All Forum Posts by: Jeffrey Guarino

Quote from @Matthew Wolk:

Quote from @Jeffrey Guarino:

Quote from @Matthew Wolk:

No Non QM lender would do this, minimum is 75K loan amount.

Hey Matthew, the loan amount I proposed was $92k, above the minimum you've provided. The question I'm asking here is, is there anything I can do to get this property valued based on NOI and not comps? I'm willing to buy more properties cash (SFH or duplex or triplex) and blanket them as a portfolio if necessary. Do you know if this will help me receive an NOI based valuation?

Thank you

Jeff

 Jeff,

My apologies for the oversight. I do these DSCR cash outs all the time. Basically you will be able to get up to 75% of your money out of the house so your calculation is correct. Then as long as your mortgage payment is less than your rent ($1,000) you will be good to go. You will not need any income documents for this and you can do a cash out based off the rent you are receiving. An appraiser will not only value the home but also complete a market rent analysis. The lender will use which ever is lower, the market rent analysis or the amount of rent you are currently getting (if you have tenants in there for at least 3 months, I know lenders that will let you use the actual amount on the lease over the market rent analysis. So yes, you can use NOI on this. When did you buy the property? You would just need to wait 6 months from whenever you closed on the home.

No worries! I really appreciate the follow up. I'll be waiting (probably quite some time) until rates come down before a refinance, so waiting 6-12 months is no issue. Any chance these lenders that do NOI based valuations on residential properties are national lenders? I'd really like to get in touch with them if possible. My market has properties that rent high, but low comps. So it works heavily in my favor if the value leans more toward cash flow (or even market rent) then comp value. If you wouldn't mind sharing a lender name or phone number in my inbox that might be able to work with me, I'd really appreciate it! I'm in the NY state market (not near NYC), by the way.

Thank you!

Jeff

Quote from @Matthew Wolk:

No Non QM lender would do this, minimum is 75K loan amount.

Hey Matthew, the loan amount I proposed was $92k, above the minimum you've provided. The question I'm asking here is, is there anything I can do to get this property valued based on NOI and not comps? I'm willing to buy more properties cash (SFH or duplex or triplex) and blanket them as a portfolio if necessary. Do you know if this will help me receive an NOI based valuation?

Thank you

Jeff

Quote from @Nicholas L.:

@Jeffrey Guarino

what is the ARV of the house based on comps? if the ARV is <100K, you're going to have a hard time finding a DSCR loan as others have said.

but maybe a local bank or credit union would give you some kind of commercial loan on it.

Thanks for the info Nicholas. The ARV will be under 100k. I'm trying to bypass ARV and get a valuation based on NOI by using the DSCR... If I buy another SFH or duplex, can I blanket the properties and refinance them as a portfolio? Would the bank view the portfolio as commercial and provide a cash flow based valuation (DSCR)? Or would they find individual comps and add them together to get a portfolio value?

Thank you

Quote from @Andrew Postell:

@Jeffrey Guarino so the technique you are using to value the property isn't how most DSCR loans work. Most will go off of the "comparable" value. Meaning, the "sold comps" around the home. You might be able to find a select few, smaller, local banks that offer a 20 year, adjustable rate loan that will value the property in that manner but most won't lend on something that size.

I know it's a moot point now but we always suggest getting prequalified beforehand so you know what your financing terms will be later.  I personally started on $30,000 home...and found out quickly that banks hate lending on those types of properties with a passion.  They hate it so much that most just won't do it.  I would encourage you to find out what the "comparable value" is on the home and start there.

Hope all of that makes sense. 

That's a huge help Andrew. Thank you. I have a lot saved up and plan on buying several more properties cash. Will the smaller local banks offer this type of valuation on the 20 year adjustable if I blanket 2, 3, 4, or even 5 of these types of properties into a blanket DSCR cashout refi? If not, what can I do to achieve this type of valuation for future projects? I really like the idea of an objective, cash flow based valuation. I'd be interested to seek it out, even it requires going to the commercial side with single family portfolios or a 5+ unit apartment building. Any advice is appreciated.

Thanks so much

Jeff

Quote from @Matt Devincenzo:

You're working the numbers backwards. A value based on NOI is applicable to commercial properties, and you don't use your desired DSCR to achieve a theoretical value. You use market cap rate with your NOI to determine the value, then apply your LTV limit of 75% for your maximum loan amount. If it also has a 1.25 DSCR in your case, then you would in theory qualify.

Now for your scenario. This it appears is a SFR or possibly a duplex? Both are valued by recent comps, so assuming you had recent comparable sales of 95K, your maximum loan would be 75% of that number. It doesn't matter if your property could support a larger loan amount, the maximum you can borrow will be 75% of the actual value. So find a few comparable sales to determine a ARV and work all of your numbers in reverse.

This is really helpful Matt, thank you. If the calculation is NOI divided by Cap Rate = Property Value, how do I determine my market's Cap Rate?

Hi Erik, thank you for your reply. I tried my best to explain in my post how I arrived at the value. My understanding is that when doing a DSCR cashout, the NOI is what is used to calculate the property value, not improvements.

The monthly NOI of $620 divided by 1.25 DSCR gives us a monthly debt service capability of $497. A monthly debt service of $497, at 5%, for 30 years, is valued at $92,581. I believe 75% LTV is standard for a DSCR cashout. So $92,581 would be 75% of the property's value. Therefore $123,441 would be the full property's value.

I'm hoping someone who has done a DSCR cashout refi on a 100% owned property can verify if that is correct.

Thanks again

Jeff

I purchased a single family home for $50,000 cash and it is currently rented for $1000 per month with an annual lease. While I wait for interest rates to come down, and for the property to season 6-12 months, I'm trying to find a lender to work with that can offer a DSCR cashout refinance on the property. I first want to make sure I fully understand this loan product. Can you please let me know if there's any mistakes in my calculations? I really want to understand the calculations and play-by-play of events so I can forecast properly.

Let's say 1.25 DSCR, 75% LTV, 30 year note, let's just say 5% interest

Purchase price: $50,000 cash

Rent: $1000

NOI: $7,450 ($620 per month)

NOI / 1.25 dscr / 12 months = $497 monthly debt service

(NOI accounts for property tax, gas, electric, water and sewer, trash, insurance, vacancy, repairs and maintenance, and replacement reserves. No management fees because I do it myself)

So, at 1.25 DSCR the property's cash flow calls for a loan that costs $497 per month

A loan that costs $497 per month at 5% for 30 years is valued $92,581.
So, do I receive a check for that amount (minus fees) from the bank, and that's it?

I assume there is no down payment because I own the home outright and am essentially selling 75% of its equity to the bank? Which would mean 75% of the equity is the $92,581 loan amount, therefore the property appraisal would be $123,441 total? And my remaining equity piece in the property would be valued at 25% of $123,441 which is $30,860?

Thank you!!

I purchased a single family home for $50,000 cash and it is currently rented for $1000 per month with an annual lease. While I wait for interest rates to come down, and for the property to season 6-12 months, I'm trying to find a lender to work with that can offer a DSCR cashout refinance on the property. I first want to make sure I fully understand this loan product. Can you please let me know if there's any mistakes in my calculations? I really want to understand the calculations and play-by-play of events so I can forecast properly.

Let's say 1.25 DSCR, 75% LTV, 30 year note, let's just say 5% interest

Purchase price: $50,000 cash

Rent: $1000

NOI: $7,450 ($620 per month)

NOI / 1.25 dscr / 12 months = $497 monthly debt service

(NOI accounts for property tax, gas, electric, water and sewer, trash, insurance, vacancy, repairs and maintenance, and replacement reserves. No management fees because I do it myself)

So, at 1.25 DSCR the property's cash flow calls for a loan that costs $497 per month

A loan that costs $497 per month at 5% for 30 years is valued $92,581.
So, do I receive a check for that amount (minus fees) from the bank, and that's it?

I assume there is no down payment because I own the home outright and am essentially selling 75% of its equity to the bank? Which would mean 75% of the equity is the $92,581 loan amount, therefore the property appraisal would be $123,441 total? And my remaining equity piece in the property would be valued at 25% of $123,441 which is $30,860?

Thank you!!