BRRRR Refi - is DSCR best?

Question

Hi all!

Relatively new BRRRR investor with 10 deals under my belt. I am wondering if there is a better option for the Refi than using DSCR loans? Is that what most are using still? I have good relationships with a few lender/brokers and it seems the terms are really close comparing a 30 year conventional, if it is a rental property, with a DSCR. I am generally looking at a 3-5 year prepay penalty or none at all. I have discussed going conventional/ conforming but the extra paperwork bogs me down and doesn't seem to be worth it on paper. Are other investors finding it to be worth it rather that using DSCR type products?

**I do NOT need referrals or messages from other lenders or brokers. That will 100% not win over my business.

Ravi Kaku · Answer

With 10 deals under your belt, I think DSCR can make a lot of sense for the simplicity and speed, especially if you're building a larger rental portfolio. In my experience, DSCR pricing can be pretty competitive when you have great credit and the property has solid positive cash flow.

At that point, if the conventional pricing advantage is relatively small, the reduced documentation and ability to qualify based primarily on the property can make DSCR the better overall option.

I think conventional becomes more compelling when the rate/fee savings are significant enough to justify the additional documentation and underwriting.

Greg Kasmer · Answer

@Jonah Slove - I've found a few good credit union lenders that will support a cash out refinance on a BRRR project and have no pre-pay. Not that anything is wrong with a DSCR lender, but I would encourage you to see if any credit unions offer similar products without a prepay.

Gregory Acs · Answer

It really depends on what you're optimizing for. A lot of investors use DSCR because it's generally a simpler process and doesn't require the same level of income documentation as a conventional loan. On the other hand, if you qualify for conventional financing, it can sometimes provide better long-term economics depending on the rate, fees, leverage, and how many financed properties you already have.

I'd compare the total cost of each option rather than just the interest rate. Things like prepayment penalties, lender fees, cash-out flexibility, and your long-term acquisition strategy can have just as much impact as the rate itself.

Since you've already built relationships with a few lenders, I'd ask each of them to run both scenarios side by side so you're comparing the full picture instead of just one loan feature.

Out of curiosity, are you planning to keep these properties long term, or are you expecting to refinance or sell again within the next few years?

Jonah Slove · Answer

ya thanks thats what I am trying to weigh and consider. If I am keeping for a BRRR rather tan just flipping I am planning to keep for at LEAST 3-5 years. At 5 years it seems most DSCR drop any prepay penalty without much if any additional fees. Furthermore as others have save I dont see much difference in terms between that and conventional.

I am a full time RE professional now and my wife is w2 so I imagine we could qualify for 1-2 more conventional loans but again didnt seem to be worth the extra effort for these properties so far at least.

Robin Simon · Answer

Since the 2023 change in guidance from Fannie on conventional seasoning requirements - up to 12 months,  DSCR has really become the only best bet on BRRRR

Michael Zurawski · Answer

That is correct you would have to transfer it over to your name at closing. Be mindful that they may hit it transfer tax to do that. So look into it.

Michael Zurawski · Answer

Is the property titled in your name or an LLC? Having 10 deals under your belt leads me to think you have them in an LLC, but I may be wrong. Conventional guidelines require the loan to be done in your name only. Just something to consider.

Jonah Slove · Answer

10 all around deals not BRRRRs specifically. Yes, most are in my LLC but should I go conventional I can take over deed in my name, correct?

Simcha B Shedrowitzky · Answer

That is when vested in an LLC.

Jonah Slove · Answer

Right. This was my understanding as well but wanted to confirm with other investors.

BRRRR Refi - is DSCR best?

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