All Forum Posts by: Tyler Solomon

Manav - Happy to help where I can!

Michael - to my knowledge there are not ALL in ONE DSCR products that include rehab costs. Instead, you would either need to self finance the rehabs, or go through a hard money loan first, and then refinance the property into the DSCR loan after the renos are done. Reason being, it would be very difficult for the lender to accurately peg value for a 30 year note before renovations are done.

entirely dependent on the financing you pursue, however most tend to put down 20 -25% down if going conventional or DSCR

 Joseph, Happy to help!

We differentiate ourselves in a multitude of ways, however I think our real niche comes in our ability to take a logic based approach to underwriting short term rentals, as well as being able to work with anything 1 - 10 units! Happy to discuss this in more detail with you. Outside of that, a few other things come to mind. Short Seasoned Cash Outs (3 month seasoning), up to 80% LTV, 620 FICO minimums, Can work with Rural Properties (especially useful for STR's in remote locations with scenic / destination views), and the ability to underwrite projected revenues.

As for the fees, it is hard to nail this one down as each lender has their own internal process and fee structure. Typically most lenders will have atleast a 1 point (1%) origination or closing fee, and require the borrower to pay for the appraisal(s) and pass through expenses such as legal review, credit and back ground check, amongst a few other line items. Processing fees are not uncommon to come by, however always ask your lender what fees you are going to be responsible for paying from start to close!

Nap - great question. In the last 45 days, we have seen DSCR rates, along with conventional rates subside and find level ground after months of continual hikes. While I do not have a crystal ball, it appears that rates have begun to find stable ground, and investors are certainly taking advantage from our prospective. This comes in combination with home prices starting to subside from the 2021/2022 frenzy home prices, which is bringing back purchasing power to investors looking to capitalize on cash flowing investment properties. While it certainly is not the hay-days of 3-4% interest rates like we had a few years back, deals are popping up all over the country and are ripe for the picking - just takes the proper amount of due diligence to find them. Needless to say, I think we are poised for a strong 2023, especially in the Short Term Rental and investment space in general.

Chris, Great Question. For ARV, Most Hard Money and Fix/flip or Fix/hold lenders will preform their own internal analysis based on comps surrounding the property to peg an ARV value, however these projections are always subject to market fluctuations. Most lenders such as this have internal underwriting teams with a wealth of experience in underwriting fix/flip and fix/hold loans. Some lenders, depending on the scope of the project and the borrowers history, may request contractor quotes to determine Rehab amounts, but often times the lenders are able to provide accurate estimates of such. Prior to receiving funding for a rehab loan, lenders will require borrowers to fill out a scope of work form that outlines what exactly the borrower intends to do, and what they think it will cost them to get it done. The lender then evaluates this based on their own experience and determination of costs, and presents the borrower with terms.

After the renovations are complete, if you decide to hold onto the property as a rental, 99% of all perm debt lenders will require an appraisal to be done on the property to officially peg the ARV value, before refinancing out of the short term debt Hard Money Debt.

 Michael - happy to elaborate!

High Level:
DSCR loans evaluate, underwrite, and lend based on an investment property(s) ability to cash flow (It's DSCR Ratio), amongst a few other key qualifying factors. The primary qualifying factors for sponsors include the sponsor's FICO score, overall leverage (LTV), and of course, the property's DSCR ratio. DSCR loans allow investors to purchase OR refinance their income producing properties, typically 1-10 units, based on the property as an income producing asset, and less so based on the individual as a borrower.

My Take: 
DSCR Loans are a great tool for investors looking to start or scale their investment portfolio. With no DTI consideration, and no income verification, it makes these products especially lucrative for those who no longer, or can not qualify for conventional financing. DSCR loans reward investors for finding great deals that cashflow - and can even be pulled off for properties that do not cashflow. While DSCR loans do have higher down payment requirements (typically minimum of 20% Down), it allows investors to qualify for financing based on the asset they have, or wish to have, and not on their personal income/debt history.

Short Term Rentals are still a relatively new asset class, and DSCR loans take a logic based approach to underwriting these income producing assets and rewards investors who find strong deals! While DSCR loans are very popular in the STR space, many traditional long term rental investors also take advantage of these products as well.


DSCR Loans Explained:
DSCR loans, meant specifically for investment properties only, are effective because they require no income verification (or DTI – Debt-To-Income Ratio) and no tax returns or endless paperwork.  Further – while the qualification and documentation is much less than conventional mortgages – the interest rates are just barely higher (typically around 1% more). These loans offer fixed rates for 30 years (including options where its interest-only for the first 10 years), so you avoid the payoff and refinance pressure that often comes with hard money alternatives.

DSCR stands for "Debt-Service-Coverage-Ratio" and measures the income from the property (rents) divided by the main expenses of the property (principal and interest on your mortgage loan, plus property taxes, insurance, and any applicable HOA dues).

Real estate investors generally invest for monthly cash flow from their rental properties, or so their rents (income) exceed their expenses, and they have cash (profit) left over. A DSCR of 1.00x means that income equals expenses so that the investor is breaking even, a DSCR above 1.00x means the investor is making money (cash flow). For example, a DSCR of 1.25x would occur if the property earns $1,250 per month in rent and has $1,000 in PITIA (expense – or principal + interest + taxes + insurance + association dues). A DSCR below 1.00x means that expenses exceed income, so the investor is losing cash flow every month.

DSCR lenders will qualify income through a few ways. For long term rentals, they will underwrite the 1007 appraised market rent schedule or in place rents, dependent on the property. For Short Term Rentals, there are a few ways to attack it. Certain lenders will still rely on the appraised market rent to qualify income, despite the short term rental revenue - which does not make much sense to me. More innovative lenders will underwrite Short Term Rentals based on either the trailing 12 month income history for the property, or the projected short term rental revenue projections utilizing popular tools such as AirDNA, a personal favorite of mine! 

DSCR lenders look at your credit score and make sure you have a few months of payments in the bank. But other than that your property qualifies, not you. That means your income sources, whether you have a W-2 job, own a business, invest in real estate full time or are retired or between jobs, don’t matter! DSCR lenders strictly do not take income into account!

 Jamie - happy to take a look at this. What is the purchase price?

Mitchell, here is a link from AirBnB regarding Denver STR guides.

https://www.airbnb.com/help/ar...

When are you looking to aquire?

Joe - admittedly lines of credit do not directly fall into my wheel house, so hard to recommend one particular place, however your local banks or credit unions that you have banking history with are a great place to start. If you are taking a Home Equity Line of Credit (HELOC), my biggest piece of advise is to not overleverage yourself with the equity in your home given the current real estate environment. In the event that your collateral (for a HELOC, your house) depreciates, you risk having your line of credit freezed, or even called.