All Forum Posts by: Sarah Hatton

To add to this...most lenders in the private space — aka DSCR loans — strongly prefer or in some cases require an LLC to close.

Hey Maurice, 

If you're going the DSCR/rental loan route....

The asset has to qualify — having multiple incomes won't help unless you need those additional members to meet credit/liquidity requirements. There are many institutions in this space so it will depend which has your loan but the most common entity requirement I see is anyone at or over 20% will have to fill out an application and qualify for the loan. Additionally there are adjustments to LTV and interest rate for different credit tiers that either the lowest or highest mid score of all applicants will determine (I say lowest or highest because again, every institution is different— either way, credit matters). So lets say 3/4 entity members have 760+ FICO and one member has 680, you will probably still get approved but due to that 680 FICO LTV will be lowered and interest rate significantly higher. What I recommend in this case is to amend the operating agreement to list the lower credit member at under 20% ownership. Once the deal closes there's nothing that would prevent you from reverting/revising the operating agreement. Like I said when I started this — every institution is different. I know of another option where only one borrower can be a guarantor and allows applicants to choose whom that should be, typically being the individual with the highest credit. All of this to say there are several ways to make a scenario like this work. Feel free to shoot me a PM! 

Thought I would share my response to a recent client's question: "what would be a good flip now with the market changes?"

well isn't that the million dollar question! Surprisingly, we have seen some great projects throughout these market changes. As always, it comes down to the purchase price, if you can get the property at a low enough price it can still work. I think the best approach in this market would be to find properties that fit the DSCR rental loan requirements in the case that you can't sell or prefer to hold onto the property. This way you are holding onto your equity for a little bit longer but can still refi/cash out in a couple of years when the values rebound, while making income/cash flow. We've also done quite a few bridge loans to investors that are negotiating good purchase prices then just reselling to end user quickly there after, smaller markups, but almost not financing expenses when only held for 1-2 months.

Lenders — what's the advise you're giving clients who are asking this question?

You can do 80-90% on a cash out refi? For real? 

Hey Mona! 

Lenders typically looks at Experience, FICO, and Liquidity to determine the risk of a borrower. While experience is the most important, having strong liquidity and FICO can help reduce the lenders risk. Also, many borrowers have indirect experience like JV'ing a friends deal, being a real estate agent, or having a construction background — all of these help add color to the borrowers profile. Interest rates will be around 1-2% higher but assuming your loan is charged IAD (interest as dispersed) and you exit the project in a few months it will be a minimal difference.

As far as the source of your funds....true hmls wont care if you have a 'gap investor' or whether the funds are coming from a family member vs a friend, what most lenders WILL care about is that that person does not attach a 2nd position lien to title. 

Personal guarantees are required on nearly all loans even when closing in an LLC, as well as proof of proper insurance coverage prior to close.

I know of a lender who does something like this - they require a deposit upfront that will go towards closing. I think its a combination of wanting the borrower to commit (as they know jumping ship will cost them) and compensating them for the work should the deal fall through. It's certainly a red flag but I don't think it immediately means they are running and fraudulent business. In that same breath there are plenty of lenders out there that only require the appraisal and credit check to be paid upfront, I would find another lender.

As of recently the institutions I've partnered with on DSCR STR loans have stopped offering them, can anyone refer my to lenders who are still financing these projects? I have a client who I did a fix and flip loan for and is now looking to refi and hold. Project is in Joshua Tree/Yucca Valley.

Thanks!

Hey Derrick, 

Most DSCR lenders have a minimum asset value of $100k and loan amount of $75k. I've found an outlet for properties down to $75k asset value and $55k loan amount, however the rate and origination fees tend to be higher. Some responses suggest looking into blanket or portfolio loans — from my understanding even when you bundle properties together they still need to qualify individually, aka meeting those minimum requirements. Just a heads up!

As others have mentioned it's an integral part of the flip process to have GC(s) walk the property before putting ANYTHING under contract. There are more sophisticated ways or running rehab numbers but here's a quick cheat: 

Major metropolitan areas (LA, New York City, Miami, etc): 

Mid grade upgrades: $50-75 per sq. ft. 

*smaller properties use high end of range* 

High end upgrades: $100 er sq. ft. 

If the property is located somewhere like the suburbs of Virginia or Illinois (just naming a few — really any mid range metropolitan area) the cost of rehab can go way down. We've seen projects done for around $35 per sq. ft. 

Hope this helps!

Normally $75k minimum with $100k minimum asset value. There's an expanded' program if you will where we can get down to $55k loan amount with $75k minimum asset value.