All Forum Posts by: Steven Goldman

I agree  with Timothy Hero it is a high quote. 

As others have said the rate on a DSCR is subject to your credit score, the size of the deal, the amount of the DSCR. The base rate can be as low as 5.2 these days from their come the interest addons that got you to 7 percent.

If you have more than one member in your LLC you would want to use the guarantor with the highest credit score.

I would price the with three or four sources.  The broker may be having an impact on your rate. Hard to say without more information.  Good luck!

Most D.S.C.R. funding companies are almost nationwide. The list is numerous. Some of them will only require 6 months seasoning, others one year. If your rent is $1,200.00 you will be limited to a loan with a payment of principal interest taxes and insurance less than the $1,200.00. Some companies want a 1.2 percent ratio. Others will go as low as 1.0 but will limit the LTV. Take the monthly taxes and insurance subtract them from the 95 percent of the $1,200.00 and what is left is available to service the debt. (if you are using a property management company that must be subtracted also) So, as an example: Lets calculate taxes and insurance at say $280.00 per month. $1,200.00 - 5 percent or $60.00 is $1,140.00. available for debt service.

Example of 75 percent cash out at 6.75 ( A lower rate will not increase the LTV but will increase your month on month return)

1,140.00-280.00= 860.00

75 percent of 130,000.00=  97,500.00 max cash out.

97,500.00

This property can be cashed out on a thirty year fixed at 6.75 your payment would be 632.00.00+280.00=$913.00 

$1,140.00/912.00= 1.25 debt service coverage ratio

Thirty year fixed rates are rising to price in the anticipated rise in Federal Reserve rates. Most companies have a 75 percent maximum cash out on refinancing of LTRs.

The only caveat is the property will have to have a tenant with a one year lease and a one month deposit prior to your application. Hope I did not confuse you.  Good luck. If you have further questions just ask them.

@Thomasloaiza
I agree anywhere near the water with a pool will garner higher returns. The  truth is STR are doing well all over the country. Obviously a very rural location is not optimal. But we have clients who have converted their properties from annual to STR and have made significantly more income.

Quote from @Stephen Ray:

I'm currently under contract for a house I intend to use for a short term rental. ARV will double, maybe even triple once complete. CoC ROI will be anywhere from 65%-85% depending on market conditions.

I entered this contract with a DSCR lender. Once they started the appraisal they determined this property was too "unique" to find comps for. I'm not experienced with private lenders but I feel they will be the only ones that can help me in this situation. How do I find one that's legitimate?

On very few occasions a property is so unique you can not find comps. But that is a very few. A number of lenders are  lending on Airbnb short term rentals. It is hard to imagine that the property can not be valued for a D.S.C.R. loan. The question should not be its value. The question should be, are they going to calculate D.S.C.R. using its average fair rental value as projected by the appraiser. Rather than the AIRDNA stats.  That might limit your LTV. I would speak with additional lenders and tell them your experience and see if they have an appraisal outfit that can do the job. Black Knight is a program relied on by lenders, to initially value the property. Perhaps Black Knight could not value it, so they told you they could not do the deal. Did you pay for the appraisal? God luck!

Quote from @Jason Shackleton:

Hi @Reginald Cook,

This sounds like a good deal based on the condition, PP and ARV. It will be challenging to do this deal with a pp under $50k. It is possible but only a few lenders will do this. Yes you can buy with hard money and not do any fixes. The challenge will be the seasoning time required for the next lender you use for the refinance. That next lender will have a seasoning period (time of ownership) of usually at least 6 months. Some will do less if you use the same lender for both the hard money and the refinance.

In my opinion I would get a hard money loan and get some of the renovations paid for (or all) by the lender. Boost the value of the property as much as possible. Then in 6 months get all of your money back (or more) on a refi and do it again.

Good Luck

I concur with Jason. Most lenders will only use your purchase price if you are buying below the market value. If you choose to buy with a fix and flip loan, the refinance will still have to be seasoned at least 6 months to lend you beyond the cost of the property and improvements. Once the seasoning has passed you will be able to get a debt service loan based on the income and expense of the property. You will need a decent credit score to get a good rate. The LTV will be determined by your credit score and the Debt service coverage ratio. You can get a D.S.C.R. loan with a 1.0 debt service coverage ratio but it will cost you more and be a lower L.T.V. The same formula can be applied to your credit score. Their are no shortcuts.

Quote from @Hannah Espejo:

Hello everyone I have been doing a ton of research in regards to fix and flipping my first home! As everyone knows this market is a little slim however I will be putting in the work. My situation as it stands is tough at the moment but I am not a quitter. I’m looking for a property that needs about 30,000 in rehab maybe just bathrooms, floors, and paint. I don’t have cash in reserves for the the downtime’s while rehabbing in 4 months. Is there any advice someone can give me in regards to hard money? I only have $6,000. Is there a such thing as 100% finance with no money down and that a lender can tack reserves for insurance, interest and payment into the loan amount possibly? I currently live in an apartment and want to utilize the time my lease is till November. My goals is to fix and flip two or more properties as in a single family home then have an investment rental property! I’m a newbie but I want to go to meet ups and love learning. I have an agent I’m working with right now who is going to help me search for properties to fix and flip. I own my own nail business right now but eventually want to dive full time into real estate! Can a lender use the property I want to fix and flip as the asset only? I would really appreciate all the advice I can get and maybe tag team with someone on a deal and learn and grow! I’ve never wanted this so bad.

I think teaming up with an experienced flipper would be of great value to you. You can find them at the meet ups. Actually observing the start to finish process will allow you to effectively execute on your future projects. Nothing wrong with a government finance. But, to grow you will have to master the Fix and Flip funding process. You can expect to need up to 15 percent of the purchase price and the lending and closing costs in order to obtain and fix and flip loan. 

You will need to have six months payment in reserve to pay the interest on the loan during rehab and sale. Many new investors take in a money partner. Rates for fix and flips and purchases are rising due to the geo political uncertainty and inflation. 

Don't  wait to get started find a deal analyze if it makes sense, run with it. It is often  harder to find a good deal than a money partner or lender! Good luck!

Quote from @Ben Scott:

I'd counsel to keep all your equity if possible. Take the hit upfront on the rehab from the inflated quote. If possible, buy all your own materials for the rehab. You could even purchase at the vendor and have your contractor pick the materials up. Not that your uncle would do this, but sometimes contractors overbid on materials costs and pocket the difference and keep the extra materials. 

I agree with Ben that the best option is always to maintain total control of the project. So if you can work through the situation without giving your Wife's uncle equity that would be best. Usually when family is involved their is more going on than just the project. Happy wife, Happy life! 

If you would prefer to trade a equity position for labor costs than figure out the scope of work and how much is attributable to labor as a percentage of the entire deal and offer him that. Keep it simple.

Quote from @Dana Powell:

Quote from @Steven Goldman:

The best DSCR lenders are national. Rates have just increased so it is important to get going as they are projected to increase steadily over the next few months. DSCR lenders have minimum loan amounts and also property values so you will need to find the right lender for your particular project. The rate will be governed by credit score, D.S.C.R. and loan amount. Smaller loans cost more.

 @Steven Goldman, I'm being quoted 6% with 3 points on a DSCR 10-year IO/20-year P&I. Last month I settled a similar property at 4% with 3.5 points on a 40 year DSCR with 10 year IO period! Do you think these rate increases are here to stay or will they come down after a few months? I'm just getting into DSCR loans and looks like my timing is well, not good! I'm in DC; I don't think sale prices will soften with these rate increases.

@Dana Powell: It is safe to predict that debt service coverage rates will continue to increase as the Federal Reserve raises their rates. Rents are also rising to historic levels. If rents continue to rise than higher debt service coverage interest rates will not be as challenging. I have been in real estate since 1983. Periodically rates have risen and the savvy investors have always remained in the market, thrived and survived.

As you move forward you will find private money to fund your deals.

The new environment will require more creative thinking. Usually that is the opportunity for the most success. The new rate and price reality will wash out those who are not able to evolve and think on their feet. Those who remain will have a much less crowded field to compete with.  Do not quit work harder and smarter!  

As an aside, before 2008 many people  adhered to this simple axiom: "Real estate will never lose value because they are not making any more of it". In fact that is not true as many learned the harsh reality in the great recession. I do not believe a great recession is coming. However, what goes up will eventually come down to earth. So position yourself with sufficient capital reserves to withstand a reduction of values, or income, as at  some point it is inevitable. Many of the savviest investors sold their holdings just prior to 2008 and then bought back in after the market decline. Just keep your eyes open and do not be afraid to act when the lights are flashing.

As Deniro said in Heat: 
"Don't let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner."   Neil Mcauley