DSCR funding -- Purchase price between 150k-350k -- 5+ units?

[Ian Woods]

Hey Everyone,

I'm trying to find a DSCR lender that will work with low purchase prices. I'm purchasing in the tri-state area (WV/OH/KY), and I am able to find some great potential deals but many are too low in the loan amount. Some current examples are 10-unit property for 270k and a 5-unit prop for 210k.

And I'm seeing that some lenders offer DSCR loans up to 8 or 10 units... Has anyone worked with a lender that will go even higher?

Thanks for the assistance in advance! 

[Alex Bekeza]

@Ian Woods We work with an array of small balance commercial lenders and, like it sounds like you've experienced, the pool of interested lenders dwindles alongside loan amount, price per unit, and distance from major metros.  I've funded a lot of deals that got turned down by agency debt lenders because the loan amount was just shy of $1,000,000 or just shy of $500k so I've studied through a lot of these group's guidelines.  Technically, we have options to write a loan as low as about $250k on a 5 + unit property right now but the issue is that most of those programs will still require a $50k per door value (lowest I've seen is $40k per door minimum).  However, like everything in this industry, there are always exceptions.  Feel free to run these types of scenarios by our team, depending on the specifics, we'll work hard to sort through viable options and if we think we can spot compensating factors to push a particular underwriter for an exception based on small per door value, we'll certainly try.  If all else fails, with these "tougher to finance" type assets (which actually perform amazing pound for pound), sometimes the best option is found at the local small depository institutions who will be a bit more vested in their immediate surroundings and seek a depository relationship with you for rent collection, reserves, etc. However, many (but not all) of them won't work with out of state investors. Lastly, I'd say that finding deals that require a minimum $400,000 loan amount will open up a lot of financing options and there are many deals that fit that bill in WV OH and KY. 

[Mason Hickman]

@Ian Woods

We get commercial loans through small local lenders. They want to invest in the community and the people in the community and will keep the loans on their books for the entire life of loans.

[Devin Peterson]

Quote from @Ian Woods:

Hey Everyone,

I'm trying to find a DSCR lender that will work with low purchase prices. I'm purchasing in the tri-state area (WV/OH/KY), and I am able to find some great potential deals but many are too low in the loan amount. Some current examples are 10-unit property for 270k and a 5-unit prop for 210k.

And I'm seeing that some lenders offer DSCR loans up to 8 or 10 units... Has anyone worked with a lender that will go even higher?

Thanks for the assistance in advance! 

Would love to connect you with the right program for this scenario, send me a PM if interested!

[Robin Simon]

Quote from @Ian Woods:

Hey Everyone,

I'm trying to find a DSCR lender that will work with low purchase prices. I'm purchasing in the tri-state area (WV/OH/KY), and I am able to find some great potential deals but many are too low in the loan amount. Some current examples are 10-unit property for 270k and a 5-unit prop for 210k.

And I'm seeing that some lenders offer DSCR loans up to 8 or 10 units... Has anyone worked with a lender that will go even higher?

Thanks for the assistance in advance! 

For properties that are over 10 units, you probably are looking at small balance commercial real estate loans rather than true "DSCR" Loans. DSCR Loans vs. SBCRE loans are generally differentiated by structure, whereas the advantage of a DSCR Loan is that its likely going to have a 30-year fixed rate term and the DSCR calculation will only take into account property taxes and insurance as expenses (calculated as Rent / PITI (principal + interest + taxes + insurance). For the small balance commercial loans the terms will likely be shorter and include a balloon payment and have a much more stringent underwriting qualification and the DSCR calc will be NOI/Debt Service, with NOI including a bunch more expenses such as utilities, repairs and maintenance, credit and vacancy loss, replacement reserves, management fee, etc. Not only that but will have a higher DSCR hurdle such as 1.20x or 1.25x.

The 5-10 unit niche for true DSCR loans is a pretty great product in my opinion since it combines the loose underwriting typically associated with SFRs with great cash flow from the extra units