All Forum Posts by: Daniel Baccarini II

Seeing if a local lender can do it is a great first step. I've seen some DSCR lenders that have financed log cabins but they had to get an exception in order to do so.

 It depends upon what your current rate is, how much equity you have in the property, does your current financing have a prepay, and what your plan is for deploying any cash out. I'm working with a lot of investors who are pulling cash out of properties. The reason they're doing so is because they want to buy other stuff. 

Unfortunately, there is no one size fits all approach. If you have a lot of equity or if you bought the property when your credit score wasn't great (leading to a high interest rate), then it might make sense. 

You can definitely do a DSCR loan for this situation. Even if there isn't a lease in place, underwriting can use market rents from an appraisal to qualify. Depending on the cash flow for the property, you are looking at up to 75% of the appraised value.

I'm not sure what your local options might look like with a small community bank or a credit union. Depending on your tax returns, that might be an option. Pros- the loan costs for this will be less, depending on their underwriting approach (creativity and aggressiveness) then they might do the first-year interest-only allowing you to rehab and put in long term financing without having to refinance. Cons- depending on your personal financials, qualifying might be more challenging and the loan might not amortize over 30-years.

Another alternative would be a business-purpose rehab loan (fix and flip/fix to rent). Even though it is a 4-plex, it still falls in the same bucket with similar loan structures as if you bought a single-family rental. Depending on the rehab budget, you would be looking at up to 90% of the purchase price, 100% of the rehab, capped at 75% ARV. Pros- flexible underwriting criteria that will only look at the transaction and less at your personal financials. Cons- the loan costs will be higher, the loan will have a max one year term, and you will have to refinance.

The flip side of having to refinance is that you will be able to use the equity that you build in the property through the renovation to pay for the loan costs and possibly pull some cash out. 

Hi Trevor, the main question is going to be how close is the new construction to a urban/suburban area? There are business purpose lenders that will finance ground up construction, but they will be more particular about the location of the build especially since it will be on 5 acres.

Very nice, Juan! There's a lot of opportunity in new construction for builders with good experience. How long have you been building for? 

Hi Jim, if the property isn't being used as a STR currently, certain DSCR lenders can use data like AirDNA to qualify for financing. The percentage of the projected AirDNA revenue will depend on your experience and credit score.

Some lenders require you to pay points at closing to buyout the prepay but haven't heard that referred to as a "discount fee" before. Did they send you a quote with a prepay that didn't have the discount fee?

The appraisal cost seems really high, but is the property in an area that doesn't have very many appraisers locally?

Hi Chad,

I know a lot of investors that have a similar background to you that do the majority of the work themselves. If there is an area where you are not as confident like plumbing, electrical work, etc... then you can always find a subcontractor for that. 

For ongoing projects, I would recommend a rehab loan. These are typically one year, interest-only, with no prepays. The lender will fund a large percentage of the purchase price (up to 85-90%) plus the full rehab costs. The total loan amount for the purchase and rehab can't exceed 75% of the after repair value of the property. For these loans, the rehab is funded on a reimbursement basis. Once you finish the rehab, you can then refinance using a DSCR loan.

Do you have enough funds saved up to start buying properties or do you need to refinance your current rental?

Have to agree with Clayton here, Ryan. The current rates already included the anticipated rate cut. If you want to see which way DSCR rates are heading, track the 3-year, 5-year, and 10-year treasury yields. The Fed tends to lag treasury yields.