How to use DSCR loan to acquire more properties

Question

Here's my situation:

I have 2 rental properties.

The First is in Crestview FL with a long-term military tenant. Cashflows ~ $800 monthly. Mortgage is $180k. Home is worth $330k

The Second is a Townhome in a student housing development called The Timbers in Tallahassee.Cashflows ~ $1400 monthlyNo Mortgage on this. Home is worth $190k

Here's my question. I have been considering a DSCR loan on the Townhome to get some of our cash out of it.

Given my situation, how could I use that... to expand my rental properties? It seems like I could take $120k or so out of the Townhome to then use it as a down payment on another one or two.

Can I get another DSCR loan on the next acquisition?

Anyway... this is a VERY passive part of my life. Both properties are under property managers. They do everything.
But I have a sense that I'm not making the most of it and that I could potentially grow my portfolio if I made better use of the value in these properties. What recommendations do you have? Thanks in advance!

Vanessa A Martin · Answer

Hi John,

DSCR is a great option for investors as it requires no personal income. And investors can have up to 10 of these loans at once. It is by far the most popular with my clients, and the yes PPP you choose will benefit you in which rate you get. Since you are an experienced investor most lenders will go as much as 80% LTV. They use your experience, credit score, reserves and the rental income must cover the PITI. Hope this helps, good luck.

Jason Wray · Answer

John,

Great questions and looks like you are up in Tallahassee, I am down in Pinellas by Clearwater beach.  DSCR is a great tool to use when you are self-employed or you want to avoid using personal or business income to qualify.  DSCR only requires that the rents be equal to or greater than the PITI payment or the ITI payment if you go I/O interest only.

You can use DSCR for a cash out refinance, Purchase and even a "Rate and term" which is when you want a lower rate or get out of a HML - Hard Money Loan, Balloon payment, Adjustable rate getting ready to expire/adjust (Recast).  What’s great about the DSCR is if you have good credit and a lower LTV the rates are better than most conventional rates right now.

Cash out is set at 75% LTV there are some 80% options but the rates in most cases are too high to debt ratio at the required DSCR ratio usually 1.00% or equal to PITI/ITI.  DSCR also offer a 40 Year term. 30 year fixed, 5/6 ARM (most popular), and I/O Interest Only to help the initial cash flow.  Just want to make sure you ask about prepayment penalties usually required but not always.

Good tip to remember is prepayment penalties are not always a "Bad" thing and they help get a lower rate.  So if you plan to take cash out and not "Sell or take more cash out" in (X) years.  It makes sense to take a prepayment penalty.  DSCR offers a (No prepay, 1 year, 2 year, 3 year and jumps to 5 years)  The longer the prepay the lower rate so match the prepay year up to when you think you might sell or refinance again.

DSCR also allows you to close in an LLC and in some cases will offer a lower rate.