All Forum Posts by: Mike Musarra

Do you absolutely need cash out?  You can potentially qualify for a regular rate & term refinance of the 91k loan (plus closing costs) within 12 months.  

You could also start your transaction ahead of the 12 month mark and plan to close right at the end of the 12 months for a cash out refinance.  You don't have to wait for 12 months to pass to apply for the new loan.  You just can't close before 12 months is up.  You can talk to your new lender to plan your closing around this timeline.

@Laura Au the property looks nice, but I think it's overpriced. I would recommend lowering the price to avoid vacancy, every month of vacancy is equivalent to an 8% loss in revenue.  The price for a long term (longer than 30 days) furnished rental in this market is 10-15% higher than the unfurnished rate. I'd say you would be at $2200 unfurnished, so that would put you at $2500 furnished. The fact that Zillow says you have only had 5 contacts in 89 days confirms the fact that you are over priced. I also don't see any of the terms listed in the write-up, I would add more details about length of lease, utilities, tax, fees, pets, etc. I manage other furnished rentals in the area and would be happy to answer questions for you if you want to reach out.

Some DSCR lenders will use the new appraised value after three months so you don't have to wait longer than that to get up to 75% loan to value (LTV) cash out.

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 connect to discuss further.

 Hey Mike,

As mentioned above DSCR is probably your best option here! 70-80% cashout refinance. You're done with the rehab? Is it currently rented?

I would get a tenant in the unit and apply for a DSCR loan to cash out!

Hope this helps!

 Hey Miguel, thanks man! Yes, I have answers to all of this but they are for too lengthy for a forum post. Happy to talk and point you to some resources if you're looking in the Detroit market.