All Forum Posts by: Brian Cauldwell

Hi @Jake Burkons!

One of the things I would look out for is lending. If you are looking for a rent-ready home, in the DSCR space a home of that value, they will not be able to help you with lending. The lowest I have seen is $75,000 as-is value for the property.

If you are more interested in BRRRR, then some lenders will consider loan amounts down to $50,000, but it will limit your options.
 

Hi @Boris Seroshtan! For private institutional lending/DSCR loans, max leverage interest rates are around 8.75-9.25%, depending on credit score.

Hi @Dominic DeVitis!

Be careful in partnering with real estate. Real estate, at least if the goal is to rent, is a long-term commitment. You and whoever you partner with needs/wants may be different 5, 10, etc. years from now. 

My cousin is currently undergoing the process of removing his partner from his real estate because he was stealing money from the business. They grew up together and were best friends for many years. 

I always suggest to my clients, if you can find a way to do it by yourself, there will be less headaches down the road. 

Hi @Kevin Kim! @KC Pake touched on most points. 

There is one other thing to consider. Lending. For future refinances, depending on how the lease is worded and who the property is leased to, that may cause an issue with being able to refinance the property. At least through DSCR lenders.

If the lease is to a business/entity instead of an individual, very few lenders will be able to refinance this property. So when the time comes to refinance make sure you talk to the right person and ask the right questions to make sure they are okay with however the property is being leased. 

Hi @Michael Harrill! Devin is correct, seasoning is going to be the biggest thing to solve for in how quickly you are looking to pull out money. A lot of my clients like a program that has 3 months of seasoning so they can refinance as quickly as possible. However, each lender will have a different seasoning period. 3 months, 6 months, and 12 months is the typical points when a lender is comfortable with using the new value of the property instead of how much you have spent on the property. 

Another important thing with a DSCR loan is the property being rented. If the property is not rented that will limit your options greatly. Few lenders will do a vacant refinance, and even less will do that at max LTV.

Agreed. Also, when buying a house they are not going to allow you to pull out a credit card for the down payment. You would have to pull the money out of the available credit line with that credit card to do that. 

But, high utilization is going to tank your credit score which is more important for future deals. 

A lot of my clients for rehab loans will pay the rehab costs with a credit card because they can pull from escrow to pay it right off, but even that is risky. If the budget goes over for the rehab than expected, which 9 out of 10 times it will, then you are stuck with that balance. 

Hi @Sunny Malik!

Hopefully, you have found your solution to this problem. A lot of my clients in this space are using different lenders than the two you mentioned because their program offers different solutions. 

Interest rates and fees probably look pretty similar, but I have found that working with a lender who adds the monthly payments to the loan balance instead of making monthly payments and keeping as much money on hand has been a great solution for them. 

Hi @Tj Collins! 

As far as underwriting 1-4 unit rentals, there is more that goes into it but in general, this is what they are looking for. 

Credit score, appraisal for the property through an approved appraisal management company, 2 months' bank statements, market rent for the property, tax, insurance, and any HOA fees.

A credit score helps determine risk for the borrower, as well as bank statements. Bank statements will show that you have enough liquidity to buy the property and also a few months of reserves. The amount of reserves will be different with each lender. Typically that is anywhere from 3-6 months of reserves. 

The other part of the risk is the cash flow or DSCR aspect. Essentially it is rent divided by all of your expenses. Each lender will have a different threshold to what they see as risky. If the loan does not meet the DSCR requirement, they will give you less money to help acquire the property or refinance the property. Pretty much every lender is looking for a 1.0-1.2 DSCR.

If the rent for the property is $1,200 and the expenses are $1,000, pretty much any lender would lend on that property in the private institutional lending space as long as the other components check out. 

Hi @Candace Rodriguez! There are a couple of options, however, I think the most reliable is to find a local realtor and ask them to run comps for you to determine the ARV.

How I do it quickly at work for my clients is to pull up Zillow and see what has recently sold in the area. Typically for appraisals, this is what they will be looking for.

-Properties sold within ideally a 1-mile radius.

-Properties that will be in similar size, bed/bath count, and condition after you have rehabbed the property.

-Properties sold within ideally the last 6 months. 

That is a quick and easy way for you to determine what the property will be worth, however, it is not 100% accurate, and talking to a professional will be your best bet.