All Forum Posts by: Fernando Corona

hi everyone, just to resurface this. there are 30yr terms for 1-8 units DSCR. I'm doing a 7 unit for a client right now. of course interest rates are wild in this market compared to what you all were talking about 2years ago lol but just wanted to let you know about this. reach out if deeper questions.

Biggest risk with DSCR loans is to look out for the prepayment penalties. This means that if you pay off the loan too early, then you'll pay a 1-5% fee off the loan amount. paying off the loan early means you either refinance or you sell the property, both would trigger a prepayment penalty to the lender. that being said, you can choose your prepay options, 5yr usually giving you a better interest rate by like a 0.25%, 3yr being most common and standard, and a 0,1,2 yr where you can buy down the prepay to be less years. meaning you pay 1% upfront of the loan amount to get a 1yr prepayment penalty so you're free to sell the property or refi after 1yr.

Keep in mind that DSCR loans are how most investors have scaled. whether its residential DSCR or commercial DSCR at 5+ units. personally, i like them better. few reasons why:

1. seasoning period is only like 10-30 days vs 60days going conventional

2. seller max contributions DSCR is 3-6% where conventional its only 2% max

3. I can buy a 2-4 unit with 20% down vs conventional can only buy a 2-4 INVESTMENT property with 25% down 

4. there are options where DSCR loans dont repot to personal credit, helps in not having to show a bunch of paperwork or not one person in a partnership has to carry the debt

5. way less paperwork to close on this loan type vs a conventional loan. we care about the income of the property you're buying and it's ability to service the debt of the property whether we use long term rents income, lease income, or air dna/bnb income.

6. easily buy in partnerships, add people to your operating agreement, its as easy as that so bring partners into a deal. helps with scaling and raising capital or getting partners involved

7. gift funds allowed to close on these as well, and like I said earlier, there's only a 10day seasoning period of funds with some lenders so that means you can literally have a private money lender deposit money into your account 11 days before closing, and you can use those funds to close! wild. 

8. if you dont want to close in an LLC, you can still close in your personal name.

9. there are lenders with competitive rates if long term rents are greater than 1.1 of debt on the property (PITIA). however, there are also lenders who will allow you to do 80% cash out refinances with DSCR if DSCR ratio is 1.0. there are lenders that allow you to buy real estate at 20% down EVEN IF DSCR ratio is only 0.8. which means the rents are less than the debt on the property. Heck, there are even lenders that will NO DSCR, meaning they dont care what the income of the property is and they'll still fund the loan (at a lower LTV and higher interest rate of course).

So the goal of DSCR is now to figure out the best real estate cash flowing strategy to pair with DSCR loans as you scale your portfolio. anyone looking for help going DSCR, feel free to reach out as I build my portfolio with these and help investors scale theirs as a lender.

I've got lenders that do 85% LTV on purchases if DSCR ratio is over 1.0 and I CAN DO 80% LTV EVEN IF DSCR RATIO IS UNDER 1.0! interest rate takes a beating but we can do it. we can also do 80% cash out refi's with DSCR greater than 1.0. We also accept air bnb income if we need to if long term rents dont support DSCR.

What’s up @Matthew Conner, just wanted to share that 5% down for conventional 2-4 unit just became a thing! You don't have to go FHA anymore.

Quote from @Bonnie Low:

I'd suggest you look into some of the resources out there that explain creative financing options. There are many benefits to you of obtaining seller financing and there are benefits to the seller, too. For you, you could avoid the extensive underwriting a conventional lender will do. This saves time and is likely to help you qualify. The seller is unlikely to pull your credit (not sure if that's a concern for you or not) and they probably don't care what your debt-to-income or DTI is. If they own the property free and clear, they can probably offer you better interest rate than any lenders are offering right now. And if they don't want to put any money into repairs, you can potentially give them their full asking price IF they agree to carry the note. You get a lower interest rate and favorable terms and they get their asking price and don't have to put any money into it. They may also benefit from getting payments over time rather than taking the tax hit of a payout at the time of sale.

Agreed. All great points. The challenge is knowing how to position the offer of seller financing the way you did. You’re basically selling the strategy to the seller so they see the value

Quote from @Marlon D Nangle:

Hey @Fernando Corona. Based on what you and Bonnie are saying, it sounds like you're both asking if I should explore having some form of ventor-take back financing where the seller holds title and I don't put too much of my own money upfront. I'm guessing this is being proposed so that the seller is more incentivized to put cash into improvements so that they can fully sell and get out. 

From my research, the 2 main variables (removing the tank in basement and adding chain link fence in backyard) can both easily be done within a few days of taking possession. 

I would conservatively estimate cost for these items to be 5k. I'm hoping to negotiate the price down by 15k at least. Before I take the next step I first want to understand the position of the conveneince store next door to see how the shared gate relationship is currently being managed. 

@Bonnie Low, @Fernando Corona, thank you both for taking the time to respond. This is potentially my first venture into MTR. I like the location because the house is zoned commercial, close to a major hospital and there is a big green space park behind the property. 

The area does have noticeable social issues (nothing violent) so I will be investing in a good security system up front for guest peace-of-mind. 

Trying to target bue-collar temp workers, relocating families and/or couples with pets, medical students and people who will need hospital care for 1+ months.  

Although this rental may initially start off with STR bookings, I am purposely trying to position this house to be exclusively MTR for the long-term, and move away from STR altogether.

I know I've said a mouthful in a few directions, but any thoughts or insights about getting into the MTR niche and catering to my proposed clientelle would be greatly apprecaited. 

Thanks again

@Marlon D Nangle what we’re proposing was moreso to give the seller the price that they want and ask them to seller finance without paying for repairs. You can pay for the repairs. When they seller finance, you actually are the title holder. They just hold the loan in their name to you. And you pay them in installments instead of a bank. You get to negotiate the interest rate as well so you don’t have to pay 6%+ in interest. Feel free to PM me and I’m happy to share more about this if you think it’s something you’d want to explore. It is a little more work and sometimes you have to explain the benefit to the seller as to why they’d want to carry the loan but usually they can be persuaded if you give them the right price. Maybe you don’t do seller finance on this deal but worth learning about for your future deals. 

@Christine Glasner Yeah definitely! Thx for the comment. So much of it revolves around your personal brand. People will lend to people they trust. And you can build trust through relationships and credibility. Relationships are always the best partners and I’d be cautious of people who only want to partner for credibility in the beginning. Because things can and will go wrong. And you want your partner to be more understanding so you usually want to have a great relationship with them from the start. Partners also want some skin in the game from you since you’re just starting out. One way I’ve done this is to give more equity up front like a 60/40 split. So they get 60%. I’ve also given more cash flow up front like 75% until they get their money back. This is usually nice to do to make the deal sweeter for the first few investors. After you’ve done a few deals, you can start to drop your equity splits to 50% or your cash flow down as well. You’ll get people that might comment “I don’t give any equity away” and you can do that too which I’ve done on some deals. But that’s mostly up to the investor partners and their goals. Some investors just want to lend their money for 6-9 months while they find their own deals and want their money back. I’ve done those deals too. And that also comes back to your personal brand and reputation. Good luck and I’ll follow right now to keep up with your journey

Quote from @Rabinder Gill:

Quote from @Fernando Corona:

@Rabinder Gill if you want to create a new LLC, here's a general outline of the steps involved in creating an LLC in Texas, along with some useful links. Here are the steps:

1. Come up with a cool name for your LLC. Make sure it's unique. You can check if the name is available on the Texas Secretary of State's website or do a search on Texas comptroller entity search, its free. use your entity with and without the "LLC" at the end. Like "FC Lending" and "FC Lending LLC"

https://mycpa.cpa.state.tx.us/...

2. You'll need a registered agent for your LLC. This person will handle official stuff for your company. You can hire a professional service like texasregisteredagent ($25-$50) or ask a friend (free). - Learn more about the registered agent requirements here: https://www.sos.state.tx.us/co...


3. Fill out and file the Certificate of Formation with the Texas Secretary of State. You can do it online pretty easily. - Here is the Texas Secretary of State's website with information and forms for filing: https://www.sos.state.tx.us/co... - click the file online hyperlink in there too

4. if its just you in the LLC, you can operate member managed or manager managed. its the same thing since you're the only member. something some banks or institutions will ask for if you ever use hard money or get a DSCR loan under your LLC. you can get an operating agreement off a rocketlawyer-like website.

5. Get an EIN (Employer Identification Number) from the IRS. It's like a social security number for your business. You can apply online through the IRS website. online application: https://www.irs.gov/businesses... - this can weirdly only be done during M-F business hours. idk why. lol and this is free btw. 

Hope this helps!!

 Thank you so much for the step  by step guide! 

No problem! Good luck!  

“Gap funding” meaning you’re looking for a private money lender to fill the gap between the hard money you have? So you need help with the downpayment? Is your hard money also covering your rehab? 

Quote from @Dayanis Acosta:

thanks for your reply! So this is a home with a separate studio that appears to be zoned as a multi family home, which appears to significantly limit my options from what I’m hearing. 

Are you buying it with renters in place? In both the home and the studio? If it’s cash flowing with renters in place, you can use 75% of the rents to help you qualify for the home so your monthly income would basically go up to help you have a lower debt to income ratio. Can you share a bit more as to what you heard from others? As to what the concern is?