Surely you’ve heard by now, either from a friend, from social media, or from your morning newscaster as you sip your coffee before work; the real estate market is booming, with houses going under contract within less than 24 hours of being listed, and with rent prices constantly on the rise. If you’re a property owner, you’re greatly benefiting from this situation, and if you aren’t, then now might be the time to invest, since this pattern isn’t expected to start slowing down anytime soon.
You might be too intimidated to make the leap–maybe you don’t have the funds you need to get started. This is a simple fix! There are plenty of ways to get loans to assist you in your real estate investment endeavors. A quick and easy way to get started is by contacting a company like Visio Lending. They offer loans in 38 states in the U.S. and will be more than happy to assist you through your application process.
Getting a DSCR Loan
A DSCR (Debt Service Coverage Ratio) is meant to determine the amount of net cash flow that your property will generate to cover your mortgage. It is used by lenders to help decide the maximum loan amount that an investor qualifies for. This ratio is calculated by dividing a property’s projected net annual income (income generated through rent) by its annual debt service (which includes the investor’s mortgage as well as any principal costs or interest). The number that you are left with tells you what percentage of your net operating income covers your annual debt payments. The higher the number, the more of a profit you earn. Ideally, lenders look for a ratio of 1.25 or higher.
DSCR loans through are a great option for self-employed real estate investors, since applicants do not need to provide a W2 or income verification–the only personal finance information that is likely to impact your approval is your credit score; lenders prefer to see a score of 680 or higher so they can feel secure in your ability to make on-time payments for your loan. This is because, when determining the maximum amount for a loan, the only thing that really matters is the value of the property itself. Lenders will provide you with the loans you need if they can see success and value in the property that you’re purchasing. If your request for a loan does get approved, you should consider it a sign that you’re on the right track and making the correct choices to grow your investment portfolio.
Using Your DSCR Loan
DSCR loans are intended to be used toward the purchasing of commercial properties (properties that generate a rental income). Lenders have strict rules that state they will only choose to lend on rent-ready residential properties of up to four units, including condos and townhomes, with a minimum property value of $150k. This means that most lenders will not approve loans for any properties with any deferred maintenance other than basic wear and tear, and that all properties they approve loans for must have an appraiser rating it to be in C4 condition or better. Most lenders will also not approve loans on manufactured homes, log cabins, mobile homes, or vacant land.
Since almost every aspect of the loan is reliant on the property itself, it’s important that you do the necessary research of the market to find the ideal property to invest in. It isn’t enough to base your decision on the property itself.
There are so many factors to consider when it comes to the rental value of your property, namely; the attractiveness to potential tenants. What’s just as important as the property itself, if not more so, is the property’s location. When selecting an ideal rental property, you should consider looking at the rest of the neighborhood to get an idea of average income and employment rates, median property values, the number of owner-occupied homes etc. All of these factors can have an impact on the success of your investment property as a rental.
You should also take a look at the ratings of different school districts, especially if your goal is to rent to families, since this is something that will impact their decision on where to rent. You should also consider the proximity of your investment property to different attractions. For instance, if you are investing in an area that has a lively downtown, you might consider looking at properties within walking distance, and highlight that feature as a selling point to potential tenants. With the right research and planning, you can shape your investment property to be a huge success.