DSCR loan to develop an RCFE (Residential Care Facility for the Elderly)
Sacramento CA · Member since 2019 · 25 posts · 23 votes
DSCR loan to develop an RCFE (Residential Care Facility for the Elderly)
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3yQuote from @Paul Magda:
Hello,
I have a 0.5 acre parcel of bare land that I am currently looking to develop. All paid off, no loan on the land and its located in Roseville CA.
I plan on developing a RCFE home where I can run the business..I am currently in the research stage on how I can fund this development with little/no money out of pocket.
Are DSCR loans even available for new builds/developments like this? If so how are the limits calculated? An RCFE is a very profitable business and can produce some great cashflow. Will this effect the limits?
OR
Are there better loan options/products available for this?
Any input will be greatly appreciated.
Typically DSCR loans do not cover the construction period, you would need a construction loan first to build the property. Once complete and operational, then a review of financing could be a DSCR. RCFE financing I thought was a special type of financing as they will look deep into the operator of these facilities due to the risk involved. Sorry could not answer the last part but first start with a construction loan to build it.
7e investments53 Reviews
4 Replies
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes3y
Quote from @Paul Magda:
Hello,
I have a 0.5 acre parcel of bare land that I am currently looking to develop. All paid off, no loan on the land and its located in Roseville CA.
I plan on developing a RCFE home where I can run the business..I am currently in the research stage on how I can fund this development with little/no money out of pocket.
Are DSCR loans even available for new builds/developments like this? If so how are the limits calculated? An RCFE is a very profitable business and can produce some great cashflow. Will this effect the limits?
OR
Are there better loan options/products available for this?
Any input will be greatly appreciated.
Typically DSCR loans do not cover the construction period, you would need a construction loan first to build the property. Once complete and operational, then a review of financing could be a DSCR. RCFE financing I thought was a special type of financing as they will look deep into the operator of these facilities due to the risk involved. Sorry could not answer the last part but first start with a construction loan to build it.
7e investments53 Reviews - 3yRobin SimonBusiness MemberLender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
Quote from @Paul Magda:
Hello,
I have a 0.5 acre parcel of bare land that I am currently looking to develop. All paid off, no loan on the land and its located in Roseville CA.
I plan on developing a RCFE home where I can run the business..I am currently in the research stage on how I can fund this development with little/no money out of pocket.
Are DSCR loans even available for new builds/developments like this? If so how are the limits calculated? An RCFE is a very profitable business and can produce some great cashflow. Will this effect the limits?
OR
Are there better loan options/products available for this?
Any input will be greatly appreciated.
No - this is not a property that would be eligible for a "DSCR Loan" - you should look into commercial real estate debt brokers or local banks/credit unions
Harpoon Capital514 Reviews - Lender · Denton, TX · Member since 2023 · 349 posts · 80 votes3y
Quote from @Paul Magda:
Hello,
I have a 0.5 acre parcel of bare land that I am currently looking to develop. All paid off, no loan on the land and its located in Roseville CA.
I plan on developing a RCFE home where I can run the business..I am currently in the research stage on how I can fund this development with little/no money out of pocket.
Are DSCR loans even available for new builds/developments like this? If so how are the limits calculated? An RCFE is a very profitable business and can produce some great cashflow. Will this effect the limits?
OR
Are there better loan options/products available for this?
Any input will be greatly appreciated.
Hello Paul,
Even better that the land is paid off. So DSCR loans would not be eligible for what you are trying to do. Bridge interest only loans/private money would be the way to go.
The Bridge loan funding amount would usually for this scenario be up to 65% of the ARV of the completed project for you to do your project if you qualify. You'd get money for developing the land(if need be) and then putting up the building.
Lenders would want to know your experience(investing) and your post completion strategy(keep, sell, etc). They'll also check to see if you can make the monthly interest only payments. Generally, loans like these have a 12-18 months term, with extensions usually possible for a cost. Your permits, environmental, zoning, other legal documents will be asked during the funding process.
A bridge loan would allow you to do this with interest only payments during the terms period and then before/once the term is over you'll need to refinance the bridge financing to pay off the bridge loan.
Bridge seems the way to go. DSCR wouldn't work for this project.
- 3yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesUnless you have experience specifically related to the construction and operation of this type property you will need an “operating” partner to attract financing.
Quote from @Paul Magda:
Hello,
I have a 0.5 acre parcel of bare land that I am currently looking to develop. All paid off, no loan on the land and its located in Roseville CA.
I plan on developing a RCFE home where I can run the business..I am currently in the research stage on how I can fund this development with little/no money out of pocket.
Are DSCR loans even available for new builds/developments like this? If so how are the limits calculated? An RCFE is a very profitable business and can produce some great cashflow. Will this effect the limits?
OR
Are there better loan options/products available for this?
Any input will be greatly appreciated.
For example, I am part of a “syndicate” that owns a prime piece of real estate in which an apartment complex would be a “no brainer” development. Yet despite our extensive real estate experience, not one of us has developed an apartment complex of this size (350 + units). We therefore were required to bring aboard an operating partner with an extensive track record of success in the construction and operation of large apartment complexes. The operating partner “bought in” to the syndicate at a discounted price, and receives a “promote” for the management of the construction, lease up, and property management besides receiving management fees. Although this seems to be a steep rice to pay, we recognize that we are real estate investors, not real estate developers. And while I have developed some relatively small projects, the difference between obtaining financing at prime by the operating partner vs paying 4% higher IF we could even obtain financing at all more than pays for the operating partners participation.
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