Tuesday, November 29, 2022

DSCR Investment Property Loan

Are you a real estate investor looking to acquire a DSCR investment property loan? Valor is here to help you avoid using hard money and qualify for investment property acquisitions and refinances by using the cash flow of the investment property itself.

Traditional mortgage lending requires tax returns during the loan approval process but a DSCR investment property loan does not.

When providing tax returns, it does not always give an accurate portrayal of true cash flow, due to the way traditional loans are underwritten (which often applies a default vacancy factor, minimum global debt service, and other guidelines and overlays). Real estate investors and others whose tax returns do not accurately portray their financial picture can use no tax return investment property loans as a powerful financing solution. If the rental property is cash flow positive, that will constitute sufficient qualifying income.

Another powerful tool for real estate investors is the BRRRR real estate strategy which involves BUYING distressed investment properties. REHABBING the properties. RENTING the properties. REFINANCING the properties to pull cash out to purchase more investment properties to REPEAT the process all over again. If done correctly, this method can skyrocket your passive income and grow your real estate schedule to monumental proportions.

To dive deeper into learning about DSCR investment property loans and the BRRRR real estate strategy please check out the information below.

What is a DSCR Investment Property?

Sometimes called “Investment property loans” or “rental loans,” DSCR investment property loan does not consider a borrower’s income in the traditional sense.

The “cash flow” is just the monthly rental amount the property brings in. For example, a property renting for $2,000/month would be attributed a qualifying income of $2,000/month. The main requirement for these investment property loans is that the monthly rents cover the monthly expenses. It is that simple.

Not only is a borrower’s income not considered in the loan application process, but investment property lenders do also not request income amounts, in fact there is no income verification of any kind. No letters from employers, no W2s, and no pay stubs. Again, the income of the investment property is simply the cash flow of the property.

Why use a DSCR Investment Property Loan?

Traditional mortgage lenders require tax returns, W-2s, and paycheck stubs in order to determine monthly income. Salaried and hourly borrowers would require the lenders to look at gross income for qualifying purposes. But for self-employed borrowers, traditional mortgage lenders look at net income, the adjusted gross income showing on tax returns. This puts real estate investors and other self-employed borrowers at a disadvantage.

However, rental loans are a great way for real estate investors to qualify for both acquisitions and refinances, without requiring bank statements or tax returns, and without having to qualify using a debt-to-income ratio. (Bank statement loans are also a great option for self-employed borrowers, to learn more about bank statement loans click here.)

Borrowers that fall outside traditional underwriting guidelines but are looking for long term loans with more attractive rates than hard money loans can use the DSCR investment property loan to their advantage. These loans do not require tax returns, income or employment, or debt to income ratio calculations.

DSCR loans provide the flexibility and lessened documentation of hard money loans, but with rates closer to traditional financing.

This is a constantly evolving area of real estate financing that offers a powerful way to grow your real estate portfolio.

What is the BRRRR Real Estate Strategy?

The BRRRR (Buy, Rehab, Rent, Refinance, Repeat) real estate strategy is a real estate investment strategy that involves buying distressed properties, rehabbing the properties and renting them out to cover the mortgages. Then cash-out refinancing the properties and using the profits to fund further rental property investment. Purchasing distressed properties at a discounted price is key to making a profit with a BRRRR Strategy.

B is for BUYING

Investors that use this method shouldn’t buy just any old property. It is important to make sure that you are making a sound investment and that it is a good deal. You want to make sure that you do your research and have a good timeline laid out for how long renovations will take and when you can get the property rented out. Finding a distress property to purchase is the easy part. It’s the financing that could be the hard. Valor Lending Group has over 100 lenders that specially fund investment Bridge, Fix and Flip, DSCR, and Construction loans. No matter what level of rehab the property is in, Valor Lending Group can find the right lender for you.

R is for REHABBING

Rehabbing a property is the most time-consuming stage of the BRRRR method. Making sure it is safe, habitable, and up to the rental market standards in your area is very critical. There should be some thought about the level of upgrades the property needs depending on its location and market rents. You never want to rehab a property under or over in a specific neighborhood.

When using the BRRRR method you should have a clear scope of work that needs to be done on the property and how much it is going to cost to get it move in ready. You run the chance of losing money if you don’t have a plan of attack when it comes to time and cost.

The main aspects to focus on to receive the highest return on your investment is updating the kitchen and bathrooms. Also, making sure that there are no hazards.

R is for RENTING

Renting your newly rehabbed property to new tenants is one of the most important stages of the BRRRR real estate strategy. This will lock in your passive income and able you to continue your BRRRR method. Many investment property loans are based strictly off gross monthly rent and the ability to cover the principle, interest, taxes, and insurance payment. Getting the highest and best rental income will become a key factor into the BRRRR equation. See more on financing below.

R is for REFINANCING

Refinancing the newly rehabbed property is very important. This will allow you to access equity to purchase more properties to build your SREO. Most common investment property financing is a DSCR loan. DSCR stands for Debt Service Coverage Ratio. The ability to produce enough rent to completely cover their PITI payments. The higher the ratio gets, the easier it becomes for that entity or person to obtain financing for the investment property. DSCR is gross rents divided by new PITI (principal, interest, taxes and insurance) monthly payment. If your property is collecting rents that covers your current PITI payment your property debt services. This program is excellent for investors due to no taxes or income.

R is for REPEAT

Repeat is the final stage of the BRRRR method. Repeat the stages in order to maximize your real estate wealth. When repeating, always take notes during the process so you know what worked and what didn’t on the next round of the BRRRR method

Whether you’re a avid real estate investor or purchasing your first investment property, the BRRRR method can be used to your advantage.

Bottom Line

DSCR investment property loans are a great way to avoid hard money with a viable long term financing solution for real estate investors. The lessened documentation and underwriting requirements are similar to hard money loans, while rates and fees are more akin to traditional loans.

Whereas traditional mortgage lending requires tax returns during the loan approval process, investment property loans do not. With these loans, real estate investors are able to purchase or refinance a property with no employment required, no personal income considered, and no debt-to-income ratio developed.

The only cash flow that matters is the rental income. That’s it. If the property debt services, the property will qualify.

The BRRRR real estate strategy is a beneficial method for real estate investors. Whether you’re an avid real estate investor or purchasing your first investment property, the BRRRR method can be used to your advantage.


VALOR LENDING GROUP OFFERS EVERY MORTGAGE LOAN IN THE BOOK!

If you would like to discuss more details on qualification and requirements, we are available to answer any questions you may have.


Recap of our Loan Products:

  1. Hard Money Loans (20% down / minimal documentation) Typically Fund in 7-10 days.
  2. Stated Income Loans (Great for business owners and self-employed) No tax returns!
  3. 100% financing is available (we can cross collateralize other properties if there is enough equity)
  4. Valor VA Home Loan 100% financing up to $1.5M
  5. DSCR | Investor Cash Flow Loan – No tax returns or DTI calculation! Based on subject property cash flow
  6. Flipper & Rehab Loans (Flip a property with one of our many options)
  7. 2nd Position Loans up to $5mm
  8. Raw Land & Lot Loans
  9. Ground up Construction for spec homes, custom homes, and commercial ground up
  10. Farms, Vineyards, Ranches and Agricultural Properties (25-30% down)
  11. 10% down Jumbo’s with NO MI up to $2M
  12. Manufactured Housing / Mobile Homes (20% down / 600+ credit score)
  13. Acreage Properties
  14. Commercial Loans up to $500M
  15. 3% & 5% down Conventional Loans – LPMI (Lender paid mortgage insurance)
  16. Foreign Nationals Loans (no social security or residency required)

We also offer:

  1. 10, 15, 20, 25, 30 Year Fixed, Conventional Conforming Loans
  2. High Balance Conforming Aka Super Conforming
  3. Jumbo’s to $20M / Super low rates! / 10% down Jumbo to $1.5M
  4. FHA, USDA
  5. ARM’s
  6. Reverse mortgages up to $3M Value
  7. Refinance including Cash Out

We look forward to the opportunity to serve you!

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**Rates and terms subject to change without notice**

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