Good deal or am I missing something?

Question

looking into getting a dscr loan 80% ltv.

$120k down payment

Debt service PITI will be $4600/mo

Gross rents $11000/mo

ratio of 2.39

My credit is 750

Unless im missing something, i should  be able to get a DSCR mortgage on this property easily?

Greg Kasmer · Answer

Jeremy - I would suggest you further detail out your expenses beyond PITI to understand whether 1) A bank would consider this a good project for a loan as well as 2) To see if this is a "good deal". I would suggest you consider assumptions around the following expenses:

- Vacancy Factor (Taken as a deduction to gross rents)

- Taxes (Assume higher takes in the future)

- Maintenance/Repairs - I would suggest 7% of gross rents as a starting point

- Management Fees - Depends on your local area and what managers charge.

- "Releasing/Unit Turn" Fee - The cost to "turn" a unit including repairs as well as re-leasing.

Once you add in all those expenses beyond your PITI you'll have a better idea of the Net Operating Income (NOI) and what would be available to pay off your monthly debt service.

Reach out to me if you want to discuss further. Good Luck!

Stephanie P. · Answer

Here's a snip from a rate sheet.

Tiffany Pineda · Answer

Where are you finding an 8 multi family for about $500k?

Stephanie P. · Answer

Mixed use is way different than regular residential.  Your ltv is going to cap out at 75% ltv and your rate is going to be around 11% if you're looking at a DSCR type loan.  If you're using a HELOC for the down payment, you'll have a payment on that along with the debt service for the property.  Your monthly payment at 11% will be $4571 based on a $480,000 loan amount.  That doesn't take into account the HELOC cost or taxes, insurance or CapEx.  It's all a math problem, but you have to go in with eyes wide open and use real numbers.

Jeremy G. · Answer

So bear with me, I'm a newb and trying to learn. I only own 1, 3 unit that I occupy. I will have roughly 120k(HELOC) for a down payment and roughly $25k for reserves. the new property is 8 units mixed use residential/commercial that currently has annual gross rents between $135k-$140k(rents could be at or below fair market)  so total rent per month would be between 11k-12k. I don't have too many specifics because I'm shopping around and haven't actually gone to look at the property yet because I've been working a lot but it certainly caught my attention.

PITI=$4600 I figure around $1k/month maybe a bit more for vacancies/maintenance/capex so around $5600/month in expenses give or take a few hundred, again these aren't exact specific numbers I wont have those until I pursue it further. I'm wondering if it seems worth it to pursue and whether it would be a good candidate for a DSCR loan

Ryan Stuckey · Answer

FYI, 80% LTV on a mixed-use property purchase is not likely to be available out there right now.

Nicholas L. · Answer

@Jeremy G.

"is this a good deal" and "can i get a loan on this" are two completely different questions

which do you want to tackle

Stephanie P. · Answer

Mixed use wouldn't necessarily carry through to a "true DSCR loan product."  The retail component, coupled with a ramshackle house on the same parcel (my assumption) disqualifies the loan from just about every real residential DSCR lender out there.

I think it's better to set realistic expectations by quoting high with no up front fees and then come in lower if we find one of the other commercial lenders out there that will actually do the loan instead of giving expectations in the 9's and 10's and then have to pound the borrower with heavy rate buy downs to get there.  Different ways of looking at things.  You are right that there may be a lender out there that will do it, but with the scenario the OP posted, they are few and far between.

Robin Simon · Answer

I would classify that product/lender as "small balance commercial" rather than a true DSCR Loan product.  That lender is also notoriously higher rate generally than market

Robin Simon · Answer

I don't think the rate will necessarily be that high for a DSCR loan on this type of Mixed Use Property, probably right now more in the 9-10% range depending on credit, etc.  Also "DSCR Loans" for Mixed Use, while still currently a small niche, will qualify based only on PITIA and can still go down to 1.00x

Good deal or am I missing something?

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