All Forum Posts by: Kevin Woodard

With regard to scaling, they are not reported to the bureaus (at least the products I am familiar with are not). So if you are running into problems with taking out loans in your name this solves that problem. If you are to the point where you are feeling the effects of too many personal loans, you will start seeing the ability to qualify with a conventional product becoming more difficult. You will take a hit on the rate if you can get a loan at all, I saw it recently (6 personal loans in 1 year and the borrower couldn't get the 7th.) 

They are more aligned with fed action and the secondary market, so DSCR will follow rate trends. They are very more dependent on leverage and your credit score. Hope this helps!

@John Costanza welcome aboard! Like Sunny mentioned, start networking. There are many different flavors of real estate investing every time you meet someone new you'll discover a new approach to it. I was actually talking about Toms River specifically the other day, never been personally but as a surfer I need to be close to the ocean! I enjoyed Florida (Pensacola) while I was living there, and like their lack of state income tax. 

If you need to start building your team in Jersey, let me know. I know a few really good realtors, attorneys, and lenders on the conventional side of the house. 

Hope this helps, feel free to reach out.

Quote from @Calvin Quallis:

Quote from @Kevin Woodard:

Is your intention to use this as a STR? Can you finance the renovations with the DSCR loan? If not, what is the game plan to finance the construction?

There are DSCR products that allow for refinance without seasoning if renovation was conducted. However, I'm only familiar with funding the renovation with a value-add loan then refinancing (in this case up to 80% without seasoning). If you're planning to use it as a STR, NOI would be calculated with project income from a site like AirDNA. Feel free to reach out if you have any questions.

@Kevin Woodard Yes, the goal is to use this as an STR. No, this DSCR would only be used for the purchase. I will be paying cash of about $500K for renovations.

Ok, I'm tracking now. The terms of this loan sound pretty good and close to a hard money loan. If you are paying on principal, though, how does that affect the bottom line? The alternative, like others have mentioned, would be a bridge (you fund construction) pay I/O then refi. You would have to see how it all pencils out though. Hope this helps. 

@Burt L. Have you already completed the work or are you looking to start work then transition into a DSCR loan? There are a few ways you can play financing the property, depending where you are with it in time. Full disclosure, I do both construction and DSCR loans. To circle back, pulling credit in a window should only affect credit once and it will be good for 90 days.

Feel free to reach out if you have any questions, hope this helps.

-Kevin

Quote from @Jacob Helland:

Thanks for all the recommendations and advice! I've been in contact with Lima One Capital and they've initially offered a 9.625% interest rate on a 13 month Interest Only loan. I'm assuming from what I've read and researched that the higher interest rate is normal?

 That's right Jacob. Higher interest only rate and then refinance at the end and pull most, if not all your original capital out of the deal. Or sell it for a profit. 

Similar to what @Mike Klarman said experience is what most lenders look at. I would definitely start building out the infrastructure (licensed GC, title companies contact, insurance contacts, realtors, etc.) so when the deal comes along you just execute the play. Hope this helps, feel free to reach out if you have any questions. 

Is your intention to use this as a STR? Can you finance the renovations with the DSCR loan? If not, what is the game plan to finance the construction?

There are DSCR products that allow for refinance without seasoning if renovation was conducted. However, I'm only familiar with funding the renovation with a value-add loan then refinancing (in this case up to 80% without seasoning). If you're planning to use it as a STR, NOI would be calculated with project income from a site like AirDNA. Feel free to reach out if you have any questions.

@Sean Bramble - @Jonathan Taylor hit the nail on the head. If the numbers pencil out right it gives you a chance to step back, analyze market conditions, and refinance into something without being penalized. 2 years, with the option to extend, does give you time and with something as kinetic as this it may be something to consider. 

Feel free to reach out and we can talk tactics.

Is there a pre-payment penalty associated with the loan? If so you lose some flexibility if you want to refinance in the next 5 years. Have you considered a bridge loan to increase cash flow and give you flexibility? 

I think a good way to look at this would be understanding how you feel about risk, what numbers are for you, what do you lose by not capitalizing that money. If you can handle risk and can source capital, in the event of an emergency, you can have less reserves and have your money invested. Numbers never lie though. 

Just for clarification. The DSCR is 1 or greater. So 100% or greater, not 1%.