Portfolio Loan vs DSCR Loan

[Pete Harper]

I'm looking at financing options for the potential purchase of a 6-unit apartments by my LLC. The property in question is an older 6-unit apartments. The property is fully rented. However, way below market rent. The property is priced right for condition. Our strategy is to fix the property up and raise rents to market rate for long term hold. We have a good track record with this being our 9th similar acquisition. In the past I have used portfolio loans from a local bank. I have a total of four loans with this particular bank, they have been very good to work with in the past. My only issue is the current interest rates. I'm being quoted 8.75% on 30yr fixed, 25% down, no fees. I know rates are up but I wanted to look at other options. Ive heard a lot about DSCR loans and wanted to see if they are a good option. We have cash reserves for renovation so I don't need funds beyond purchase.

Pros and Cons for DSCR loan in this situation.

Thanks, Pete

[Robin Simon]

Quote from @Pete Harper:

I'm looking at financing options for the potential purchase of a 6-unit apartments by my LLC. The property in question is an older 6-unit apartments. The property is fully rented. However, way below market rent. The property is priced right for condition. Our strategy is to fix the property up and raise rents to market rate for long term hold. We have a good track record with this being our 9th similar acquisition. In the past I have used portfolio loans from a local bank. I have a total of four loans with this particular bank, they have been very good to work with in the past. My only issue is the current interest rates. I'm being quoted 8.75% on 30yr fixed, 25% down, no fees. I know rates are up but I wanted to look at other options. Ive heard a lot about DSCR loans and wanted to see if they are a good option. We have cash reserves for renovation so I don't need funds beyond purchase.

Pros and Cons for DSCR loan in this situation.

Thanks, Pete

One thing to always run the numbers on is the actual monthly payment regardless of rate - i.e. on DSCR Multifamily Loans you could definitely get an Interest-Only quote on a 30-year fixed where the first 10 years are IO, so even with a little higher rate, the monthly payment may actually be lower

Check out this comprehensive article published here on BP on you exact questions (Multifamily DSCR Loans with pros and cons)

https://www.biggerpockets.com/blog/multifamily-dscr-loans