All Forum Posts by: Jennifer Stammberger

Read "Long-Distance Real Estate Investing" by David Greene. That book will tell you most of what you need to know.

Look up Dave Meyers posts or videos. He crunches data and regularly posts about the best markets to invest in.

Texas is the best state to own real estate. Our landlord friendly laws and demand puts investors in a good position.

@Jennifer Stammberger

I’ve done 3 of them and a big fan of them. Take the estimated rent and divide that by your expenses. If that number is at least 1.2 then you’re set. And these are no doc loans. They don’t need to see anything. Just your last two months bank statements. The only con is your interest rate is about 1% higher than a conventional loan.

3? Amazing! Thanks John!

 @Kristen L Garner's answer was perfect. The only thing that I could add would be that banks and DSCR lenders calculate DSCR differently. I've been both a broker and a commercial banker, so I can detail both ways of thinking.

To a DSCR Lender, they are only looking at the property and define Debt Service Coverage Ratio (DSCR) as Rental Income from the 1007 (part of the appraisal) divided by the Principle, Interest, Taxes, Insurance, and HOA. That's it. Some lenders go below a 1.0, but it gets expensive and you need experience. A 1.0X gets the deal done with most lenders with the rate and terms getting better the higher the DSCR.

Banks do a Global Cash Flow approach to DSCR. For them, they will usually use a vacancy factor...meaning they reduce the rent a bit (by 10%-25% sometimes) to account for the times the property is vacant. They also will include maintenance fees, assign a management fee (5%-10%), and other expenses. They might even look at the guarantor's other income...like from self-employment income or another job and they will usually also include other debts from the credit report(s).

I did notice one person answered earlier about a 1.25X minimum. That's likely a bank. 

Does that help add on to Kristen's answer. She obviously knows her stuff and nailed it. 

Hi Jennifer! There is an entire category of loan called non conforming or non-QM. DSCR (Debt Service Coverage Ratio) falls into this category. The loan product is specifically for investment properties and is usually good for 1-10 units. You qualify based on the DSCR ratio (rental income divided by total monthly PITI payment). If that number is greater than 1.0 you will have no issues getting DSCR financing. If that number is greater than 1.25 you will start to see a nice drop in the rate. The guidelines vary slightly lender to lender and product to product. But below are some major points.

-credit should be over 660, but over 700 to get best terms

-80% LTV on single family, 75% LTV on multi family or first time investor

-6 month seasoning period to do a refi

-can close in personal name or LLC

-loan minimums are usually either $75k+ or $100k+

-need to show 6 months reserves in any combination of bank accounts, stocks, retirement accounts, etc

-rates are higher than conventional

-no taxes, income, W2, etc needed

-take 30 days to close

-pre payment penalties can be added to lower the rate

-up to 3% of purchase price can be given in seller concessions

-if purchasing as a short term rental be sure to tell your lender first (to make sure they have a product that fits)

-if purchasing a rural property be sure to tell your lender first (to make sure they have a product that fits)

 Thanks Kevin - 

Full series here:

DSCR Loans: What Are They And How To Get The Best Terms

https://www.biggerpockets.com/...

DSCR Loans: How To Use Pro Strategies To Save More And Make More

https://www.biggerpockets.com/...

Multifamily DSCR Loans: A New High-Impact Loan Option For Real Estate Investors?

https://www.biggerpockets.com/...

@Jennifer Stammberger

Great Article written not to long ago about DSCR loans. This should help!

https://www.biggerpockets.com/...

@Jennifer Stammberger

The lender takes the net operating income from the asset and divides it by the debt service (cost of loan payments)

This number should be 1.25 or greater

What people forget to mention about these is many come with personal guarantees so if the asset does underperform (which I just go a tape of $25M distressed DSCR loans) the lender can go after you and in some instances cause the borrower to file bankruptcy

What I am getting at is, just because they only look at the asset does not reduce your risk.

It is a DSCR loan. These loans essentially qualify the investment, not the Investor. And as long as rents coming in is equal to, or more than your monthly payments to the bank, and they will adjust your LTV to be able to make this possible, they will lend the money.