Cash flowing with DSCR?

[Raj Patel]

With conventional mortgage rates hovering around 7% for 30 years… cash flow basically happens at 6.5% cap rate and above. If you don’t care about cash flow year 1 you can go down as low as 6% cap rate and still break even. This assumes 25% down.

Now in markets like Manhattan it’s hard to find a seller willing to go to 6.5% or above in areas outside Harlem. But in other markets in NYC/N-NJ it’s doable.

DSCR starts at 8% for borrowers with strong credit scores (800+ which I have btw) but at 8% at 30 years 75% LTV you would need to buy at 7% cap rate to just about break even.

This becomes much harder to find properties. Also the DSCR ratio at 7% cap rate is barely above 1. Would it even be approved?

I’m so lost. What am I not seeing?

I see the advantages with DSCR… in that unlike conventional mortgages which have a 10 property cap, and it becomes exponentially harder to purchase each time… DSCR allows you to build a portfolio.

But the math doesn’t seem to work at all.

Can anyone help?

Thanks!

Let's assume the property has $313,000 in NOI

Valued at

6.26 M 5% cap
loan $4,695,000

P+I annual= $413,400> NOI

5.216M 6% cap

loan $3,912,000

P+I annual= 344,460 > NOI

4.47M 7% cap

loan $3,352,500

P+I annual= $294,708 <NOI cash flow +

[Joshua Janus]

Quote from @Raj Patel:

With conventional mortgage rates hovering around 7% for 30 years… cash flow basically happens at 6.5% cap rate and above. If you don’t care about cash flow year 1 you can go down as low as 6% cap rate and still break even. This assumes 25% down.

Now in markets like Manhattan it’s hard to find a seller willing to go to 6.5% or above in areas outside Harlem. But in other markets in NYC/N-NJ it’s doable.

DSCR starts at 8% for borrowers with strong credit scores (800+ which I have btw) but at 8% at 30 years 75% LTV you would need to buy at 7% cap rate to just about break even.

This becomes much harder to find properties. Also the DSCR ratio at 7% cap rate is barely above 1. Would it even be approved?

I’m so lost. What am I not seeing?

I see the advantages with DSCR… in that unlike conventional mortgages which have a 10 property cap, and it becomes exponentially harder to purchase each time… DSCR allows you to build a portfolio.

But the math doesn’t seem to work at all.

Can anyone help?

Thanks!

Let's assume the property has $313,000 in NOI

Valued at

6.26 M 5% cap
loan $4,695,000

P+I annual= $413,400> NOI

5.216M 6% cap

loan $3,912,000

P+I annual= 344,460 > NOI

4.47M 7% cap

loan $3,352,500

P+I annual= $294,708 <NOI cash flow +

 If your main focus is cash flow you'll want to focus on the markets that have it right now where rates are at. A lot of those markets are in the Midwest. I focus on 1-4 units in the Cleveland, Ohio market.