How do I calculate my ARV with a DSCR Loan?

Question

If the loan is valued by the rents how do I calculate for the arv.

Example

6 Unit Property Cost - 850,000

CURRENT RENT - 5,300

ARV - ?

ARV Rent - 8100

AJ Wong · Answer

Hi Julian,

After repair value is usually based on comparable sales not rents.. Also is the sales price $850k? Or the total estimated ivestment? If the sales price is $850k you will need significant down payment to carry the DSCR loan on $5300 current rents...check in with @Joseph Chiofalo as DSCR loans 5+ units are typically a bit more difficult to place as well.

Jason Taken · Answer

DSCR loans don't rely on after repair value. What are you trying to figure out?

River Sava · Answer

Hey Julian,

As others mentioned, DSCR loans will be underwritten based off of the appraised value or cost basis (purchase price + documented rehabs) depending on seasoning period when you are looking to refi. Are you planning to refi? If so, are you looking into getting an appraisal? Sending you a dm to connect.

Nick Maugeri · Answer

ARV

6 CAP: $1,053,000

6.5 CAP: $972,000

7 CAP: $902,571

7.5 CAP: $842,400

8 CAP: $789,750

Joseph Chiofalo · Answer

Hi Julian,

DSCR loans are underwritten off of appraisal rent schedule and / or lease associated with subject property.

Brian Fung · Answer

Aloha Julian,

Just to add onto what everyone has said, 1-4 unit deals (residential) are typically underwritten differently from 5+ unit deals (commercial). 1-4 units are easier to close and you get more money for them because of how DSCR is calculated:

- Residential (1-4 units) DSCR = Gross Rents/Mortgage Payment

- Commercial (5+ units) DSCR = Net Operating Income/Mortgage Payment

It's important to note that in both cases above, there are exceptions. There are niche lenders that can do Residential DSCR underwriting on properties that are 5-10 units but this is relatively uncommon today.

Regarding ARV:

The only way your rents are going to be affecting your ARV is if you go with a commercial loan loan that is going to allow for the appraisal to be an Income Approach appraisal as opposed to Sales Comparison approach. With the Income Approach, the appraiser is going to evaluate the income and expenses of the property to develop the Net Operating Income, then they'll apply a market Cap Rate to the deal. You can ask your agent what the range of cap rates are in your market so you can get a range of value. Your ARV = Net Operating Income/Cap Rate.

Hope this helps. Aloha and good luck!

How do I calculate my ARV with a DSCR Loan?

How do I calculate my ARV with a DSCR Loan?

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