All Forum Posts by: Ko Kashiwagi
Ko Kashiwagi has started 1 posts and replied 950 times.
Post: Ballooning out of a Hard Money Loan
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
Quote from @Mike Musarra:
Quote from @Stacy Raskin:
Some DSCR lenders will use the new appraised value after three months so you don't have to wait longer than that to get up to 75% loan to value (LTV) cash out.
DSCR loans won't use your income to underwrite the loan.
DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.
2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23
If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals.
Happy to connect to discuss further.
Thanks for the breakdown - very helpful.
In regards to how lenders look at the rent - I'm ultimately wanting to make this a Mid Term Rental if I hold it. Given that these are shorter term lease aggreements, how do lenders typically view them?
Hi Mike,
There's DSCR programs out there for MTR so that shouldn't be a big problem as long as you confirm with the lender beforehand they allow it. There's also programs that allows vacant so you don't have to go through the hassle of getting a lease before renting out to get the loan. Make sure to check reviews and go with a reputable one!
Post: Pros and cons of a condo for your first investment property ?
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
It could be a good option if the investor strongly desires ease and passive style. For example, theirs is relatively less maintenance and comps are easier to find.
If you're looking to maximize returns, typically SFH and multi family would yield better returns and wouldn't have the risk of HOA fees increasing.
Post: Moving to Missouri from California – Seeking Advice on BRRRR Investing in the Lee's S
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
Where in Missouri are you looking at? I know a couple of people in similar situations who lives in CA investing in St. Louis! Happy to connect
Post: Are there 50k loans available?
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
DSCR would be an easy option to go assuming you're looking for a long term solution. Most lenders won't go below 75-100k in loan amounts but there are options!
Post: LOC on investment properties
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
What's the use of the funds? I've seen that local banks tend to be the best option for this so if your local banks don't offer it then maybe private money could be the route.
Post: Should I use a Heloc to secure financing for a new construction deal?
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
How long will the project take? HELOC can be great but usually it's used for short term because of higher interest rate. You could also look to the route of a construction loan if you have experience
Post: Refinance Rental Portfolio
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
Make sure to check the Yield Maintenance on the program! Different programs have different prepayment terms so if you plan to refinance or sell any of the units this would be crucial. Most programs have a minimum of 500k in loan amounts and I've seen some go down to 300k or 250k.
Post: REHAB-Does Cash on Cash Return apply in this situation as a metric
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
BiggerPockets and dealcheck.io has a calculator for this!
Post: How do you decide on which lender to use?
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
If you desire good service and clear communication, definitely take note of their reviews and the way they communicate. At the end of the day loans are not just numbers and it's a people business!
Post: Best Way to Fund Reserves
- Lender
- Los Angeles, CA
- Posts 967
- Votes 444
It's definitely smart to have reserves in case anything happens, but wouldn't a good portion of that come from the rent you make? Typically investors build up reserves using 5-10% of rent and saving that amount until they have 6 months of PITI