All Forum Posts by: Collin Mitchell

@Collin Mitchell

We always get a Builders Risk policy and a separate General Liability policy for our flips. 

My insurance agent brokers with an insurer on my flips who is different than the insurer on my rentals. The policy just covers basic perils for the estimated value of the home. This approach suits me because my main focus is on safeguarding against catastrophic loss, rather than filing claims for minor incidents. 

Additionally, for what it's worth, I've noticed that my projects often extend beyond my initial estimates.

@Collin Mitchell

Builders risk policy is what you need if you want good coverage. This type of insurance is meant for properties that are vacant and under construction. It will run you more that a regular homeowner policy.  

There are lenders that will do 0 seasoning if looking to pull out the purchase price and documented expenses. There are some lenders that will use a new appraisal value if there's a substantial remodel. Many other lenders require 3-6 months if you want to use the new appraised value.

In case helpful, here's some more info 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+ 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. 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

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.

@Collin Mitchell what's your current lender's seasoning? Usually on DSCR loans we want 90days or less.