All Forum Posts by: Robin Simon

This is not possible - no DSCR lender will do this, this type of excess was a factor in the issues that led to the financial crisis of 2008, nowadays DSCR lenders (who sell to the secondary capital markets) will have to use lower of purchase price or appraised value to make sure there is no funny business going on with the valuation..

Do you have specifics in mind?  A lot of multifamily lenders will serve different buckets, generally

2-4

5-8

9-20

21-50

with fewer options the higher you go, I can share some options depending on which bucket you are looking at

Hi Arsalan - a great option for you will be a "DSCR" loan which are historically investor-friendly mortgage loans for 1-4 unit residential investment properties, however in recent years this product has expanded to cover residential properties up to 8 units and "mixed use" properties like yours that have a commercial unit or two. Best part is the underwriting/qualification is still very borrower-friendly and doesn't underwrite commercial expenses such as repairs & maintenance, utilities, etc.

Its 2022 - no need to look for banks or lenders nearby, can easily set up a call or zoom with lenders across the country or connect here on BiggerPockets.  Less need for any "tips and tricks" I would say as a lender the number one most important thing is to just have all of your documents and data ready - believe me, haing a nice clean excel file or shrot writeup showing you have done the research and run the numbers puts you in the top 10%, if you have that ready at the get-go you become an ideal borrower in the eyes of a lender..

As a DSCR lender, we really have to stick to the appraisal determination of the property, and they will most likely flag the unpermitted nature of the ADU and not include it in the value and the DSCR calculation as rental income. Lenders need to underwrite the loan to conservatively project how it will perform (including if we need to foreclose and operate the property) and it would be foolish to count on unpermitted income/value to make the deal work. Equity investors like yourself can take that risk and it might make sense, but since lenders have no upside in deals, that risk equation doesn't make sense for us

Hi Vicky - a lot of the other replies in this thread have been good but I'll weigh in as well. We do DSCR loans in 47 states and I think rare among DSCR lenders in being fully open for first time investors. Our DSCR ratio minimum is 0.75x (a lot of lenders will have a 1.00x minimum, but we differ here). We obviously like 1.20x and above and majority of our loans are in that bucket however deals can still make sense at a lower or even sub-1 DSCR, especially in this market where rates have moved up high while cap rates have not). For example, deals in which a full year of history isn't available for a STR (its sub-1.00x at underwriting using long-term market rent, but we are confident after a year the property will cash flow over 1.25x as a short term rental), or buyer is purchasing a property with below-market leases that still have a few months to go (but will raise rents to market shortly) (in this situation a DSCR lender has to underwrite to the lower actuals).

Regarding LLCs, it varies as has been said in this thread, a lot has to do with state licensing and other stuff (typically if the lender has gone through the paperwork and process in a particular state), our guidelines for example are as such:

Lend to Individuals or Entities

• AL, AK, AR, AZ, CA, CO, CT, DE, DC, HI, ID, IL, IN, KY, LA, ME, MD, MA, MI, MN, MS, MO, NE, NH, NJ, NM, NY, NC, ND, OH, OK, PA, SC, SD, TN, TX, VT, WA, WV, WI, WY

Lend to Entities Only

• GA, FL, IA, MS, MT, RI, VA

You are going to want to go with a "DSCR" lender - these loans are perfect for the refinance portion of the BRRRR process (no tax returns required, LLCs ok or preferred, partners OK) etc. Preferably a lender that also does rehab "fix and flip" loans as well so they are well acquainted with each part of a BRRRR strategy

Assuming you are in the beginning stages of the BRRRR process, you should be looking at hard money lenders in your area that have products for rehab loans (typically "fix and flip") since the loan and the process generally work the same whether you are planning to flip or hold once the rehab is done. Bonus if your lender also does the refinance perm debt as well, that way you can keep it all in house during the BRRRR process and not have to use two different lenders

 This is good advice.  Ideally your goal as well will be to pick a lender not only for this one deal but for all your deals going forward and a real relationship.  Its generally better to have a lending partner rather thank nickel and diming basis points on rate everytime you want to do a deal IMO

DSCR lenders have been pulling back on the 5-8 product, but absolute max on LTV will be 75% (25% down)