70k to invest in a home in Orlando. What do you recommend?

Question

I'm new to real estate but I've read several books and done lots of research and I'm ready to jump in. I've saved 70k as a down payment.

I'm most interested in long term rentals as a buy a hold investment but I'm open to the best options. What do you recommend? What part of Orlando and home types have you seen the most success from in this area?

Thanks in advance!

Tiphany Weeks · Answer

I agree with both of the above replies. You need to understand your ratios and get pre-qualified by a lender to see how much they are willing to lend. Once you have an idea of how much a bank will lend then you can back your way into a search for properties. I have assisted clients in finding off market deals that only require some cosmetic work. There are a few neighborhoods that are great for finding homes that are great for long-term holds and have a lower price point. If you have any specific questions I am happy to help.

Stacy Raskin · Answer

There are DSCR programs that are 15% down for single family homes if the borrower has a middle credit score of over 720 and the DSCR ratio is over 1.2. The ratio is a measure of how much rents compare to expenses. In this case, for easy math, you would need $1,200 in rent (at least) to cover $1,000 in mortgage, property taxes and insurance (and HOA if applicable).

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 as it doesn't consider borrower income or borrower debt to income (DTI) ratios.

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. 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.

4. Length of prepayment penalty- Generally prepayment penalties run from 1-5 years. The longer the prepayment penalty term the less of an impact on the rate.

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 = $2000DSCR = 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 = $1875Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23

Generally lenders will let you vest the title in your name or an LLC name.

I would be happy to connect. I'm a mortgage broker that does both residential and investment loans in Florida.

Shawn McCormick · Answer

@Elizabeth Ben Congrats on jumping in. The median price in Orlando is up over $400k now, so buying a single family in a decent area will be really tough with $70k. 20% down would be 80k plus closing costs and possibly points. You might find a lender with a 15% DSCR product, but you'd still be pushing it.

There are still some areas that you can find good properties $300-350, but they generally go pretty quick if they are in good shape. Cash flow would be the next concern if that is what you are looking for. Although rents have gone up here quite a bit since the pandemic, so have prices and it is difficult to find. Getting appreciation is a more likely scenario.  I actually have a listing coming up near Valencia college that has a converted garage that would be a good fit. Are you working with a lender yet? Things slow down here a bit once school starts, so competition might lessen up soon, but inventory levels are still quite low and in favor of sellers.

Happy to talk more specifics if you like. Reach out if I can help.

Best of luck!