BRRRR Method with DSCR Loan | Investor Loans

Burr method with DSCR. Hey, what's going on everybody? Jeff Travartha and Jeff the Mortgage Pro. Thanks for watching today. We're going to talk about some real estate investing strategies here. It's called the Burr method. You can probably Google it. You've probably heard about it before. What does it stand for? It stands for buy, renovate, rent, refinance, and then repeat going forward. So B-R-R-R-R. And then we're going to use a DSCR loan for this one, which is again, right in my wheelhouse to be able to do this type of a project. Okay. So let's, before we get into it, do me a huge favor, go ahead and click the like button down below if you like these videos. And if you really like these videos, please go ahead and subscribe. I'd love to have you as part of my journey and getting as much mortgage information and education out there as I can so that you have a transparency in who you're working with as lenders. And I'd also love to be your lender if that's something that you're going to be doing going forward. So thanks so much for supporting my channel. I appreciate that. Okay. So Burr method, B-R-R-R-R, and then using a DSCR. So how are we going to do this? So most likely you're an investor. You're going to buy a property that is not in perfect condition. So you can use kind of like the fix and flip strategy to do this. That means you're going to buy a property. You can use different types of loans for this. I've got fix and flip loans that'll be able to help you. You're going to buy the property. You're going to renovate the property with the fix and flip loan. You can actually finance your rehab budget for you. So this might be a loan that you start with, with the fix and flip loan. And then when we're done with it, we're going to do a refinance and we're going to use a DSCR loan to cash out on that thing and hopefully recoup some of our investment to be able to get our money back going forward. So we're going to start with the fix and flip strategy, and then we're going to end up with a DSCR loan for a rental property going forward. So what are the numbers look like for this? So this is something that I want to make sure that I can share with you because I am doing some of these transactions right now. And I think that it's a great strategy for investors. You can be a first time investor. You can be somebody that's an experienced investor. And you have to realize whenever you're buying property, then it doesn't matter really what the interest rate is. As long as you can get your project done really fast, then you're not going to realize a huge loss in capital because you're going to pay that loan off really, really fast. So even if the interest rates are high, it's short term money. Get in there. It's free money. Like you get in there, do the money or do the transaction and then get out and get your better terms going forward. So here's what the DSCR loan looks like right now. So you need a hundred thousand dollar minimum loan amount for the DSCR transactions. There's a few, very few of them that go under a hundred thousand dollars for a DSCR type of a loan. The ones that do go under a hundred thousand dollars, they often have what's called seasoning on their cash out refinances. So that means you have to wait a certain amount of time before you can do a cash out refinance. Some of them were three months, some of them were six months, some of them were 12 months. It just depends on how long or what investor you're going to go with. Investor meaning lender that you're going to go with when you're doing this type of a transaction. So a hundred thousand dollars is typically the minimum loan amount. 680 credit scores are better. Obviously the better the credit, the better the terms are going to be on this DSCR cash out refinance. It's can be a 30 year fixed term, or you can do a five one arm. The pricing is almost the same. So for the most part, I would probably recommend that you just stick with a 30 year fixed it types in terms of this DSCR refinance loan that you're going to do. You can go up to 75% cash out with my product and it's based on the new appraised value. Okay. So let's say you buy property and you buy it for X and it, you know, do some work on the property. Now it's worth Y. So the property went up in value because you did the work on the property and you want to try to recruit some or all of your cash. And if you did a great job and the property improved in value significantly, you can take up all of your financing back out with that refinance loan. And it's based on the new appraised value of the property. So that's the good thing about these DSCR type loans. There's no seasoning on the cash out on my particular property. So you could buy a property one day, spend a week rehabbing it and then go, okay, the property is worth another $50,000. Just making up a number obviously. And you could do a cash out refinance starting right there up to 75% loan to value of the new appraised value of the property. Now, I don't know if you guys know, that's huge. Again, I mentioned earlier that most lenders will make you have a seasoning period to be able to do that cash out refinance. My product does not have a seasoning. You can take cash out immediately as soon as you finish the first transaction of buying the property. And whether you've done some light rehab work and you're just going to turn around and refinance in and rent it out, you can take out up to 75% of the new value of the property. So that's huge. Four to six months worth of reserves. And again, that kind of depends on the credit profile of the borrower that's doing this type of a transaction. Again, a reserve is just the monthly payment, principal, interest, taxes, and insurance times however many months we need. So if it's six months, then we need principal, interest, taxes, and insurance times six. That's a reserve. Reserves is just money left over after the transaction is done. It doesn't have to be cash. It can be like 401ks, stocks, bonds, cash in your checking, your savings accounts, whatever it might be. Those things all qualify for reserves. So again, it's just a risk calculation for a lender. Usually the better the credit profile, the lower the reserves and then vice versa. The worse the credit profile, the higher the reserves you're going to need in the transaction. So you have to have a DSCR ratio of 1.0 or better. That means that the property has to bring in basically one more dollar than the principal, interest, tax, and insurance going out. So if let's say the principal, interest, tax, and insurance is $2,000, we need a cash flow or income coming in for our loan purposes of $2,001. That means that it's going to bring in one more dollar than our PITI going out. Now this is really important because the cash flow of the property is what matters when you're doing a DSCR loan. So make sure that your projected rental income when you're going to do a BRRRR method and do the DSCR on the cash out portion of it is going to make sure that the property cash flows going forward. There's a couple of good places you can estimate what rent is. If you don't know, you can look at Zillow. Sometimes they have a good number on there that has a rent estimate on there and you can kind of determine what the rental income is. And then another website that I found is called rentometer.com. That's another one that you can look at that has a good idea of what the rental income can be. That one might have a subscription if I'm not mistaken. I have no affiliation with that, by the way. So just those are a couple of ones that I'd look at sometimes just to kind of determine rental income going forward. These types of DSCR loans can be anywhere from one to four points. And why is it so expensive? Well, number one is because of the seasoning on the cash out, there is none on this type of a transaction. So there's not a lot of lenders that will be able to do that. And one point probably on the higher loan amounts and four points on the lower loan amounts. And it could be up to that. It's definitely, again, going to depend on the credit profile of the borrower in the transaction. So that's just a range of the cost potentially of doing a DSCR and a cash out. And then also you can do an interest only payment available. And so that can help you lower the monthly payment. It would just be interest taxes and insurance instead of paying the principal as well. And that can help you qualify for the DSCR if you really need it to be able to do that. So it doesn't mean you have to make that monthly payment every month. You can always pay more, but you can never pay less than what the minimum amount of payment is. And when we're doing a DSCR method, folks, just so you guys remember, these are the specifications for lenders, right? There's obviously going to be other expenses associated with owning property, whether it be electricity, gas, water, garbage, all those other things that maybe you pass on to the tenant, but maybe if you have to pay them, then you probably want a better rental income coming in compared to the expenses of the going out on there. So just, I understand that, but these are the specifics for a loan just so you guys know. Okay. All right. Let's do a quick example before I let you go here. We're going to buy a fixer at $200,000. And the after repair value of this particular property is going to be $300,000. And that after repair value is determined by an appraiser when they go out and they go out and figure out what the property is worth after you've done your renovations on the property, because you're going to need a new appraisal when we're doing the DSCR part of it. So you're going to put 20% down. You're going to finance 40,000 of the rehab budget with my fix and flip product that I have. You're going to complete the renovation and the rehab. That's the second R there. And then since the property is now worth 300,000, we can cash out refinance. That's another R in the BRRRR method to a loan amount of 225,000. And as long as the property cash flows with a renter, that's another R in our BRRRR method, is determined by the rent schedule that we're going get when we do the appraisal process. They're going to do either a short-term or a long-term rental. Most likely it's going to be a long-term rental. And then we're going to determine what that rent is that's coming in. That's the number we're going to use for our debt service coverage ratio. And then you can actually recoup your money on this deal and cash out more than the money you put in. And you now have a cash flowing property going forward, which is really, really cool. And then the last R stands for repeat. So if it works for you and you do a good job of this, all the numbers line up and you're able to recoup your money that you put into the project or the investor put in the project, and you're able to get your down payment back, then this is a win, win, win for everybody. So do it again, repeat the process and go out and get your next one. And we'll be able to help you on that next one as well. Hopefully this made a lot of sense for you guys. If you guys have any questions at all about the BRRRR method and then using the DSCR loan to do the cash out refinance, please reach out to me. This is my favorite transaction to do, and I look forward to helping you guys on your next one. Have a great day guys. Bye.