Funding for First time investors

[Marquise Killingsworth]

I am having a hard time obtaining funding for my first project, right now I have an inherent property that I own free and clear with a vacant lot connected that's also free and clear. But I can't seem to get no one to lend me the rehab funds to complete my projects, being that I have no previous experience with fix and flips. Can anyone point me in the right directions.

[Stacy Raskin]

There are lenders who work on fix and flip projects who will lend to first timers. Options vary by state as lenders are licensed state by state. 

Potential program guidelines will lend up to 90% of the purchase price and 100% of the rehab with 75% of the after repair value (ARV). Credit can be as low as 640 but will require more like 20% down. These loans generally have 12 to 24 month loan term with interest only payments.

If you can't get a fix and flip loan, if you have a rental property, you could get a DSCR loan which usually has easier criteria with credit scores down to 620 depending on the lender.

More info on DSCR loans: DSCR loans won't use your income to underwrite the loan.

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. 780+ 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? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). 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. This criteria is for 1-4 and 5-8 unit programs.

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.

Happy to connect to discuss further.