Will I qualify for a DSCR Loan as a newly formed LLC?

Question

Hi guys!

I currently own two rental properties in Tampa, both are held in my LLC. They were both originally STRs, but this year I converted one of them to MTR. I would now like to take out a DSCR Loan on my MTR property, but I would like to create a new LLC for that. Going forward, I want to keep my STR properties in a separate LLC from my MTR/LTRs. So the question I have, if I form a new LLC, will I qualify for a DSCR Loan, or do I need to be "in business" for a while before I can do that? (I can prove positive cashflow for the past 9 months, plus leases in place thru end of March 2024)

Stacy Raskin · Answer

@Anna Nevarez, lenders don't care about the age of an LLC for a DSCR loan.

In case helpful- DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.

Here's a bit more in detail about how rates are calculated for DSCR loans:

1. Credit score- the higher the best. 760+ generally gets best pricing for investment property loans with most lenders

2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.

3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.

4. Are you cash flowing the property? Is your DSCR ratio greater than 1-meaning are you cash flowing. Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit.

I've included an example below to help illustrate this.

So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.

See example below:

DSCR < 1

Principal + Interest = $1,700

Taxes = $350, Insurance = $100, Association Dues = $50

Total PITIA = $2200

Rent = $2000

DSCR = Rent/PITIA = 2000/2200 = 0.91

Since the DSCR is 0.91, we know the expenses are greater than the income of the property.

DSCR >1

Principal + Interest = $1,500

Taxes = $250, Insurance = $100, Association Dues = $25

Total PITIA = $1875 Rent = $2300

DSCR = Rent/PITIA = 2300/1875 = 1.23

DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.

Doug Smith · Answer

Unlike more conventional or non-QM full-or-light-doc loans, a new LLC is not a big deal. We don't really look at the length of time an LLC has been open for a DSCR loan. That does come into play with other types of loans.

Kristen L Garner · Answer

Hi Anna! The age of your new LLC should not be an issue for securing and vesting a DSCR loan. As long as you have the documents for it you should be fine: Entity Articles of Organization, Partnership, Operating Agreements, Tax Identification Number (Employer Identification Number - EIN)

Max Fisch · Answer

You will. We (and most) will allow for you to even quit claim the property to a brqand new entity on the day of closing. You won't have any issue here. Hope that helps!!

Will I qualify for a DSCR Loan as a newly formed LLC?

Will I qualify for a DSCR Loan as a newly formed LLC?

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