Best way to Cash out with high DTI?

[Daniel Hollar]

I need to pull cash out of a property. I own one free and clear(around 425K). Which currently does not have a renter due to Power company messing up the yard and sewage system. Primary has around 300K equity, and different rental (has renter) only about 50k equity (about 70% LTV). I want to pull cash out to consolidate debt and fund another property (Not listed above due to being in LLC) I just finished renovating until it is able to fund its self. I need about 150K cash out but my DTI is not able to support doing a HELOC (at least not enough to warrant doing one).

What is my best option to get at least 150K cash out? 

1.Try to DSCR the free and clear property?

2. Get Hard money loan to pay off debts while I get HELOC either on Free and Clear

2a. or the primary 

3. Other….

[Emanuele Mayer]

I think DSCR is a great option, lets chat!

[Logan Singleton]

A DSCR loan would be a great option since the underwriting process does not consider your financial situation. Depending on the state the properties are located in, some lenders will let you pull 80% cash out during the refinance process as long as the property meets a 1x debt service. I'm happy to connect!

[Devin Peterson]

How bad is bad when you say that the power electric company "messed" up the yard? Is the place inhabitable? If an appraiser were to go out there, would it be deemed unlivable or Hazardous? DSCR would be fine so long as you have the proper leases in place. Just remember that DSCR is generally for business purposes only. Good luck!

[Daniel Hollar]

The house itself is livable. The property has a 30’ x 50’ red steel workshop on it which has its own septic. GA Power subcontractor went onto the property with trucks and skid steers. The trucks broke all of the drainage pipes under the drive way, they are still able to allow water to flow but the edges of the pipes are sharp so if tire hit it the wrong way then it may put a hole in tire of a vehicle. They also parked their large truck behind the building overnight when it rained and it got stuck on top of the water/sewage lines coming out of the building. They then proceeded to use two skid steers to pull it out which tore up the lawn beside the building.  Water is not able to flow to the septic tank from the building, I am assuming due to crushed pipes. 

We had a lease for a tenant to move in the within the next week for $1900/month.  But due to the issues the tenant did not move in. The company has already agreed to cover the lost rent as well as fix the damage but they are “conducting their investigation” so no actions have been taken to correct the issue yet. 

[Daniel Hollar]

Quote from @Devin Peterson:

How bad is bad when you say that the power electric company "messed" up the yard? Is the place inhabitable? If an appraiser were to go out there, would it be deemed unlivable or Hazardous? DSCR would be fine so long as you have the proper leases in place. Just remember that DSCR is generally for business purposes only. Good luck!

See response above. New to the forums and didn’t realize could do a direct response until after I posted. 

[Kerry Baird]

@Daniel Hollar, my thought is to skip the DSCR for this property, because of the way you have managed your properties. They do qualify you based upon the cash flow of the property, but they have high origination fees, prepayment penalties and higher interest rates than conventional.

My thought is to Wait. Get a tenant in. Once you get a tenant in, the house will provide you income. Use income to pay debt down. Get HELOC on primary for debt and/or emergency fund. Decide if you want to encumber the free-and-clear house; get a conventional mortgage if you do.

You are well structured to use the debt snowball to pay down houses quickly, and appears from what you have written that this would be in keeping with your current strategy.  If you are attempting to get as many houses with inflexible loans, do the DSCRs and keep rolling.

[Erik Estrada]

Quote from @Daniel Hollar:

I need to pull cash out of a property. I own one free and clear(around 425K). Which currently does not have a renter due to Power company messing up the yard and sewage system. Primary has around 300K equity, and different rental (has renter) only about 50k equity (about 70% LTV). I want to pull cash out to consolidate debt and fund another property (Not listed above due to being in LLC) I just finished renovating until it is able to fund its self. I need about 150K cash out but my DTI is not able to support doing a HELOC (at least not enough to warrant doing one).

What is my best option to get at least 150K cash out? 

1.Try to DSCR the free and clear property?

2. Get Hard money loan to pay off debts while I get HELOC either on Free and Clear

2a. or the primary 

3. Other….

 Hi Daniel, 

Depending on your FICO score, the rate on a DSCR loan is pricing relatively better than a conventional loan. There is a PPP, but if your plan is not to sell or refinance in the next 3-5 Years you should be fine. The cost of the loan is slightly higher than a conventional loan but not by much.

If the property is vacant you can use the market rent from the 1007 to qualify. If you are comparing a hard money loan to a DSCR loan, DSCR is a no brainer since the rate and cost is significantly lower than a hard money loan

[Kerry Baird]

@Erik Estrada thanks for pointing out that DSCR pricing is better than conventional. Nice!