HML/DSCR for BRRRR Scaling

[Tony Pellettieri]

We are currently in the process of preparing to close on our 3rd Investment Property. Originally we planned to Fix/Flip/Sell houses in our farm area using all of our own cash. We are now looking into HMLs for Acquisition, Paying Cash for Repairs, and DSCR Loans for Refinance to scale quickly and start building a portfolio of long term income generating properties in 2024. Just have a couple of questions...

When getting a HML, is it possible to just make the interest payments while we complete repairs/rent out?

Can loan points/fees be rolled into the loan to reduce down payment on HML?

If you have the cash, is it better to not finance repairs using a HML? Since you won't have to wait on draws, inspections, etc..

For a DSCR Loan, Is the ARV they will lend on calculated similarly to a Conventional Loan? Using Comps, doing an Appraisal, etc?

If we're able to close/rehab/rent in a period of 2 months, Is there a minimum seasoning period before we can Cash Out using a DSCR?

I'm assuming DSCR loans can be issued to LLCs and other Entities... Is there a limit of loans you may hold at any given time?

We will be done remodeling our 1st and 2nd Investment properties, we originally planned to sell, in about 4 weeks. We are now considering turning them into rentals and doing cash out DSCR. We will likely need to get 3x DSCR loans in a short time frame.

Looking for some advice to help us determine the best way to move forward... Thanks!

[Robin Simon]

Hi Anthony - would love to help, I actually published a full article on this exact topic a few months ago here on BiggerPockets - all the info pros/cons on financing for BRRRR - hard money, cash, conventional, DSCR etc.

https://www.biggerpockets.com/blog/brrrr-loans-what-are-the-...

Can discuss or refer you to other experts in the particular products, but some high level answers to your questions:

Can loan points/fees be rolled into the loan to reduce down payment on HML?

Generally HMLs will have max LTC/LTV so while you can work the numbers, there is still going to generally need to be an X % of the investment as "skin in the fame"

If you have the cash, is it better to not finance repairs using a HML? Since you won't have to wait on draws, inspections, etc..

Always an "It Depends" answer - varies based on personal situation, capital and risk tolerance.  Generally answer will come down to what you will be doing with the money (funding the repairs or borrowing for the repairs - what would your alternative use of that $ be?)

For a DSCR Loan, Is the ARV they will lend on calculated similarly to a Conventional Loan? Using Comps, doing an Appraisal, etc?

Yes - will require an appraisal, but one main advantage is when you can use the third-party appraised value.  Since April of last year, you need to wait a full 12 months of "seasoning" to use this value in the LTV qualification - DSCR Lenders generally have a much shorter period to wait until you can use this market value vs. your cost basis

If we're able to close/rehab/rent in a period of 2 months, Is there a minimum seasoning period before we can Cash Out using a DSCR?

Yes - 12 months for conventional, DSCR Loans mostly 6 months however some DSCR Lenders can go shorter if they specialize in servicing BRRRR investors ;)

I'm assuming DSCR loans can be issued to LLCs and other Entities... Is there a limit of loans you may hold at any given time?

Another big advantage of DSCRs Loans - generally no limits for most DSCR Lenders (or limits are very very high like >$20,000,000 or so)

[Debbie Fales]

It sounds like you're on the right track with a cash-out DSCR. Keep in mind that most lenders will require some seasoning, and use the purchase price as the value of the property in question without regard to completed renovations. However, some private lenders will consider a newer appraisal if at least three to six months have passed since you bought the property. For us, we would need to verify that the improvements have been made

And, as far as self-funding your future projects goes, it's a personal decision with pluses and minuses on both sides. The upside of leveraging your deals is that your money can go a lot further, potentially accelerating your returns. 

DSCR loans offer you flexibility in terms and rates as well. We currently offer 30-year, 20-year, and 15-year fixed rate loans or 5, 7, and 10-year ARMs in most states - with the latter being interest only for the initial fixed period and then amortized over the life of the loan.

Best of luck to you!  

[Brittany Minocchi]

Hey Anthony - 

When getting a HML, is it possible to just make the interest payments while we complete repairs/rent out? Yes, depending on the lender 

Can loan points/fees be rolled into the loan to reduce down payment on HML? On a cash out refi, any fees will be deducted from the proceeds of the loan.

If you have the cash, is it better to not finance repairs using a HML? Since you won't have to wait on draws, inspections, etc. It's easier to pay cash if you can, but that's not always an option. Depends on the scenario/borrower.

For a DSCR Loan, Is the ARV they will lend on calculated similarly to a Conventional Loan? Using Comps, doing an Appraisal, etc? Yes, but whether the purchase price or appraised value is used depends on when you bought the property and whether you purchased with cash or financing.

If we're able to close/rehab/rent in a period of 2 months, Is there a minimum seasoning period before we can Cash Out using a DSCR? Most lenders have a 6 month seasoning requirement to use appraised value, although I know of one that has NO seasoning requirement as long as rehab was completed justifying the increase in value. 

I'm assuming DSCR loans can be issued to LLCs and other Entities... Is there a limit of loans you may hold at any given time? This is lender-specific. Some have limits, some don't. 

I hope that helps! If you have any questions or want me to elaborate on anything here, feel free to reach out.