Ok, I have done a ton of reading and feel like I have a pretty good grip on this but I wanted to run it by everyone. I just purchased a two family using our HELOC with the intentions of remodeling and then doing a cash out on it. The whole idea of this is an attempt to scale my portfolio with the smallest amount out of pocket as possible so that we can continue to do this over and over. I am now researching my best options for cashing out. As I understand it a DSCR will come with higher rates and potentially only being able to cash out 75% where as a traditional cash out should have lower rates and the potential to cash out 80%. Am I missing anything here? For the first few I shouldn't have a problem qualifying for a traditional cash out but will likely have to switch to DSCR at some point due to DTI. I am thinking a traditional cash out will be the move for the time being but I am open to suggestions as well as things I should watch for and pay attention to throughout the process and as I continue to scale. Also if you have any banks you have liked for either product. As I learned while sourcing a HELOC lender, the terms range drastically. Ultimately I am looking for a lender with the lowest fees and highest cash out percentage. I am also wondering if the lender matters when it comes to the property valuation (I know they will still be subject to appraising out but I worked with one bank in the past who severely undervalued the property out of the gate). Any help is greatly appreciated!
Posted by ohheygfy
2 Comments
Why would you have a problem with dti? If the properties all cashflow, by definition you are increasing your income compared to your debt obligations.
Where are you seeing 80% on the conventional cash-out? Pretty sure 2-units are capped at 75% for investment cash-outs, which would make the gap to DSCR way smaller than you’re thinking. DTI’s also gonna bite sooner than you’d expect because they only count 75% of the rent and usually want a full year on your Schedule E before they’ll even use it. And watch the 6-month seasoning rule or they’ll cash you out on purchase price instead of appraised value, which kinda kills the BRRRR math. Honestly just call a bunch of local credit unions and small community banks, portfolio lenders are way more chill on this stuff and nobody talks about them enough.