Can I Use a DSCR Loan for a Fixer Upper?

Can you use a DSCR loan for a rental fixer upper? That's what we're going to go over today. Hi, I'm Mike Bond with The Cash Flow Company, and I wanted to go over one of the top questions we get here, either through emails or from a phone call, and that is, can I buy a property that needs some repair with a DSCR loan and have that money included in the loan? And I want to make sure everyone understands what a DSCR loan is, what it's not, and the proper way to handle, something when you're looking at a rental fixer upper. So the quick answer, can I use a DSCR loan for a rental fixer upper? And the answer is no. A DSCR loan is for a rental ready property. That means the property has to have a tenant move in as soon as possible. So if you're buying a property and it's missing the kitchen, it's missing a bathroom or whatever it is, and it needs some repairs before a tenant can move in, a DSCR loan is not your choice. Now there are choices for this particular option, but it is amazing how many people call, email, like I've said before, and are looking for a option, an option to get into a property that is, you know, value-add property, needs some work, and then they're going to keep it as a rental, and it's not a DSCR product. So we want to make sure you understand what a DSCR is and what it's not. So DSCR is Debt Service Coverage Ratio, and it is designed just for rental properties because it focused the income on the rental property, not use. You don't have to have tax returns that qualify for the property. You don't have to have two years in business. It is a great product for a rental property, purchasing or refinancing cash out, whatever it may be for a rental property. But it is not a loan that you could use when you're buying a property, putting some money into it, and hoping you can keep everything in and under that loan, meaning you could finance in the purchase and the rehab. DSCR is not your option. So if you're looking at properties and you're looking to get a deal, buy a value-add property, your first step is looking at the right product, the right loans to get into that kind of investment. DSCRs, rental-ready properties, value-add when you're going to take some time, fix it up, maybe get it up to market. That is more under the BRRRR strategy, and if you don't know what BRRRR is, we have a great download at cashflowcompany.com. It's just a quick map you can download there, going over the strategies. So in the BRRRR method, you really are talking about buying a property with a bridge loan. Even though it's called a fix-and-flip loan, you can also use a fix-and-rental loan. It does the same thing. It's this exact same loan just to buy something that needs repaired. That's what a bridge loan, fix-and-flip loan, or a product your bank could have that targets short-term loans to buy something, bring it up to market, and then once it's up to market, once you've fixed the bathroom, once you've fixed the kitchen, got the roof done, brought it up to the standard so you can rent it, that's where you then can refinance it into a DSCR loan. So there's the biggest difference. DSCR loans are for rental-ready properties that you purchase, and you can put a tenant in there right now or within a week or two. The second option is if you're looking to buy a property under market, which a lot of investors are, you're going to have to look at this strategy, the BRRRR strategy, where you buy it with one loan, get it all fixed up, once it's up to market, once it's rentable, then you refinance it into a DSCR, conventional loan, whatever it may be. But you have to take the steps to get the property up to market, up to rental grade, before you can get a long-term loan. Here at The Cash Flow, our goal is to make sure you get in the right loan, the right loan that makes it easier for you to get through the process, get it from value-add all the way up to refinance. So reach out to us. We'd be glad to help you. We have some great tools on our site just designed for you. They're free, they're downloadable. Go out there, check them out, make sure you're in the right loan product that you need. And if you're looking for 100% financing, if you're in this game, we also have a great book, 100% Financing 100% of the Time with MoneyBike. So check that out, and we'll see you in the next video.