Investor Cash Flow Loans Are Back

 

Investor Cash Flow Loan Slide Show

 

Investor Cash Flow Loan Transcription:

Good morning. My name is Brenden Rendo and I'm with The Homes in Orlando Team at NextHome Neighborhood Realty. And again this is my associate, Jospeh Dionne of Appli Home Loans Hey and this Good morning and welcome to the Orlando Real Estate Buzz

We are a weekly show that tries to bring information about the local real estate market and things that are going out that are affecting it today kind of came up rather quick because I'm working with some different investors and we're trying to find some lending solutions that were different than the conventional market. and so I turned to Joe and said Joe, this is what I've got. do you have anything out there that can help us?

And he's able, he was able to bring me a new, a new program and you're saying these programs are starting to become more relevant for the, for the investors  Yeah so these programs have kind of been out for a little while and they were really prevalent or kind of say really prevalent You saw them a lot more in the early 2000's and then they kind of went completely away. But we're seeing a lot of investors.

A lot of lenders so our program is, you know, the investor gateway. but it's basically all it is is it's a debt service coverage ratio loan or a DSCR our loan. So you hear those terms and I and I've been getting a lot of questions, a lot of people and a lot of investors asking, what is this? DSCR What is it? How do how do I qualify? You know, is it easier for me? Does it make sense? Is it hard money? And I think today we're just gonna take a little bit of time to just dive in and and talk about what this program is and why it's a benefit and who it's a benefit for. Makes makes a lot of sense because investors are always looking for alternatives. And a lot of these investors, you know, go back and they're they're they're self employed.

Or it's it's a second type of job position. So we just can't go and do the conventional. Hey give me two years tax returns. Give me the bank statements, you know, show me all this stuff and a lot of them are trying to turn something really quick. So so you've got to find an alternative. You've got to be ready for them when they do find especially these days, you know, a few properties that are available. So why don't we dive in? Yeah. And let's go through a little bit about the program. my goodness. You put together a PowerPoint. Yes I did.

You know, he doesn't he's like Joe we're gonna talk about this. He's prepared. Let's go, you call it debt service coverage ratio, I call it cash flow and that's the way I look at it. What's the cash flow of the property? Right. So let's hop in and let's go through who these are, who these loans are really targeted.

Yeah. So these are, these are investor, These are investor focused loans. Therefore investors, they're not like you're not doing this loan on a primary property because you know, like you said, it's a cash flow. Like if you're living in the property, you're not cash flowing that property, they're geared for investors. So they're really geared in a couple of different scents. People that have significant portfolios. Why is that important? Because Fannie Mae Freddie Mac, they have caps on how many loans you can finance or have finances anytime. This isn't a Fannie back loan. This is a Freddie Mac back loan. This is an actual private portfolio type loan that investors are offering. So it's, it's excluded from those caps. So you can go above that. What is it? 5, 5 property? So you simply see usually, you know, Fannie Freddie go to ted depending on it. But usually you see that it's most investors, they kind of reduce it to six or eight is what you see like big banks kind of lock people in and out on for traditional loves. You don't want too much exposure.

It's all about exposure. Exactly. And then you have, you know, traditional, you mentioned here bars that don't qualify for traditional or full income documentation. And, and this is like this is where like the bread and butter is, is like these programs are, Its qualifying on the property. So it's not looking at a lot of the other pieces like you know, there's things that you know, and then you mentioned with excessive amounts of debt obligations. Again, if it's not looking if it's only looking at the property, right? It's not it doesn't care about what their income is, what their what their debt debt to income ratio is. It doesn't care about their obligations outside of what is this property going to do. Okay, so let's go hop over to the next one and let's talk about how does it? Yeah. So I mean it's super it's super easy and to qualify and it's a very basic, you know, program when it comes down to the science and the nuts and bolts, right?

It's what is it what is it renting for? As long as that is, you know, divided by or excuse me, the principal interest, taxes, insurance. So the total monthly obligation divided by the amount it would rent for? Okay, that number is greater than one. It qualifies. And here's kind of the here's kind of the trick if it's less than one, sometimes it still qualifies. Okay, what are you looking more at the asset strength of the borrower?

Yeah. So what it does there because again remember like you have your Fannie Mae and Freddie Mac, those traditional like your traditional conventional finance properties, right? And it's all it's all rules. It's it has to fit within this box we have, you know this, this huge manual, the seller guide. And if it doesn't fit within those rules, it doesn't qualify well with these programs, its portfolio, meaning the bank is the one funding it like they're they're they're holding it there. It's almost like it's almost like a private money. Exactly. And around about kind of like private money, which means what that there's exceptions granted. Oftentimes, so maybe the DSCR are might be lower than one. And they look and they say, you know what, this bar has got bigger assets. We're going to take on this risk. Here's what we're gonna do and we'll counter our proposal or get a little bit creative because We're not just looking at a 30-year fixed options, we've also got interest only options. Potentially I could get that payment and again, it's okay. But when you say they make counter, what you're saying is sometimes maybe you went in at 20% down. Yeah. But they may come back and say, well, we're a little bit under the one. If you're able to do 25% down, we can make, we can make this loan happen something like that.

Okay. Which is nice because these days, you know, when you're in a conventional loan, it's like it's approved. No, it's not. It's approved. No, it's not, there's, there's there's no going back to the to the underwriter negotiating anything. It's no, you're captain, you're not approved. That's it. Bye. So let's let's go through a scenario with about debt service coverage ratio. Because one of the things today which is great for investors is rent have just shot through the roof. And also that when you're looking at your what we call debt service coverage ratio, You know where you know you may have been right in the property at $1,200 You know two years ago you're probably getting 2000 for that thing. Yeah that's craziness. I don't know how people afford. Yeah that's right. That's for another conversation. Yeah so so I think what do you and you mentioned you've got red schedule an appraisal. So you're saying 2000 what do you what do you think this is? Like what a 300,000 price point I think is what we should be right in that ballpark Bottom 300 probably.

You know I would assume 20% because I know a lot of investors you know that 20% mark is is it's something that a lot of them will feel comfortable with as well. So that's how that's that's what, yeah so I and we have like you know it's very simple as long as it's greater than the P. I. T. A. I say a dollar more. And I think that's you know like a dollar more is just easy if the P. I. T. I. A. Is $1999 and it comes in a $2000 qualifies. I mean realistically it's it's it's the ratio itself has to be Over one. Which means that it could be, You know the proposed rent could be $1999.1. And if the monthly obligations 1999 and no sense it's over one it qualifies because as an investor, we used to look at it and we tried to keep it at 1.2.

Okay? But with the increase in costs, if you're getting one person, you know the one ratio, you're you're actually feel like you're doing good these days. You know, as as an investor if you can keep it above the one and you're not having to, you know, come out a little bit every month. You're actually these days you're doing good just because of the increased cost of caring and we have the increased cost. But really what makes it beneficial for the investor right now? Is that increasing appreciation right now your property if you're breaking, you know, quote unquote of the month and month. Like if it's breaking even so to speak. But you're just holding that property. I mean year over year. Like the Metro Orlando was what the average home I think last year. Yeah that's you know that's craziness, yep. So you know, taking that example right? And we sit there and say all right 300,000 purchase price to 20% down. So 240,000 loan amount. You know, we won't go into details, you know, I think we estimated this rate was, you know, 6%. This isn't a qualification for, you know, an actual mortgage or anything. This is just an example. So principal and interest 14 38 92 taxes 31 to 50.

That's an estimate based off the norms that gets you a total payment of 18 76 42. And this is kind of like your average $300,000 property. This is what you would be looking at with 20% down. And you're telling me that typically in that price range we're going in 2000. Yeah, yep. And we're for the, for people to understand where we're getting that right numbers, what happens is and the phrase we'll go out and he'll do what's called a rent schedule. So he's gonna actually go around at home just like you would in the normal appraisal process and he's going to figure out what rents are going for and that's that's what what what we're looking at and that's where we were to get that that 2000 Yeah, yeah, and that's, you know, on a on a purchase transaction. Exactly. Just like appraiser goes out and gives you that value. The appraiser does the rent schedule as well, which they look at the recent comparable for properties that are rented and determines what this property the subject property would yield and rent, yep. So again, just got to keep it above that one ratio. And here you see, we've actually got a little room so that maybe the insurance comes in at 150 or one, you know, we're still good. You still got room. Excellent.

Let's just kind of sum it up, everybody let them know, you know, what are some of the features and you know, what are some of the things that you can do with it as far as like, I know a lot of, a lot of investors may want to take some cash out. Things like that, yep. Yeah, so I definitely think this is kind of getting a little bit more geared towards some of like kind of what our program features and, you know, but a lot of, you know, a lot of investors have similar features or, you know, banks might have similar features or so forth. But some of the biggest pieces, you know, is, you know, obviously these are 30 year fixed, but there's an interest only option as well, which is very attractive because that sometimes that increases that margin. if you're holding onto a property and so forth and you expect to hold it for 5678 years, you know, the interest only might make sense for you. especially with the appreciation. That's exactly, and then, like What's kind of cool. Here is we can do 15% on this program, which is really, really hard, like you've always been able to do 15% with Fannie and Freddie, but like a lot of banks don't allow it. And Fannie and Freddie are extremely picky with that 15% down this program, they'll do it and I actually, like sometimes the 15% down may actually be Better and pricing than 20 or 25% down, it just depends on the investor in that given day because it changes constantly. and it's all about buckets, it's all about exposure. So if they have the bucket with 15 and 20 and 30, You percent down and they've got nobody pricing up and putting anything in that 15% bucket, they're going to try to make it more attractive and put something there. So that's a really, really cool one. And what happens with this, like the whole point of a DSCR are right, is simple, reduces the underwriting reduces all the kind of pieces that you need to do. But it also keeps more cash in hand for the investor, which means they might be able to do if you can do a 15% down or a 20%, you might be able to buy four or five properties with the same money, you would have plopped down on a, On one property if you paid cash.

Yeah, I know because a lot of, a lot of what we would call hard equity, hard or hard money loans. A lot of those. I've got a friend who does all that and they're still sitting at 30 down. So you know, doing the 20 or even the really 15 unheard of. Again, you're right, I've just taken that and divided into two houses instead of just one house, yep. Exactly. So, and then, you know, you mentioned the cash out refinance, like, you know, some investors already own the properties that they own a lot. This is a big one and you can do as much as three million. I mean, I haven't seen it go that high, but I have investors that are on the back and willing to go up to three million on a cash out on this program, which is, which is crazy and it's awesome. and it just adds a lot of funds. The next piece that you listed here, we can close in an LLC almost every every investor that does this program because again, this is a this is a non Qm. This is a portfolio type product. They're gonna allow to close in an LLC a corporation, a trust. And and again, the credit, like they're looking at your they, you know, they're reviewing your personal credit, the mortgage is going to be tied to your personal credit, but you're able to close and to those LLCS and corporations, which is great because protection for the investor. That's, that's why that's exactly why you set him up This protection so that if something happens, they don't come after you personally. Exactly. credit scores as low as 600. Again, portfolio private loans, you know, you're not gonna probably, you're not gonna get a 15% down option if you're at 600 credit score, you know, you're gonna have like, but we're able to look at scenarios and credit isn't the determining factor.

It's not just hard, you know, hard. No, If you're 6 56 60 I've got a lot of hard money or portfolio investor programs that that before this, that they were like, hey, we don't want, we want 30 to 40% down. If this person has a credit score under a 6 60. Like this is not going to penalize you to a great extent for that. And it's, it's all about being able to evaluate and work with someone that's able to really talk to that bank and really figure out what options are available and where can we evaluate this now? Probably going to have a higher interest rate if you've got a lower credit score, those things kind of just work that way, lower credit score interest rate is almost always going to be higher. Yeah. So single family residence condo, 2 to 4 units are allowed. Why is that important for you? Like this kind of opens the gamut for you guys. It does well, especially here in the Orlando area because there are so many, so many condos that investors own, you know, and a lot of programs that I've seen, don't do condos and congress are still, I mean my gosh, if you can find a condo in that 152 $100,000 price range, you're getting $1800 a month on a two bedroom, two bath condo. I just had a conversation with a young lady who, she's in a 11 over here in stable and she's paying $1800 a month. She's like, can you help me, you think we can save some money if I buy a house and like, yeah, yeah, I'm like, my gosh, that's not so to kind of compound it. this is the big one we touched on it before, unlimited amount of properties owned. The reason why this kind of works is because they're not looking at what's finance before and they're only looking at that property. Now, every investor has exposure limitations. But whereas Fannie has general rules that's going to apply to all loans that's insured by them. This program is not, you're gonna only care like I've got investors and I've got multiple back end investors and lenders that are sitting there saying, hey, like I can do this program, I can do this program and I can sit there and be like, if one has exposure with five, I can bring five to them and then I can go to the next one and bring five more to the next person and we can build, you know, a portfolio can be built. That's pretty significant through this program. Gotcha.

Yeah. So, I mean, I think that's really, really a super important to first time investors are allowed. This is a big one. Like a lot of these portfolio loans, like how many people are trying to break into being an investor and then they're like, they've got the, like, they've done an amazing job. They've saved up, but they still work there. W two job. Their, you know, their, their expenses aren't, their, their, their debt to income ratios aren't in line to make sense to, to do it, but they've got a large, large amount of assets and they want to break into this mold. A lot of portfolio products that are investor geared don't allow first time. No, they don't. This goes back again to my friend here in town who does, who does the private equity, hard money type loans. They actually want you to put together a schedule of the projects that you've done and you actually have to show them that you've done something, you haven't boom, you're out, you're out there won't even touch you. It's like, and again, it goes back to how, how do I get started that, you know, where do I find my money? You know, this is, this is great. You know? Yeah. So I mean, I think this is really, really awesome and this isn't an all inclusive. These are some of the benefits. Like if you, if you really like if someone is ready to take or they're curious to find out more information, definitely connect with myself or reach out if you've got someone that, you know, and you're working with, ask them about these programs, find out the information and, and, and look at your scenario and find out is this program right for you or not. I will tell you like, you know, in the grand scheme, these are, you know, their, their portfolio, They're super easy. Like we can order appraisal before disclosures are signed. We can like really with these loans, you know, you may, you know, some investors might not even require disclosures be assigned because it's basically portfolio private money in a roundabout way. And, and it really just opens up timeline. It's get titled get appraisal back. They're gonna look at your credit report because you know, a lot of investors probably, you know, if you're late on your current mortgage, you're probably throwing, you're, you're, you're not going to be setting, you know, setting an example that you're going to do well on this one, but they're very basic guidelines and I can talk to anybody that's interested to learn more information. I can tell them about my program, but again, just know these terms when you're ready to invest or if you're working with someone else, you know, and you, you, you're curious about these type of programs.

Note DSCR our debt service coverage ratio, ask these questions because it can open up the door and a lot of people don't know that these programs exist so they don't even ask about them. Yeah. And I mean even even if you're paying a 6% interest for it. my gosh, when I used to write hard money were 18% in three points and we got it without question. Mm You know, I mean if you're at 6% and your cash flow go for it, you know, that, that for an investor that's the bottom line and my cash and my cash flow positive, that's what you want to see a lot of what, you know. Exactly. And that's and that's a big key. And if you look at the market right now, Fannie and Freddie, like if it's a, if it's at 6% like, and this is like I priced up some scenarios where it's been somewhere in that range, you know, like even a little bit lower, a little bit higher when you have those types of scenarios like it's really not. It's, and it's a really attractive option if you've got no other way to go. It's absolutely phenomenal. But sometimes, you know, and I've had investors that have come to me and they owned 14 properties that they have, they just don't want to deal with the paperwork. That one, you know that 1 to 2% more than what Fannie Mae rate might be, is that hassle isn't worth that time. Yeah, I understand completely.

Well, I appreciate it and I appreciate you telling about this for my investors. I know we've got at least one or two that we're gonna, we're looking at right now and any questions again, feel free to reach out to me, feel free to reach out to joe except he'll be on the beach in Miami. but I know he keeps his phone handy, so. Alright, wonderful. Have a great time and we'll see you again next week, joe. Bye bye. Thanks so much. Guys have a great one.