All Forum Posts by: Aaron Raffaelli

Hey Aaron!

Yes first-time buyer DSCR is actually fairly common, especially here in Southern MI. With DSCR, credit and down payment are the major factors (plus the property itself of course) so it is very possible since a lot of the properties in the area cashflow pretty well. Feel free to reach out if you have any questions though!

@Aaron Raffaelli, I’m sorry to hear that you are having issues qualifying. Is your income considered variable in nature depending on job sites and that you do not work a set amount of hours per week? Different lenders can view income in various ways depending on who you speak with. I worked with a travel nurse who does shift work and 5 lenders said that they couldn’t finance her primary residence purchase and I ended up making it happen for her. 

Aside from that, there are DSCR loans out there that cater to first time homebuyers, some that even allow those that live rent free to purchase as well. Feel free to reach out with any questions.

There are DSCR loan programs for first time investors. Many DSCR programs require an investor to have a mortgage history- there are some DSCR mortgage programs that will work with investors who are renting- some refer to them as first time home buyers (FTHBs)- DSCR loans are only for investment properties where the owner isn't living there. There are loan programs that will do a 20% down payment with a 680 or above credit score. 

More on DSCR loans: DSCR loans won't use your income to underwrite the loan. 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.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

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. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). 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. This criteria is for 1-4 and 5-8 unit programs.

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

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Happy to connect to discuss further. 

Take your time and don't let FOMO distract you from your long term goals. 20 years from now, it won't matter whether you bought a house this year or next. A DSCR loan is going to require more down, have high fees at closing, a higher interest rate, a pre-payment penalty, and will require you to have cash reserves that you likely don't have at the moment. Don't force it.

Keep working, saving money, and buy the best asset that your budget allows. Buy the property you want to own the most 10 years from now...and house hack before you buy an investment property. 

 Lots and lots of research.

Price points also help, block quality, etc. Happy to send some resources if you'd like to reach out.

I’m pretty sure Zillow has a policy where they remove old photos, but I haven’t figured out the rhyme or reason for where and why they do it.

Detroit is pretty block to block. We see a lot of success in the suburbs:

Purchase: $80k-$130k

Rent: $1100-$1500 (no rent control in MI)

1% rule: .9%-1.4% rule deals

Coc ROI: 5-12%

Total ROI: 20-40%

Cash flow: $50-$250/door (after all expenses and budgeting for maint, capex, vacancy)

Appreciation: 3-10%+ (has been double digit for a decade)

Location: C+, B-

These numbers are based on the "sweet spot" in Metro Detroit. These are largely in the suburbs and some markets within the city. You can find higher ROI (on paper) here and probably in other cities…but the probability of actually collecting rent significantly decreases. Where these numbers are found, there is a very high rate of rent actually being paid.

Here is a video where I analyze a property in the Detroit area if you/anyone is curious.

@Aaron Raffaelli we call all the cities that touch Detroit, the Ring Cities - except the Grosse Pts.

These cities are mostly Class B and are solid rentals.

Detroit overall has gentrified to Class C, but at least a third of the city is Class D still.

Check out the interactive map on our website and watch for whats coming...

@Aaron Raffaelli we're also in Detroit area, so let us know if you need help with anything.