the better suited product out there!
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