All Forum Posts by: Matthew Sarro

If you have a credit score and at least 3 tradelines or lines of credit that are currently being used financial statements aren't necessary for conventional or DSCR loans. Conventional loans will use your personal income, credit score and debt to income (DTI) ratio. DSCR loans will be structured off the rent versus expenses on the property and don't consider your personal income or DTI. Having the down payment, minimum credit score and DSCR ratio is how these loans are structured.

More info on DSCR loans in case helpful:

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. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.

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

If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.

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.

Happy to discuss further. 

Quote from @Matthew Sarro:

Hey everyone. I am reading through the "Real Estate by the Numbers" book now, and am still in the beginning where it discusses personal financial statements.

For the past two decades I have been using financial aggregators to monitor my finances. Originally I used Mint, then Personal Capital, followed by Mint again. In both cases, the product has more or less folded or become inaccessible. Most recently I am using Fidelity's full view product as they are the broker I primarily deal with.

I have some historical spreadsheets on Google drive but they mostly just show monthly pay/bills rather than providing any comprehensive statement of our finances. And I had stopped working on those about a year ago when I made the transition over to Full View.

I/we have no mortgages, no car loans, no student loans, and a credit card we pay off monthly.

I'm just looking to figure out how big of an issue it is that I am not keeping a monthly personal financial statement should I seek a loan? Is it necessary to create one or is the existing information in my credit report, full view, and tax return enough?

 Its really going to depend on what type of loan / what type of property you are seeking - do you have that nailed down yet at this point?

Quote from @Matthew Sarro:

Hey everyone. I am reading through the "Real Estate by the Numbers" book now, and am still in the beginning where it discusses personal financial statements.

For the past two decades I have been using financial aggregators to monitor my finances. Originally I used Mint, then Personal Capital, followed by Mint again. In both cases, the product has more or less folded or become inaccessible. Most recently I am using Fidelity's full view product as they are the broker I primarily deal with.

I have some historical spreadsheets on Google drive but they mostly just show monthly pay/bills rather than providing any comprehensive statement of our finances. And I had stopped working on those about a year ago when I made the transition over to Full View.

I/we have no mortgages, no car loans, no student loans, and a credit card we pay off monthly.

I'm just looking to figure out how big of an issue it is that I am not keeping a monthly personal financial statement should I seek a loan? Is it necessary to create one or is the existing information in my credit report, full view, and tax return enough?

The issue you will run into is not the lack of personal financial statements. It's going to be your thin credit profile / lack of seasoned trade lines. It's difficult to secure a real estate loan if if you a lack of credit history. I would say conventional / FHA (bank loans) would be your best option. Commercial lenders need seasoned credit history. I would open up a few more credit cards. 

Hi there Justin!

My suggestion on this is -

1. Figure out whether you are a visionary or integrator first & then find your opposite. "Opposites attract" is also true for business partners. You definitely want a "like-minded" individual but you don't want that person to do the same tasks as you or its all just a big waste of time. This comes from the book Rocket Fuel - buy it, read it, live by it, read it again, take notes. Pass it along to your business partner! 

2. Find your local REIA & yes, go to events! Sign up. A quick Google search should lead you in the right direction.

3. Join a community - I am part of 3 communities - they help you grow & are there when you need something. Facebook & IG help as well, build your business pages, search for businesses of the same & different caliber & these business owners will assist you as well. 

4. Learn how to be a Go-Giver - get the book - read it - employ it - use it every day of your life & see how being a Go-Giver can change your outlook. Don't just ask for something, try to give something first - a Joint Venture opportunity - cold calling for free - etc. It works!

5. Look up the Walt Disney story - Walt was the visionary who did not have his integrator for the beginning of his journey, he failed over & over. He realized many years after he started his journey that his brother was the integrator he had been searching for. After they partnered, the Disney legacy grew to its full potential. True story! 

Hope this helped you out - Ciao for now!