BTR Cash-Out Strategy

Real Estate Agent · Laredo, TX · Member since 2023 · 7 posts · 2 votes

Hello!

What are the key factors to consider when deciding on the most suitable loan type to cash-out refinance a newly completed house? Would a DSCR Loan, Conventional Loan, or Bank Statement Loan be the best choice to maximize returns?

The new build is 100% owned and if I take 75% out I will be getting all my money back. I currently don't have any debts other than an investment property that is cash-flowing and good credit score. I've seen the pros and cons of both DSCR and Bank Statement loans, but don't know which one will be best.

If you've had a similar situation do you mind sharing your experience?

Thank you

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Jonathan Taylor

Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes

@Rogelio Andres Jimenez it depends on your situation. Conventional investment property loans usually garner better rates but require tax returns, income/employment verification and DTI calculations. This would be the best option if you are an A paper borrower.

For bank statement/DSCR loans, these are easier to obtain but have higher rates and your loan amount would be limited by the debt coverage ratio. Considering the high rates, 75 LTV is becoming more rare but doable on superb cash flowing properties. Most of the cash out loans I am originating are 70 LTV. This option is better if you do not qualify for conventional.

Hope that helps

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Jonathan Taylor
Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
3y
@Rogelio Andres Jimenez it depends on your situation. Conventional investment property loans usually garner better rates but require tax returns, income/employment verification and DTI calculations. This would be the best option if you are an A paper borrower.
For bank statement/DSCR loans, these are easier to obtain but have higher rates and your loan amount would be limited by the debt coverage ratio. Considering the high rates, 75 LTV is becoming more rare but doable on superb cash flowing properties. Most of the cash out loans I am originating are 70 LTV. This option is better if you do not qualify for conventional.
Hope that helps
2 Reply
Devin PetersonBusiness Member
Lender · Sarasota, FL · Member since 2022 · 2k+ posts · 667 votes
3y
If you are simply trying to get cash out of your investment the best way to go is DSCR loans. Least amount of headache and less documentation. If you're okay with 75ltv and slightly higher than conventional rates this is the best option.
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John CardinalePro Member
Member since 2021 · 77 posts · 44 votes
3y
seems like you need to find the cheapest loan you can get that's 30 year rate. What are your plans for this property? If you want flexibility with the loan, why not a HELOC? Or of you already have a specific purpose for your cash-out money and wanna lock in the rate, then the cash out mortgage option may be best.
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
Quote from @Rogelio Andres Jimenez:

Hello!
What are the key factors to consider when deciding on the most suitable loan type to cash-out refinance a newly completed house? Would a DSCR Loan, Conventional Loan, or Bank Statement Loan be the best choice to maximize returns?
The new build is 100% owned and if I take 75% out I will be getting all my money back. I currently don't have any debts other than an investment property that is cash-flowing and good credit score. I've seen the pros and cons of both DSCR and Bank Statement loans, but don't know which one will be best.
If you've had a similar situation do you mind sharing your experience?

Thank you

Big consideration would be your time horizon. DSCR Loans can get equivalent or sometimes even better than Bank Statement (assuming you qualify for both) if you slap on big prepayment penalties for the first five years. If you are planning to hold for the long term pretty solidly (5+ years), then DSCR with prepayment provisions (which won't matter with that strategy) could be the best choice
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Rogelio Andres Jimenez
OP
Real Estate Agent · Laredo, TX · Member since 2023 · 7 posts · 2 votes
3y
Quote from @Devin Peterson:

If you are simply trying to get cash out of your investment the best way to go is DSCR loans. Least amount of headache and less documentation. If you're okay with 75ltv and slightly higher than conventional rates this is the best option.

Hello Devin, thank you for your reply. Yes, at the moment I am just trying to cash out around 75% LTV so I can build another rental. I've done calculations and even at a 9%, I can cash-flow.
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Rogelio Andres Jimenez
OP
Real Estate Agent · Laredo, TX · Member since 2023 · 7 posts · 2 votes
3y
Quote from @John Cardinale:

seems like you need to find the cheapest loan you can get that's 30 year rate. What are your plans for this property? If you want flexibility with the loan, why not a HELOC? Or of you already have a specific purpose for your cash-out money and wanna lock in the rate, then the cash out mortgage option may be best.

Hi John, thank you for your reply. Yes, I am planning on holding this property for about 10 years or so depending on the market. The plan is to BTR a property every year for the next 10 (that's if everything works out).
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John CardinalePro Member
Member since 2021 · 77 posts · 44 votes
3y
Interesting... I've run numbers on BTR versus BRRRRing existing and the BRRRR option seems to make more sense in my market. How does it compare where you are? what key factors make BTR best for your situation?
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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
3y
Quote from @Rogelio Andres Jimenez:

Hello!
What are the key factors to consider when deciding on the most suitable loan type to cash-out refinance a newly completed house? Would a DSCR Loan, Conventional Loan, or Bank Statement Loan be the best choice to maximize returns?
The new build is 100% owned and if I take 75% out I will be getting all my money back. I currently don't have any debts other than an investment property that is cash-flowing and good credit score. I've seen the pros and cons of both DSCR and Bank Statement loans, but don't know which one will be best.
If you've had a similar situation do you mind sharing your experience?

Thank you

This is easy, the BEST terms including rate/up front costs will be a conventional loan. That is always the case. That said, you have to be able to qualify for the conventional loan with your W-2 income, tax returns and the income from the subject property. If you can, great, you are on your way. if you cannot then likely DSCR would be your route. Make sure you speak with a broker/banker who can do BOTH. A lot of brokers can only sell you a DSCR loan therefore that will always be the best solution for you according to them right ?
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