DSCR Loans Explained in 5 Minutes for Real Estate Investors!

Today I'm going to go over DSCR loans in five minutes or less for you new investors out there. I want to show you just how easy DSCR loans are for you investors out there buying rental properties. No W-2s, no income taxes, just property income. Everyone, I'm Mike Bonin with The Cash Flow Company. For 30 years I've been helping tens of thousands of investors start out, build their wealth, and enjoy life a little bit more. Today we're going to go over DSCR loans, which stands for Debt Service Coverage Ratio. All you need to know is it's a loan built for investors, real estate investors, buying rental properties. As long as the rental property's cash flow, you are qualified for that property. If you want to start investing now, you want to get this thing rolling, making that wealth, DSCR is the perfect loan for you because you don't have to wait the two years you do for conventional loans or even local banks because it doesn't require your taxes. It doesn't require your income to be shown. It's all based on the income from the property and your credit score. So along with your credit score and a property that at least breaks even, you're 80% of the way for getting that property with a DSCR loan. So how do they determine if it qualifies? It's called a DSCR ratio. And all they do is make sure the property breaks even based on a couple factors. They take your rents and they divide it by your monthly mortgage payments or what they would be, which includes your principal, your interest, your taxes, and insurance. And they also verify if there's HOA and or flood insurance. So if you don't have HOA or flood insurance, you don't have to worry about that. It's really just your payment is being covered by the rents. So if your rents cover your payments, you're good with a DSCR and the income portion for that loan. How simple can that be? No more W-2s, no more tax returns, no more talking to the accountant. You could get going right now with a DSCR loan based on just the rental property. And what does that look like? Let's just walk through a quick example. Let's say the rents on a property are $1,500. Your payments, your principal, your interest, your tax insurance are $1,200. So all you do is divide the $1,500 by the $1,200. And in this case, you're going to see the DSCR ratio is 1.25. Don't worry about coming up with these calculations. We're going to give you a free download that you can put in any property, see if the property qualifies. Because remember, it's the property that needs to qualify for the income. They're not going to ask if you're employed, how long you've been employed, if you just started your business, or if you just started investing. So that's the beauty of the DSCR loan and why you have to understand it. Because it is a newer tool for investors. They're perfect because it's not based on your income. It's based on the property. You want the property to at least break even or make money? So do they. You could close it in an LLC so you don't have to keep it in your name. And these loans close faster because you're not getting all this paperwork. And you could scale. You could do as many properties with a DSCR loan as you could find that are at least breaking even. So if you're a person who's just starting out or you write off everything, DSCR loans are what you need for rental properties. And now that's the next part. What are DSCRs good for? What are they not? DSCRs are made for rental properties, typically one to four. But there are options for larger units or numbers of doors. But they are not good for properties that you need to put some work into. Anything that is not rent ready is not good for a DSCR. So if you're looking to fix a flip, not to your property. If you're looking to fix and even hold if there's a lot of work that's not rental ready, not a good fit. Also understand that DSCRs come with prepayment penalties. That means if typically there are three or five years, if you pay it off, refinance, sell it within three to five years, they're going to charge you an exit fee. These are for 30 year fixed programs. They're for longer term options. That's what DSCRs are made for. Rental properties, when you don't have to use your income and you can close as fast as you can. So if you're new to investing, you want to create that wealth. You want to create that income. DSCRs are a great source because you don't have to wait until you have two years experience. The income is generator based on a property. You want to find good properties anyway. You want to find good properties that are cash flowing, bringing in more money for you. So you could just enjoy life a little bit more. Not only financial freedom, but mind freedom. Get to the point where you don't have to worry about what you do, how you do it. The income is being generated well from the real estate. Now, as promised, the key to this whole DSCR is making sure the property qualifies income wise. So we have a free DSCR calculator. We've had it for years. It is a great tool. You can just plug in your numbers. See if that property qualifies before you put it under contract, before you buy it, or even before you refinance it to make sure you get your LTV. So download the DSCR calculator and we'll see on the next video.