All Forum Posts by: Stephanie P.

 Welcome to BP.

I would look at Baltimore County.  Dundalk, Rosedale, Kenwood, Parkville, Carney, Sparrows Point, Middle River and Essex.  Taxes aren't too crazy and the values vs. rent is decent for cash flow.  Not everyone will agree, but I'd stay out of Baltimore unless you plan to be really hands on.  I'm really not a fan of Montgomery County either because the values are so inflated and the cash flow is difficult; even Gaithersburg.  

Best of luck

Stephanie

Always exhaust your conventional opportunities before you jump into the DSCR world. No exceptions.

Get yourself a 4 unit and live in one while having the other three pay your mortgage.  I'm not sure where you are, but there are lots of small market properties that would work.  If you're in a higher cost area, you would be under capitalized and I'd say you should rent for a while.

 Hey Eric,

DSCR is a tool like any other loan product and as others have said, it will help you to scale, but you can't live in/house hack the property.

Full disclosure; my company does DSCR and hard money for fix and flip exclusively and I'll tell you the same thing I tell all of our clients-exhaust the opportunity to use conventional financing BEFORE you dip your toe in the DSCR world. Conventional money is the cheapest way to go when it comes to interest rates and down payments. Most important though, if you do ever want to purchase an owner occupied property, the debt from the DSCR loan will go against your income and could cause you a problem. All DSCR loans require a personal guarantee and since you're personally guaranteeing the loan, you'll need to disclose it.

Food for thought

Welcome to BP

Stephanie

 Welcome to BP

You can refinance using the purchase price without seasoning.

If you want to use the appraised value, then wait 6 months for the best DSCR terms and wait 12 months for the best overall terms using conventional financing.

 Hey Diana

Welcome to BP

Sorry to say this may not happen because you won't be able to find comps of other properties that have 3 properties on one parcel.

I only see two paths forward (other than selling to another cash buyer).  

See if you can subdivide to get them onto separate parcels or see if a local local local bank will refinance it.  

DSCR won't work because they look at appraisals just like Fannie or Freddie would.

Stephanie

 Hey Ruth

Go to AirDNA and use their Rentalizer and Overview products.  They'll tell you whether it's a viable option or not.

Stephanie

The DSCR loan will affect you if you're buying a conventional loan. The only way to have it not affect you is if you do DSCR loans going forward.

Here's how a conventional lender will find out if you have additional properties or loans:

If you get a conventional loan, the lender will ask you if you own additional properties or have any additional debt. Any time you get a DSCR loan, you will sign a personal guarantee (whether you're in an LLC or not). If you say no, you're committing mortgage fraud.

If you get a conventional loan, they lender may ask you for tax returns.  They don't always, but many times they do.  They'll review your Schedule E and ask about the property that's listed and they'll ask if it has any liens on it.  You'll say yes and they'll need the mortgage information.  Once they see it, you have to report it.  If you say no, you're committing mortgage fraud.

It may not show on your personal credit, but that really doesn't matter when it comes to whether you'll qualify for conventional financing.

 Welcome to BP.

Here are some guidelines for short term rentals. Get an Air DNA account to track the STR and longer rental income. Use the Rentalizer and the Overview reports.

General
o No first-time investors
o Declining market (value):
 When a declining market is identified by the underwriter or listed on the appraisal, the max LTV is 65%
o Declining market (rent):
      When declining market rent is identified by the underwriter or listed on the appraisal, one of the following must occur:
 Reduce the LTV to 65%; OR Achieve a Minimum 1.25 DSCR Ratio
 
• Income:
o STR Income – Purchase and Refinance Transactions
 Applies to all transactions using short-term rental income
      A 5% LTV reduction applies to all loans qualified with short-term rental income
o DSCR Calculation
 Monthly Gross Rents based on a 12-month average to account for seasonality required
 Refinance Transaction: 12 months (or 6 months minimum, if owned less than 12 months) used and averaged accordingly
 Extraordinary Costs:
 Use actual extraordinary costs (i.e., management fees, advertising, furnishing, cleaning) listed on the 3rd party management/rental statement; OR
 Use the gross rents reduced by 20% to reflect extraordinary costs (i.e., management fees, advertising, furnishing, cleaning) associated with operating short-term rental property compared to non-short-term property, if actual not provided
NOTE: (Gross Rents X 0.80) ÷ PITIA = DSCR
• Documentation:
Either of the following methods can be used to determine gross monthly rental income. Priority will be given to recent documented rental income when choosing a method.
o Form 1007 Single Family Comparable Rent Schedule/Form 1025 Small Residential Income Property Appraisal Report prepared by the appraiser reflecting long-term or short-term market rents
o Most recent 12-month rental history statement from the third-party rental/management service (may be provided by the seller if a purchase transaction)
 Statement must identify the subject property/unit, rents collected for the previous 12 months and all vendor management fees
 Any significant variance between the 1007/1025 prepared with short-term rental data and recently documented income may warrant a deeper dive by the underwriter
o AirDNA Rentalizer and Overview reports (must meet the following requirements):
 Rentalizer
 Purchase transactions only
 Forecast period must cover 12 months from Note date
 Occupancy rate must be > 65%
 Must have six (6) comparison properties
 Must be within two (2) miles of the subject property
 Must be similar in size, room count, amenities, availability, and occupancy
 Overview Report
 Market grade by zip code
 Must be B or greater
 Income calculation (annual revenue ÷ 12)

I don't want to be negative, but...

It's not the lender. The borrower isn't able or willing to give them something they need to complete the file. Take their EMD and get another buyer. This one won't close.

 If your lender tells you interest rates will go up significantly in the next 6 months, run.  No one knows what interest rates are going to do in 6 months; there is a whole industry of people that speculate about rates, but no one knows.