Buying with DSCR then refinancing with DSCR

OP

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes

3y

Quote from @Brandon Beardt:

Quote from @Nathan Harden:

Hey BP community!

I am running low on personal capital so buying a property outright is difficult at the moment (until I refinance/sell my BRRRR projects going on right now). I was wondering if anyone has any experience of buying a move in ready investment property using a DSCR lender then Refinancing after the seasoning period with a DSCR lender? I would do some small or light cosmetic fixes during the seasoning period to increase the value of the property, just don't know if small cosmetic changes are going to make a huge difference in ARV.

I am trying to get more doors and don't want to sit on the sideline while my current projects have most of my personal capital and private money tied into them. For example, if I found a smoking deal, turnkey $100k property, the lender wanted some skin in the game from me and require $25k down from me, I want to be able to get that $25k back as soon as possible. The initial buy is what is holding me up at the moment, should I look into bridge loans? After points, costs, etc. Is there point in buying an investment property using a DSCR loan if I plan on refinancing it with DSCR in 6 months? Biggest thing is just getting whatever money (or close to it) I put in, back out as soon as possible.

Which brings me to another question for the more experienced investors out there. For turnkey properties, Is using private/hard money to buy properties outright then refinance out of them in 6 months to a DSCR the best option?

Hi Nathan,

The DSCR program is utilized for more long term financing. Most if not all DSCR loans have some sort of prepayment penalty, usually 5 years that could be brought down to 2-3 with added cost. If your goal is to purchase the property, do some small renovations, and then refinance to get cash-out of the property within 6-12 months, you may be better off with a short term bridge loan. They are interest only and most don't have prepayment penalties. This way, you can easily refinance and get the cash out you qualify for after the reno is complete and the new lender's required title seasoning period ends. Hope this helps and best of luck!

I appreciate the response. So, in order to get my money back out of the property, the best way is to BRRRR. Sounds like Turnkey properties will be difficult to get my money back out anytime soon because I won't be able to refinance it for anything more than I purchased it for.

OP

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes

3y

Quote from @Devin Peterson:

Quote from @Nathan Harden:

Hey BP community!

I am running low on personal capital so buying a property outright is difficult at the moment (until I refinance/sell my BRRRR projects going on right now). I was wondering if anyone has any experience of buying a move in ready investment property using a DSCR lender then Refinancing after the seasoning period with a DSCR lender? I would do some small or light cosmetic fixes during the seasoning period to increase the value of the property, just don't know if small cosmetic changes are going to make a huge difference in ARV.

I am trying to get more doors and don't want to sit on the sideline while my current projects have most of my personal capital and private money tied into them. For example, if I found a smoking deal, turnkey $100k property, the lender wanted some skin in the game from me and require $25k down from me, I want to be able to get that $25k back as soon as possible. The initial buy is what is holding me up at the moment, should I look into bridge loans? After points, costs, etc. Is there point in buying an investment property using a DSCR loan if I plan on refinancing it with DSCR in 6 months? Biggest thing is just getting whatever money (or close to it) I put in, back out as soon as possible.

Which brings me to another question for the more experienced investors out there. For turnkey properties, Is using private/hard money to buy properties outright then refinance out of them in 6 months to a DSCR the best option?

private / hard money deals will always allow for some more flexible terms to make property upgrades, fixes, etc. then you can refi into a DSCR. Especially if its a low loan amount on a 100K property. Likewise with a turn key investment, you can use dscr and put 20% and buy out any PPP associated if the lender allows. Loans are snowflakes, don't take any one lesson learned and apply it to the next and expect the same. Good luck!

I have dealt with a little bit of private funding but that is super simple because it's from family. Borrowing from a hard money lender is more intimidating because it's not as easy as saying "Hey dad, I'll get you your money next month, sorry it took longer than expected". When obtaining hard money, is it as easy as just showing them the numbers from purchase price to bid to refinance? Then they just say "Here's 100k, 12% interest, have it back in 6 months"

But it sounds like turnkey is not the way to go if I want to leverage my money back out of the properties. I appreciate the response.

Eliott Elias

Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes

3y

The greatest real estate investors are always broke, how do we find deals? Other peoples money and creative finance. Money should never be the issue.

6 Reply

Lyndsay Zwirlein

Lender · Member since 2020 · 331 posts · 209 votes

3y

Have you considered a bridge loan? There are 12, 18, 24 month options so it's short term money. No PPP. Then you can refi into a longer term solution like DSCR when rehab is done.

2 Reply

Chris Davidson

Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes

3y

@Nathan Harden do you have some Long term holds you don't plan on getting rid of? A Blanket loan may be a good option and you might be able to pull some equity out right away on existing properties. But like others mentioned a DSCR is likely coming with a prepay. Also if you are only doing a little work origination fees will eat you up. RE is a slow game make smart moves and calculated moves not jumping from one thing to the next. Start looking at your portfolio as a whole and work on how it perfoms as a whole vs single properties.

Get out there and get creative!

Robin SimonBusiness Member

Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes

3y

Quote from @Nathan Harden:

Hey BP community!

I am running low on personal capital so buying a property outright is difficult at the moment (until I refinance/sell my BRRRR projects going on right now). I was wondering if anyone has any experience of buying a move in ready investment property using a DSCR lender then Refinancing after the seasoning period with a DSCR lender? I would do some small or light cosmetic fixes during the seasoning period to increase the value of the property, just don't know if small cosmetic changes are going to make a huge difference in ARV.

I am trying to get more doors and don't want to sit on the sideline while my current projects have most of my personal capital and private money tied into them. For example, if I found a smoking deal, turnkey $100k property, the lender wanted some skin in the game from me and require $25k down from me, I want to be able to get that $25k back as soon as possible. The initial buy is what is holding me up at the moment, should I look into bridge loans? After points, costs, etc. Is there point in buying an investment property using a DSCR loan if I plan on refinancing it with DSCR in 6 months? Biggest thing is just getting whatever money (or close to it) I put in, back out as soon as possible.

Which brings me to another question for the more experienced investors out there. For turnkey properties, Is using private/hard money to buy properties outright then refinance out of them in 6 months to a DSCR the best option?

This is definitely a viable strategy - contrary to popular belief, you can get a DSCR loan for purchase with zero prepayment penalty - you will pay higher interest than without, but its an easy option if you are planning a very light rehab (property is in C4 condition or better at purchase) and then refinancing later on

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Stephanie P.Pro Member

Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes

3y

Quote from @Nathan Harden:

Hey BP community!

I am running low on personal capital so buying a property outright is difficult at the moment (until I refinance/sell my BRRRR projects going on right now). I was wondering if anyone has any experience of buying a move in ready investment property using a DSCR lender then Refinancing after the seasoning period with a DSCR lender? I would do some small or light cosmetic fixes during the seasoning period to increase the value of the property, just don't know if small cosmetic changes are going to make a huge difference in ARV.

I am trying to get more doors and don't want to sit on the sideline while my current projects have most of my personal capital and private money tied into them. For example, if I found a smoking deal, turnkey $100k property, the lender wanted some skin in the game from me and require $25k down from me, I want to be able to get that $25k back as soon as possible. The initial buy is what is holding me up at the moment, should I look into bridge loans? After points, costs, etc. Is there point in buying an investment property using a DSCR loan if I plan on refinancing it with DSCR in 6 months? Biggest thing is just getting whatever money (or close to it) I put in, back out as soon as possible.

Which brings me to another question for the more experienced investors out there. For turnkey properties, Is using private/hard money to buy properties outright then refinance out of them in 6 months to a DSCR the best option?

Use bridge funding/hard money to acquire and rehab the property and then DSCR after 3-6 months to get into a longer term financing vehicle.

Something you mentioned about borrowing from parents I think is important to address. Structure from the beginning to the end of the process is important. If you own other properties and have mortgages on them, some lenders want to see the mortgage histories on those other properties and if there's a private mortgage on them that doesn't report to the credit bureaus, they may ask for cancelled checks. If you missed a payment to Dad the lender, that may keep you from getting a loan. Make sure you tell your mortgage broker everything so they can structure your loan for success.

All the best

Stephanie

OP

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes

3y

Quote from @Lyndsay Zwirlein:

Have you considered a bridge loan? There are 12, 18, 24 month options so it's short term money. No PPP. Then you can refi into a longer term solution like DSCR when rehab is done.

I have considered Bridge loans as real possibility. My biggest concern now, is just the appraisal after the work. There are DSCR programs out there that will allow me put two properties into a portfolio loan, they just have to be worth $50k+ each. I am buying 2 properties for $40k each, one needs a litle work, the other doesn't so I think that I can get one of the properties up to $50k+ after rehab, the other is the issue. When the appraiser does their job, I hope that they will see that I was just able to get a good deal on one of the properties because I bought the other one in a package deal that needed rehab. All I need is for those 2 properties appraised for $50k+

OP

Real Estate Agent · Puyallup, WA · Member since 2022 · 551 posts · 379 votes

3y

Quote from @Chris Davidson:

@Nathan Harden do you have some Long term holds you don't plan on getting rid of? A Blanket loan may be a good option and you might be able to pull some equity out right away on existing properties. But like others mentioned a DSCR is likely coming with a prepay. Also if you are only doing a little work origination fees will eat you up. RE is a slow game make smart moves and calculated moves not jumping from one thing to the next. Start looking at your portfolio as a whole and work on how it perfoms as a whole vs single properties.

Get out there and get creative!

I am trying my best to get creative. The other properties that I have at the moment do not have any equity in them and they were all paid in full. They are in the middle of rehabs or the rehab hasn't started.

Doing my best to get creative. The two properties that I am trying to obtain now, I can get them for $40k each with seller financing for 2 years, 8% interest and 25% down. The problem is that I need them both to appraise for $50k+ in order for me to conform to a portfolio DSCR loan and only one of the properties needs a light rehab. The one that I will do a light rehab to should appraise for $50k, it's the other that I am worried about because I won't really touch it after I buy it because it's in great shape and a tenant paying $800 a month.

Chris Davidson

Real Estate Agent · Boise, ID · Member since 2016 · 1k+ posts · 888 votes

3y

Quote from @Nathan Harden:

Quote from @Chris Davidson:

@Nathan Harden do you have some Long term holds you don't plan on getting rid of? A Blanket loan may be a good option and you might be able to pull some equity out right away on existing properties. But like others mentioned a DSCR is likely coming with a prepay. Also if you are only doing a little work origination fees will eat you up. RE is a slow game make smart moves and calculated moves not jumping from one thing to the next. Start looking at your portfolio as a whole and work on how it perfoms as a whole vs single properties.

Get out there and get creative!

I am trying my best to get creative. The other properties that I have at the moment do not have any equity in them and they were all paid in full. They are in the middle of rehabs or the rehab hasn't started.

Doing my best to get creative. The two properties that I am trying to obtain now, I can get them for $40k each with seller financing for 2 years, 8% interest and 25% down. The problem is that I need them both to appraise for $50k+ in order for me to conform to a portfolio DSCR loan and only one of the properties needs a light rehab. The one that I will do a light rehab to should appraise for $50k, it's the other that I am worried about because I won't really touch it after I buy it because it's in great shape and a tenant paying $800 a month.

With those numbers you might be able to roll for 2 years on OWC terms, switch to HML and take a bit of a hit but be positive while you line out LT financing either through private lenders or more standard lenders.

Best of luck keep it up!

Gabriella Zettelmeyer

Member since 2018 · 3 posts · 3 votes

3y

Quote from @Nathan Harden:

Quote from @Chris Davidson:

@Nathan Harden do you have some Long term holds you don't plan on getting rid of? A Blanket loan may be a good option and you might be able to pull some equity out right away on existing properties. But like others mentioned a DSCR is likely coming with a prepay. Also if you are only doing a little work origination fees will eat you up. RE is a slow game make smart moves and calculated moves not jumping from one thing to the next. Start looking at your portfolio as a whole and work on how it perfoms as a whole vs single properties.

Get out there and get creative!

I am trying my best to get creative. The other properties that I have at the moment do not have any equity in them and they were all paid in full. They are in the middle of rehabs or the rehab hasn't started.

Doing my best to get creative. The two properties that I am trying to obtain now, I can get them for $40k each with seller financing for 2 years, 8% interest and 25% down. The problem is that I need them both to appraise for $50k+ in order for me to conform to a portfolio DSCR loan and only one of the properties needs a light rehab. The one that I will do a light rehab to should appraise for $50k, it's the other that I am worried about because I won't really touch it after I buy it because it's in great shape and a tenant paying $800 a month.

Hey Nathan, have you pulled comps to see what the appraiser would currently appraise the homes for- specifically the one that does not any work? We have DSCR loans that have no minimum loan amount that you could immediately do a cash out refinance after purchase to pull back some of your personal money. In regards to the home that you are going to do minimal work: are you able to carry that purchase price plus rehab out of your personal money and then immediately do a cash out once it is ready to pull your money back out? That would avoid paying closing costs and lender fees twice.

Dawson Rosenberg

Investor · Member since 2023 · 37 posts · 1 vote

3y

yesss! i would love to help and share some advice buddy! please let me know/message me ;)

Emil Kostov

Investor · Brooklyn, NY · Member since 2022 · 49 posts · 8 votes

3y

Quote from @Nathan Harden:

Hey BP community!

I am running low on personal capital so buying a property outright is difficult at the moment (until I refinance/sell my BRRRR projects going on right now). I was wondering if anyone has any experience of buying a move in ready investment property using a DSCR lender then Refinancing after the seasoning period with a DSCR lender? I would do some small or light cosmetic fixes during the seasoning period to increase the value of the property, just don't know if small cosmetic changes are going to make a huge difference in ARV.

I am trying to get more doors and don't want to sit on the sideline while my current projects have most of my personal capital and private money tied into them. For example, if I found a smoking deal, turnkey $100k property, the lender wanted some skin in the game from me and require $25k down from me, I want to be able to get that $25k back as soon as possible. The initial buy is what is holding me up at the moment, should I look into bridge loans? After points, costs, etc. Is there point in buying an investment property using a DSCR loan if I plan on refinancing it with DSCR in 6 months? Biggest thing is just getting whatever money (or close to it) I put in, back out as soon as possible.

Which brings me to another question for the more experienced investors out there. For turnkey properties, Is using private/hard money to buy properties outright then refinance out of them in 6 months to a DSCR the best option?

Very interesting. A similar scenario here. Closely following.

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Erik EstradaBusiness Member

Lender · Member since 2022 · 6k+ posts · 1k+ votes

6h

If it is a light renovation and the improvements won't significantly increase the ARV, you may want to look into either, leaving equity in the deal (cash out may not make much of a gain/ difference, and the fees may eat up the equity gain) or doing a straight bridge loan (usually 20-30% down) and cashing out if you bought under market value. You may need to wait 90 days, especially if you did very little renovation work.

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