DSCR loan profitability (buy&hold)

[Charles Granja]

Hello everyone,

I reached out to 4-5 lenders regarding DSCR loans and found it difficult to make a deal work, even in areas meeting 1% rule.

Here’s a recent scenario: 

Purchase price: 244k duplex, good condition

25% down 63.5k

Current rents: 2200, cannot raise 

Rate: 7.25%

Mortgage- 1570

Lender fees- 7500$ Origination/underwriting 

5 year prepayment penalty

This didn’t include discount points. I found a lender who would do 6.5% interest with 40% down, but it would come at a cost of 3 points so I ended up walking away. 

It seems that DSCR lending is better for situations where you can significantly improve the property or where you don't mind paying 10k more for a loan + 15-20% increase in mortgage costs each month.

For those that use DSCR loans how have you made it work? Do you balance cash/conventional properties with DSCR so that you are at least cash flow neutral? Are we just at a state in the market where it is difficult for deals to work? Do you use a different form of lending? 

[Robin Simon]

Quote from @Charles Granja:

Hello everyone,

I reached out to 4-5 lenders regarding DSCR loans and found it difficult to make a deal work, even in areas meeting 1% rule.

Here’s a recent scenario: 

Purchase price: 244k duplex, good condition

25% down 63.5k

Current rents: 2200, cannot raise 

Rate: 7.25%

Mortgage- 1570

Lender fees- 7500$ Origination/underwriting 

5 year prepayment penalty

This didn’t include discount points. I found a lender who would do 6.5% interest with 40% down, but it would come at a cost of 3 points so I ended up walking away. 

It seems that DSCR lending is better for situations where you can significantly improve the property or where you don't mind paying 10k more for a loan + 15-20% increase in mortgage costs each month.

For those that use DSCR loans how have you made it work? Do you balance cash/conventional properties with DSCR so that you are at least cash flow neutral? Are we just at a state in the market where it is difficult for deals to work? Do you use a different form of lending? 

 Where are you getting the monthly mortgage amount (are you including tax and insurance escrow)?

From my numbers I'm seeing on a 30-year fixed:

$183,000 Loan Amount / 7.25% Interest Rate / 30-year fixed fully am = $1,248 per month

Also, if you choose an IO option (for DSCR thats first 10-years interest only)

$183,000 Loan Amount / 7.25% Interest Rate / 30-year fixed, 10yr IO = $1,105 per month

TBH - this seems like a pretty good deal, maybe you haven't found the right DSCR lender?