All Forum Posts by: Robin Simon

Yes - best to find yourself a forward-thinking flexible DSCR lender!

Sharing our perspective on this:

-We do rural typically capped at 70% LTV though

-We don't discriminate at all against 1st time investors/buyers

3. Comps are pretty important - generally we need the top 3 to be within 5 miles and have less than 20% net adjustment

4. Agree - get yourself a good broker that has access to a lot of different lenders, they will typically have access to lower rates and fee waivers

From a twitter series:

LTV is a fairly simple concept & calculation, but plays a huge importance in financing your rental property. It measures the size of the loan as a percentage of the property's value

Calculation: Loan Amount / Property Value

Example:

$750,000 Loan

$1,000,000 Property

LTV = 75%

The difference between 100% and the LTV represents your equity in the investment property, or how much you have invested. So in the above example, you have a million dollar property, where you have $250,000 in invested equity and a $750,000 loan

NOTE: this doesn't mean that you own 25% of the property, or that since you have a mortgage, the "bank" or "lender" owns the property. No - the investor owns 100% of the property, in the ex, a $1M property. The power of financing allows you to own $1M property with only $250,000!

Investors love HIGHER LTVs because it means they can buy more properties with the same amount of cash. Even a small change in LTV can yield a MUCH bigger portfolio.

Ex/ If you have a million dollars to invest and can borrow at 75% LTV, then you can buy 4 million $ properties, putting $250k down on each

But if you borrow at 80% LTV? You can buy FIVE million dollar properties ($200k down on each)

+5% in LTV = ANOTHER MILLION DOLLAR PROPERTY

However, Lenders love LOWER LTVs because the main tool to protect themselves if someone defaults on their loan (stops paying) is to foreclose on the property & take ownership. Their big risk is that the value of the property declines so it becomes worth less than the loan balance

So for Lenders, LTV represents the "cushion" between how much money they lend and the value of the property they can repossess if things go wrong. So the higher the LTV, the riskier the loan is for the lender, & to compensate, they'll typically charge a higher rate / points

What should you know as an investor in real estate when it comes to LTVs? Higher leverage (LTVs) can make a huge difference in building and scaling a portfolio (see example above!). However, you will take on more risk and likely pay higher rates to do so.

As usual in real estate investing, everyone has different situations, risk tolerances and strategies & theres no one-size-fits-all approach

Hopefully this helps investors looking to understand some of the concepts that go around financing investment loans.  Feedback welcome

You should definitely avoid investing in declining markets in my view unless you have a really really compelling reason

BRRRR could be a great strategy if you are up for it (and can use hard money for the purchase), that way if all goes well, you can get 100% of your capital back fairly shortly and keep expanding

Congrats! Seems like the Ohio market is low key very strong right now, especially for BRRRR

Congratulations, looks like a great deal!

Yes, you have to / should honor the previous lease, however usually just a few months at most so if you have a long-term time horizon, shouldn't be too big of an issue or material effect on your purchase

BRRRR by David Greene! (in the BP bookstore)

@River Sava

No DSCR for construction but It is possible to go with a lender that does both construction loans and DSCR loans so its an easy refinance with the same lender and you don't have to do as much paperwork/process and should be easier

Yes - a DSCR loan sounds like it might be your best option. There is no DTI, no PMI and no income verification. @River Sava