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Blackstone’s $271M Loan on Manhattan Multifamily Portfolio Hits Special Servicing
It takes longer than you think, why the market won't bottom until Q1 2025
I nailed DSCR prior to the run. Let's try RNVA!!
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If you can find a better rate do it ....check out buying government savings bonds, if you dont have a trust yet get one, and get an LLC and a holding company if you buy realestate or start a business. look into a life insurance policy as an investing tool,think about buying an investment property you can live in like a duplex or multifamily that will pay for itself, giving you csshflow, i wouldn't pay cash for a property if you can get a DSCR loan
"when the going gets weird, the weird turn pro" because I get my financial inspiration exclusively from drug-addled memelord hacks, I am going load up on about 0.4% of all the EAST in existence. Because nothing says "the weird have turned pro" like a publicly-traded micro-distillery (headcount: 47) which also happens to sell exotic mortgages to desperate Gen Z kids who just inherited $200k from nana and think AirBnBing a condo with a DSCR loan (and TikToking about how clever they are) will free them from a life of miserable drudgery doing actual work.
At the end of the day, the GFC was fundamentally an affordability issue. Since 2021, the average US mortgage payment has increased by 30%, not even accounting for ever-rising utility costs. Today, anyone can get approved for a DSCR (Debt Service Coverage Ratio) loan with no income—I did. The terms were 20% down, 8.5% interest over 30 years, with a pre-payment penalty. It’s subprime, but achievable. DSCR is becoming the new NINA (No Income, No Asset). There are credit repair websites where you can buy a CDN with tradelines or get instructions on how to build them yourself to qualify for a mortgage. This trend is particularly significant in the Hispanic community. The credit repair industry is a rapidly growing $4 billion market, projected to double in the next ten years. Do we have more well-qualified buyers, or have credit repair services simply become more robust? Banks are also introducing new tools like rapid rescoring, which helps qualify a higher percentage of potential buyers compared to previous years. Although there was a time when we had "more qualified buyers," this has somewhat declined over the past 5-6 years.
Since you're doing a conventional loan, no need to worry about buying a home for yourself. You still qualify for an FHA loan when the time comes. Buy this with a conventional, or open an LLC (quick, easy and inexpensive) and use the LLC to buy the home with a DSCR loan. If the house is in a touristy area or somewhere where it could be rented out, say on a lake or in the mountains, post it on AirBnB and VRBO and have renters help make the payments when you're not there; use it as a personal vacation home when it is not rented out OR block off dates you know you'll want to visit. I encourage visiting a couple times a year if you are renting to make sure the house is not being ruined by renters. You'll want to have a trustworthy handyman and cleaning crew on stand by.
Just calculate the ROI, ignoring any appreciation because that can be a fools game, and you get your answer. You can find calculators online. Don't forget to add ALL costs. Not just mortgage, insurance, and property tax. Utilities, maintenance, etc. 10% beats the average stock market return, and it's property so it has inherent (real) value (unlike a lot of stocks). Bear in mind, it's not the most liquid asset and prices are likely to drop in the near term. If you're buying to hold for 10 years, the price thing is less important. If you can buy all cash, then you can look at mortgaging it (regular or DSCR) to get the equity out so you can buy another place. Rinse, repeat. As long as you factor in disaster scenarios, this is how a lot of people get rich.
Do you want capital appreciation or do you want current income. It sounds like you have income so the question might become "do you want to continue working?" You could be a million dollar multiple unit with a higher net income using a DSCR loan. These types of multiples are more likely to be found in the midwest. Really it all depends on you. As for previous financial advisor I noticed the people with real money in life just never sold.
Most of those added jobs are part-time, govt. and contracts. Real wages aren’t soaring, not sure where you’re getting that info from. 30 year mortgage over 7%, 60 month auto financing over 8%, credit APR over 20% (which is the primary driver of the economy as of now) and inflation nowhere near hitting 2%. Also using DSCR as a measure of economic health? That’s highly specific and is only a concern to highly leveraged co’s…
CDS on DSCR loans is the real trade!
Most likely people have/had maturing loans that were super high leverage in the low rate environment. 5 years later those loans don’t pencil out at the new interest rates. Most will probably need capital contributions to get the amount within acceptable DSCR ranges.
Definitely Bank dependent and not near term, this is looking forward towards end of 2024 at the earliest, and is heavily dependent on concentrations as a percentage of capital. We are seeing big increases in reserves at most Banks like you said. Also not trying to say this is going to topple JPMC but big reserve increases and/or charge offs is going to hurt lending industry wide as Banks need to maintain more capital. And that of course hurts the economy. Total implosion like 2008 seems unlikely but there’s a variety of factors that are adding to an already increasingly stressed economy. Office is primary like you said but also seeing risks emerging in retail and multifamily, with apartment complexes that would need to raise rents 20-40% to cover new DS assuming no change in the FFE from today. Plus 2-3 year old appraisals that may be massively overstating value because of 4% cap rates at the time. There is always the chance that these investors can find restructuring agreements or inject equity but its a risky bet to take if you’re the lender, we’ve seen plenty of investors walk before. I also think lending standards aren’t quite as high as you think across the board, but obviously Bank dependent. For me it’s not uncommon to see 1.2-1.5x DSCR on sub 6% rates for office, retail, and MF that stress test below 1x with either reduced occupancy or higher rates. While we have regulatory LTV limits now there aren’t really any regulations regarding cash flow for commercial (aside from controls, governance, etc etc)
While my margin may seem very aggressive and risky, if you look at it in terms of debt service coverage ratio (DSCR), it is actually well within typical levels if one were to treat it as a loan to a business. This measures cash flow received vs cash requrired to service the debt. If debt service is $10,000, then one would need cash flow of at least $15,000 to have a ratio of at least 1.5 (15,000/10,000). A DSCR of 1.5 is typically considered a reasonable minimum. For example, one can get an SBA loan for a small business up to an amount that provides a DSCR of 1.5 or above. With margin of $622,650 at the current rate of 6.38%, this results in annual interest of $39,725. My cash flow from this investment is currently $72,100. This gives a DSCR of 1.81. This is actually not particularly risky. Now add these additional facts to the equation: The dividend is expected to grow (my cash flow and thus DSCR will therefore increase). I am highly confident the dividend will grow annually over the next 6 years based on the projects/investments they have in the pipeline. The federal reserve is expected to cut rates three times this year, and then another 1-3 in 2025, meaning the interest rate will decrease and thus the margin interest I pay will decrease. Thus, the DSCR will further decline. I am also adding cash at regular intervals to my portfolio from savings. Decreasing the principal balance of the margin and thus increasing the DSCR even further. The bottom line: I honestly don't consider this level of margin to be all that risky. I just need to be sure I can handle a margin call, which I can up to a point. I am able to add sufficient capital to prevent selling anything so long as the share price stays above $21 in 2024, which I consider highly probable.
I’ve had 6 mortgages and I have no clue what DSCR is.
>??? In the US the vast majority of mortgages are 30 year fixed. You like in some regarded country like “Bri-un” or some shit? DSCR loans aren't long-term fixed rate.
IO loans allow for a company to “boost” their DSCR in order to make distributions, or obtain additional financing. Without a principal portion of LTD, there is no current portion (due within one year) recorded on the current liabilities section of a balance sheet. (Boosts ratios lenders care about) Currently alot of DSCRs are beginning to fail due to lower revenue and higher OPEX (we dont include CAPEX, it depends on the asset, again boosting DSCR) Now, take a company that doesn’t make any money (net loss), they need need financing in order to obtain cash to operate. Something also people will soon hear alot of is asset impairment charges (FMV less than book value), doesnt even matter about HTM portfolios, auditors will make you book an impairment charge, no if ands or buts.
There’s tons of options right now for owners facing an impending loan maturity. Hell even some of the life companies are offering bridge programs. As of today, the worst of it is behind us. Treasuries have dropped by over 100 bps from October. Post 2008 underwriting standards have also been incredibly tight with average LTV being 65% and a 1.25 DSCR. Granted this doesn’t mean there won’t be any defaults, the regards who levered up to the tits in certain asset classes will feel the pain. Unless the Fed cuts rates quickly, we are at a survivable interest rate level. People forget that 3 handle coupons were unheard of until COVID. Things are getting back to normal….
I mean, it’s technically his problem because th bank is going to repossess his cash flowing assets, which now probably have a DSCR of . 8, and liquidate them at pennies on the dollar. The book is good though. Definitely no technical advice, but I haven’t found anything that teaches the mindset of thinking like an investor quite like that. It’s definitely the one that started my income/lifestyle investing journey. So I’ve gotta give him props. But in general, the more I hear this guy talk, th more I’m disappointed. Haha. I think biggerpockets is probably the best place to start now as a young investor trying to reach financial freedom. Real estate is definitely better than stocks, return wise. Not effort/energy wise.
CRE: commercial real estate GP: General Partner - typically referring to the role of a private equity firm in managing a private equity fund LP: Limited Partner - typically referring to the investors in private equity funds managed by the aforementioned GPs LTV: loan-to-value ratio - the loan as a percentage of the property value. DSCR: debt service coverage ratio - it varies but is usually a ratio calculated as some sort of annual earnings metric divided by debt service (i.e. principal and interest payment) on a loan. Shows the capacity of a business to meet it's repayments. Lenders require that it stays above a certain level. NNN: triple net lease - a type of lease under which the tenant is responsible for paying the bulk of property costs (instead of the owner) such as maintenance, property taxes, rates and insurance.
Well you simplified it a lot more too. It also depends on if the CRE GPs are taking on recourse or non-recourse loans (and likewise recourse fees from their LPs - passing the buck.) In this environment its really hard to get more than 65%/maybe 70% LTV on a non-recourse loan for CRE and you're taking 100-200 basis points of added interest. Then the bank does a SHIT ton of underwriting on the property once you go past your 5/10 unit limit using DSCR. By the time 3-5 years is up on your typical NNN lease on CRE you're probably at a 50% leverage ratio.... and the bank has no problem taking over the property/trying to sell it/if it doesn't sell using the other covenants of the loan to get a new tenant in and cutting NNN lease rates to do so.... Then if the GP takes a recourse loan to get his 70-75% LTV then despite being a company with one building the bank can still go after the GP's other assets/holdings, so his % of investments/carried interest/etc is at risk regardless of structure. No seasoned GP is signing recourse loans in this environment lmao. Then regardless of recourse/non recourse the bank(s) can always sue for gross negligence in managing the properties if that significantly contributed to the decline/etc. So while this guy is jesting its the bank's problem, in reality, unless he's getting special 75% non-recourse poorly underwritten loans just due to his billionaire status (lots of people wised up after Trump's RE journeys), in reality if he really does default with that kind of leverage it's likely going to be a his problem, not the bank's problem.
Invest in multi family units with cap 9-10%. Don’t purchase entire property, get DSCR mortgage on property. Put 25-30% down with 5-6% rate, on 10% cap you’ll have 4-5% difference and on 25-30% money you’ll have 3-4x multiplier, so 12-20% return on money. Don’t sell, hold and maintain properly property. Enjoy consistent return of 480-800k$ return on property. Property must be either next to you or next to someone you can trust who either lives in one of units or live next to it. If you don’t know how to pick property, I can advise. Good luck.
ARMS/NONQM/DSCR All the same bullshit- different names for them. You think it’s going well? Go check out how Canada is doing right now. Practically their entire real estate market is foreign owned (investor) owned. Go. Please. Go take a peek at it. I don’t know if 25% is accurate- people filling out their Airbnb houses as “secondary homes”. If you’re taking the data coming out at face value then…. 👋🏼
During high interest periods as now, sometimes it's ok to just purchase 100% property, get net 9-10% cap with minimum property maintenance and when rates go down to scale putting current property as collateral, with DSCR and proper investment history you can qualify for 20% downpayment on multi family residential - x5 your debt on 5 properties. But I know old school investors, they are fine even to get with 1% margin between DSCR rate and property cap, you still qualify on 1.1 DSCR ratio. About 8-9% cap. All properties we hold are capped 11% up :) You just gotta pick up from private market or distressed properties.
What do you mean x5 DSCR? I know what a debt service coverage ratio is and everything else you said I understand, but confused on the x5 DSCR. I also thinking it’s pretty hard to find anything stabilized in a metro area for an 8-9%. That seems like early 2000’s pricing.
100M and invest in stocks… You better diversify in couple states and invest in real estate than bullshit stocks. Nice residential buildings and if rates would go down you can even get x5 of DSCR loans in properties having 500M mortgage loans with 3-5% interest and buildings with 8-9% cap. And hired proper building manager. This is real implementation of 100M$. Whatever majority discuss here Schwab, Fidelity, this stock, that stock probably forgot that in 2008 Merrill Lynch almost went under water with all cash accounts in it, credit suisse was involved in fraud, manipulation and almost got busted etc. I would never trust a dime to brokers and public stocks, unless you sit in management of company and have everything under control.
It had to do with gaming the DSCR calculations. If you lower rent too much, it the DSCR ratio falls and if it gets too low the lender takes over management. One time concessions don’t hurt the ratio as much, so instead of doing an across the board 15% cut they just offer a month or two free.
Curious if you (or anyone else) have ever heard of a DSCR loan...? I just learned about them recently. I have heard rumors of some pretty risky deals being done on these things. Like 12% interest rate, no downpayment, but you commit tons of collateral. People are using them to buy up multifamily homes (a 3-flat in Chicago) and the lender considers the rental cashflow as part of the de-risking of the loan. I guess you can get one of these things with a 620 credit score and no background checks. I think the purpose of them was to give legitimate real estate investors easy access to buying property in the mid-2010s to start of kick start buying again. But like everything that tends to be made for the experts, the little guy sees a get rich quick scheme that can't fail. Just what I have heard. Would be interesting to see if anyone can corroborate.
You can be approved to buy a rental property with a DSCR loan.
If you are seriously considering an investment property look at the DSCR loan. I wanted to do a short term rental property, however they've really been cracking down in the areas I want to purchase and every township has their own policies as it relates to STR, so it can be a massive headache. If you know you can find renters, as long as the rent is enough to cover the mortgage payment -- DSCR is the way to go they don't require proof of income, I don't even think there is a credit check. What they do is they check out rents in similar properties to decide whether or not the rent will be enough to cover the mortgage payments.
I take it you don’t work in the sector? Construction loans are the problem lmao. Your carry costs suddenly triple as SOFR skyrocketed and btw you now have maturity coming up in 6 months or less… you think any lender is going to offer you a refi at 25%-50% occupancy and a DSCR < 1.0? No refi = default on that non-recourse loan = banks are going to be holding a shit ton of toxic assets no one wants. Suburban office parks, core office high-rise, mid-rise office in urban nodes… take your pick, they all are holding on by a thread right now. Only office doing remotely “OK” is new Class A++ in ultra-prime locations, but those are basically just strip-mining office tenants from other buildings. Oh and don’t even think about adaptive reuse (office conversions) at these land prices, because it costs a boatload of cash to convert to multifamily and just doesn’t pencil unless owners get real about the value of their office properties. Industrial was overbuilt over the last decade and will struggle going forward (though not collapse). Multifamily has giant headwinds for rent growth due to limits on affordability and much new supply coming online. Retail has faired surprisingly well actually, though it is the most sensitive to people’s discretionary incomes and will look bleak once the collapse in office (and contagion to other markets) happens. Office was once the darling of CRE, with the largest level of investment save for multifamily. So yes, the utter decimation of that particular food group will be enough to precipitate the collapse of the market as a whole.
>DSCR is the metric you're looking for. Because rates were low when this debt was issued, it's not as burdensome as it was in 2007 how is DSCR doing today?
You gonna tell us what DSCR is?
Why? Which is worse, 50 DTI at 3.5% or 40 DTI at 8%? The metric doesn’t matter in a vacuum, which is what that chart is. DSCR is the metric that really matters, and it works fine in isolation. Show that graph. For the lazy, consumer debt service to income is : Today : 9.6% 2007: 13.2% Consumer balance sheets are about as healthy as they’ve ever been.
Debt to income ratio doesn't matter. DSCR is the metric you're looking for. Because rates were low when this debt was issued, it's not as burdensome as it was in 2007.
Nope it’s that easy. Unless you commit fraud when getting the loan and overstate income or a few other bad boy carve outs it’s as simple as saying I don’t want this anymore it’s yours. The lender knows that going in the door and that’s how it done. I’ve never personally done it but a lot of people do. It is a question that is asked when you apply for another CMBS loan but all the originators I talk to say it doesn’t impact your ability to get new loans unless there has been fraud Personally I don’t mind recourse as I’m not a high leverage guy and as I said before I maintain a high DSCR. I have maybe 150m in CMBS but as it rolls off over the next few years I don’t have any plans to renew it. I would rather work with relationship lenders just because it’s easier and my accounting department hates dealing with all of the reporting and other stuff CMBS requires. It was worth doing when I could get 4.5% debt fixed for 10 but right now regular banks have better pricing than CMBS so other than non recourse I have no reason to use them. But from 2012-2018 it was a great source of debt so I did a lot of it.
What are your DSCR requirements?
The appraised value of the properties not leveraged do not help with the approval. Only the income earned through rent rolls do. But that’s no different then a W2 job in terms of debt income ratio calculation. It’s going down a rabbit hole to talk about financing on investment properties because most people use DSCR loans or conventional loans. The latter would still take your debt income ratio into consideration. Also there are different opportunities if “house hacking” ex: buying a fourplex with an FHA loan you are able to use a portion of the future rental income for your debt to income ratio even though you don’t yet own the property and haven’t collected a dime.
I'm not the one failing at critical thinking here. Prices are already declining in the current market (spring busy season, notwithstanding), and literally any change to the overall economy and current housing market is likely to accelerate declines. Unemployment is extremely low, interest rates are rising, most airbnb hosts have adjustable DSCR loans, housing starts exploded last month, etc, etc, etc. The only things that would support these prices over the next 5 years is if interest rates start coming down again (not happening), or if peoples incomes rise enough to be able to actually afford these prices (lol). Literally anything else, including the status quo, results in further price declines.
Revenues are down 50% while number of hosts is at an all time high. A lot of airbnb hosts took out adjustable DSCR loans too, and even with rents where they're at, it's easy to go underwater on a lot of these properties when you break everything down. What do you think is gonna happen to rent prices in markets that have the worst fundamentals as well? Rent increases are slowing down across the country as well, and even declining in some places. If a bunch of hosts switch to being landlords that will only further the decline and make the math even worse.
Referring to an analysis tool like DSCR as "The Cash Flow" is really weird and I've never come across anyone who would call it that. Do you have an example? I'm curious now. Also, the statement of cash flows contains the information used in the DSCR.
Commercial property is so insanely vague it doesn’t seem like there is any real research being done. Additionally, exposure numbers to real estate only take you so far. What is the portfolios average - loan size, LTV, DSCR, debt yield? A Blanket exposure number also does not address geographic granularity, CRE portfolio property types or personal loan guarantees. Office properties may look scary. But if a Banks exposure is 1% off the loan book, is it that scary? Multi family properties are still very strong, as are warehousing, industrial and even some specific retail. All of these fall under CRE. That’s not even getting into specialized properties you can see with Healthcare for example.
They probably fought tooth and nail to juice the appraisal and now when the loan came due they have to dump $100 million in to give them just a chance at covering the DSCR.
If you do not have bad credit, and even if you do, they have what are called DSCR loans. They are solely based on the property value. If you find a property that comes in at less than 50% of ARV (after repair value) that is as acceptable as skin in the game because it is instant equity in the property. You wanna know what to do right now in the Phoenix metro area that will make you a ton of money if you do it right? Go find a good, cheap piece of property like a half acre or so in Mesa, or East Phoenix, or out towards the square. Tear down some of those mobile homes at the foot of Sunnyslope Mountain. Go find yourself a newly graduated civil engineer and have them draw up and sign plans for a mobile home park infrastructure. Then go find some of those people who are going to be kicked out of their mobile home parks by the end of next year. offer them 3 months of free rent, if they will write a deposit and sign a lease agreement with an open date sometime before their park closes. Get 10 of those, then go to the city and the economic development council, and get you some government bond financing to pay for setting up the infrastructure using the contracts as collateral. Then, sit back, and sell the plans, the land, and the contracts for 20 times (maybe even 30) times the money you paid out. Then take that money and do it again. I bet you could even go buy mobile homes from people for really cheap, or maybe they will just give them to you because they have to walk away and they do not want that stupid park that made all this happen to get their MH. Then, after you take the title before the park even finds out, go tot the state and get the subsidy that the state is paying and move it into a park within 50 miles or a vacant piece of land that allows mobile homes, and then rent it out to pay for the property purchase, meanwhile, you are selling it rent-to own to whoever is renting it.
I’d love to know how many of those “Airbnb empires” were built with DSCR loans….if it was wide spread then it’s possible a big batch of inventory is dumped in multiple markets. Grain of salt, I’m a prototype version of Wendy’sGPT that escaped digital prison.
There is a massive distinction. I do data science in the capital markets. Specifically DSCR-based loan bundles, conforming/non-conforming, bridge etc. the play with McDonald’s is not like a REIT at all. Can you expound on why you think this? I genuinely want to clear up whatever misconceptions you have about this as to avoid you potentially making uninformed investing mistakes when it comes to real estate in the future.
TD is much more conservative than American banks. On a commercial loan they analyze on debt yield vs DSCR which really limits some creativity you can do to make some loans.
Do you happen to know what the benchmark DSCR or Current ratios are in this industry? Not sure how investors will feel with low profit margins and decreases in operating cash flows with their debt obligations.
They are still handing these out as business loans as well. Now called DSCR (debt service coverage ratio) vs no doc (2008) term. Not sure who is the final owner of this catshit wrapped in dogshit but it’s how the TikTok millionaires are financing their flips.
Yes, you can use a HELOC to put money towards the down payment on a rental property. This is a common strategy used by real estate investors to access the equity in their homes and fund their investments. Here are some advantages of obtaining a HELOC and a DSCR loan for a rental property: Advantages of getting a HELOC: Quick access to funds: A HELOC provides you with a line of credit that you can draw from as needed, giving you quick access to the funds you need for a down payment or other expenses. Lower interest rates: HELOCs typically have lower interest rates than other forms of financing, such as credit cards or personal loans, which can save you money over time. Tax benefits: The interest paid on a HELOC may be tax deductible, which can provide additional savings for investors. Advantages of getting a DSCR loan: Higher loan amounts: DSCR loans are designed for commercial real estate investors and typically offer higher loan amounts than traditional residential mortgages, giving you more purchasing power for your rental property. Competitive interest rates: DSCR loans often come with competitive interest rates, making them an attractive option for investors looking to finance a commercial property. Cash flow focus: DSCR loans focus on the cash flow of the property, rather than the borrower's personal income or credit history. This can make them a good option for borrowers who may not qualify for traditional financing. I got my HELOC with a fixed rate from [www.bestfinance.io](https://www.bestfinance.io) Highly recommend
Alot of your Airbnbillionares are on some sort of 5/1 ARM or 5/10y 90% DSCR. It won't be 2008 but expect some consolidation as these notes jump.
yea but they distort market coz they are running short term rentals, and ESPECIALLY in last few years when str rents ran above average, arbitrageurs are willing to pay more for rent than someone living there that, in turn, raises rents in the area TEMPORARILY which, as u know, ppl can get DSCR loan so if rents are distorted...
* Net Debt / LTM EBITDA, and see what multiple they're carrying relative to peers * Moodys / S&P Credit Ratings * Current YTM / bond trading levels relative to par on the company in question's public notes relative to industry peers trading levels and / or yields (with similar durations and quantums, if possible - makes it more of an apples-to-apples comparison) * DSCR = Cash Available for Debt Service / Debt Principal + Interest Payments (both need to be during the same period - e.g. if you're using CAFD from Q2 2022, the denominator needs to be Q2 2022 cash outlay to meet debt interest and principal obligations) * Look at their 10-K on the Long Term Debt note. * What do their maturity amounts look like for the next 3 - 5 years? * What do OCF, FCF, and Cash on the balance sheet look like? Are there looming debt payments on a ticker that isn't generating much cash flow? If so, that es no bueno * You might also look at the audit opinion in the 10-K. Is the phrase "going concern" somewhere in there? * If so, the company's in suuuuuper deep shit * Did the company in question have to delay the issuance of their 10-K or Q? Not as bad as going concern language in the audit opinion, but usually it's a massive redflag that the company is distressed (or their in-house accounting team doesn't know their own ass from a hole in the ground, which is equally alarming)
Housing inventory was up the past 3 years Over 250k FHA refinances since March 22 DSCR loans up 1000% in past 6 month That’s all I got so far
Guy ignores cap rates and DSCR entirely. Sounds like a shitty day trading momentum algo. They deserve bankruptcy.
> Let me teach you how to become a millionaire property investor. First, start with 1mio equity I don’t disagree with you there. The way a lot of investors talk about applying BRRRR means you are starting with equity in one property that you ideally just roll over from one property to another while staying leveraged to the tits. So not leveraged to infinity, as you asked, but certainly approaching infinity with each deal. As you stated, it’s mostly a way to rapidly build a portfolio, at least until you get uncomfortable and decide to start paying down notes. There may be inefficiencies at each transaction if you can only finance each at 70% LTV, are paying closing and holding costs, rehabbing, etc., but that all really comes down to how good of a “deal” you can get when buying and should be factored into your purchase - at least in an ideal scenario. Build up a large enough portfolio quickly and 1031 exchange into apartments or commercial and keep doing the same thing on a larger scale. > assuming you manage to pull 20% equity from the previous house, do banks really accept cash from an home equity loan as deposit? Yep, but I’m talking about pulling out 70-80% equity (though 50% is much safer, and you don’t see much above 70% since rates have risen). Lots of folks start out with conventional Fannie/Freddie loans and move on to DSCR loans based on the individual properties’ pro formas as their portfolios grow. All that said, with the numbers these guys in the video are throwing out, I would bet they are just running their own Reg D syndications and are largely using other investors’ money. If that’s the case, then these aren’t even their units per se.
Simple - they do flips and rehabs, use their profits to buy/build multiunits, reap the benefits, and repeat the process. Some even do swap loans, so they get a fixed payment and basically guarantee DSCR during times of high interest rates.
Let’s just see the aggregate DSCR for the portfolio, oh, and 2 years of bank statements to back it up.
It's real estate - and for most commercial properties, you need 25% dp. Usually, once the appraisal is in, you're looking at 60-67% LTV with around 1.25 DSCR. Most of the time, they make enough to cover mortgage and operating expenses and pay a nice distribution every month. I work with one of those go guys, and he runs it like that.
Negative cash flows? Probably not rents are fucking nuts and these guys are probs juicing the fuck out of their tenants. They get fucked when they trip a DSCR on one of their apartment buildings. Or an LTV requirement when the lender pulls an appraisal for a loan extension or something. Now they need hard cash money to pay down a loan or get into a cash sweep. House of cards starts crumbling there. But hey who knows. Maybe they’re well capitalized, responsible investors.
Ya a portfolio DSCR and debt yield Calc would be more telling
Not really, you can get a mortgage based on the potential income of the property in question. It is called a DSCR loan.
QM and non-qm are vastly different. DSCR are non QM, very little regulation. And each state has different guidelines too, so don’t take my Reddit comments as gospel lol.
Not exactly. They are DSCR loans but with just slightly different terms. Source I'm a average person who just bought a 28 unit complex.
there is no way you can leverage that little. investment loans typically require 20% minimum and more typically 25%+. And if you are doing something like DSCR their very conservative rental appraisals have to match or exceed the monthly mortgage.
Most likely the loan isn’t based on the value of the property but the cash flow it produces. I’m a loan officer and I can write DSCR loans. Debt Service Coverage Ratio loan. So mortgage is $1200/mo, they charge $1800/mo. Bank isn’t lending on the asset, just the cash flow. And unfortunately, the rental market favors these douchebags.
Yeah can I please help you cover your hillbilly DSCR loan in the Smokies? I’ll stick to the Marriott.
A lot of people buy second homes and vacation homes to make money. They charge a lot to cover the cost of the loan, make the payments and a profit. The last 2 years has disrupted that model and in todays rate environment inexperienced property investors are dropping. Now its mostly the experienced investors doing DSCR loans on these properties qualifying with expected market rents. I’m in mortgage and investors are the main buyers right now. It’s about 35% of our business.
Right on! I was a bag hold of DSCR back in 2012 and just held in to my shares and as you know it came back up again a year or 2 ago(I don’t remember exactly) and ended up making some decent money on it…. So I hear you on your strategy, my only fear is the ones that end up getting delisted and aren’t traceable again
Bought a duplex for 525k at 7.99% 30y fixed March this year. 100k down. DSCR loan Mortgage payment 4k a month. Brings in 8k-10k a month on airbnb. It would bring in 5k a month rented long term. Either way there is still meat on the bone for small multi family. Get a duplex , triplex, or quadplex and you can ride out the storm with ease
No serious investor is using this product. They are using a 5-7 yr variable IO with a 5% DSCR. This is a cash grab on FTHBs, but hey it might be their only way to own a home at this point.
I am not trying to give you false hope, but back in 2012 I believe it was, I bought DSCR when it was being pumped, still new to trading and not understanding how to take profits, the stock got dumped and I got stuck bag holding. It dropped back down to .0001 and I ended up buying some more shares at that averaged me down to .0003, it started coming back to life in 2021 and my already I had set back in 2012 went off and I was like WTF?? Ended up making money on that trade almost 10ths later, lol…. Moral of the story is sometimes pump and dumps get pump and dumped multiple times even if it’s 10ths later… so you just never know 🤷♂️
I watched DSCR hit 3 cents and did nothing. FML.
The economy gets better? Here’s a news flash: + The mortgage/housing market is currently being propped up by 5 years of investors overbidding and sending prices sky high. It is propped up by investors’ leveraging and putting their existing real estate as collateral… using NONQM/DSCR loans as vehicles to essentially fund a dangerous house of cards that is teetering already…. due to rates going up- which in turn affects the variable rates of all these “hocus-pocus” loans. + You have the most amount of money being thrown into the supply due to the pandemic- has caused inflation. Money is expensive- so regular people won’t take out loans and neither will huge corporations. Say goodbye to thousands of job that revolve around R&D, progress, and goodwill. This is where companies start cheating, scheming, and eliminating any “do good” or speculative ideas in order to cut costs and be able to turn a profit. + war has broken out. + American education and intelligence is at an all time low: point and proof MAGA conservatives who are turning democracy on its head and believe it is patriotism. + we are still at the tail end of a pandemic. It’ll be a while until the world gets better.
I think it’s reasonable to include as long as they still account for credit utilization, on time debt payments (CCs and loans), and DSCR
It will depend on the type of property, but you can use these rules of thumb for medium to high density class A multi-res : 3% vacancy rate (% of Effective Gross revenue) 30 to 35% expense ratio (% of EGR) 1,20x required DSCR (Debt Service Coverage Ratio = NOI/total debt service) Cap rate increase of 0,25% per 5 year period. CapEx of 1% to 2% per year, depends on age of the product and can be higher. This expense is accounted for after NOI and is not capitalized when you sell.
What use to go into contract within 1-2 days of listing now are just sitting there as well. DSCR loans don’t make sense in high interest environments even with ever increasing rent
Yes that's how all of these single family has me investors are getting their properties through DSCR loans. No proof of income/credit checks as long as the property cahsflows the lender will throw money at it and the investor doesn't care about the rate as last Ng as the property (again cash flows). Leveraged to the tits. 4288 units BOOM!
No regular bank will give the loan without at least 3 months of reserves plus a .53 DTI (Debt to Income) There's no way this is true unless...... She must've had a co-signer and it must've been a Non QM loan a.k.a DSCR loan which doesn't require proof of income/no credit score but a high rate of interest to compensate. I'll take 2007 and raise you 1943 sir.
Are you familiar with DSCR loans?
DSCR loans… where you at u/cash_flow
You can also take out a DSCR loan for real estate investment. In that case, all you need to do is find a cash flowing property and enough money for the downpayment (15 percent is possible) and closing costs. The 15 percent can be a margin loan against a stock portfolio.
According to your DSCR you cannot service the debt you currently owe let alone this additional debt.
I am no RE market expert by any means, but I suspect a lot of those RE bros used DSCR loans, which to me is just a legal rehypothecation. I might be wrong, but imagine that you have a mortgaged "unit" and your yearly payment is $10,000. At the same time, you jave a tennat that's paying you $8,000 a year for rent. Congrats, this means your DSCR is 1,25, and you have found the infinity money glitch! You qualify for a DSCR loan and you can buy a new "unit" and find yourself a new tennant...untill you buy all the units. The only drawback is when the ratio goes below 1,25...the interest on your loan gets higher. And then, a great deleveraging starts. Kinda like what we saw in crypto. The market drops, a whole bunch of people and crypto firms who used their crypto as collateral to buy more crypto get liquidated (cause their loan to value ratio gets too low). And at that point it is a domino clusterfuck.
> payment on the debt for the down payment into thier DTI. No different than a IRA/401k loan for the down payment. > >The issue will lie in the DSCR loans that used leverage from I think the issue isn't that people do not realize it's a loan. It's that it's a loan to a corporation on wall street when main street is on fire. Not that it's wrong. You need the banking system to work. But it seemed like they were given a pass while people were losing jobs and homes.
All we do is calculate the payment on the debt for the down payment into thier DTI. The issue will lie in the DSCR loans that used leverage from other asset oools and when/if that gets margin callled.... lol. Kids and thier games go boom... again.
This is not financial advice, but you could use a HELOC to put a down payment on a rental property. You could also do a DSCR loan, which is a loan type that lets you use a rental property’s estimated income without personal income to qualify. You could also do a cross collateral loan which could make sense if you have that much equity. If you liked your loan guy from when you purchased, hit them up. They can walk you through all of these far better than I could. They’re all not without risk, but this is wallstreetbets after all.
Except for DSCR loans. Just start an Airbnb empire and the bank will happily comply.
OZSC, SANP, MSPC, BLSP, DSCR, HMBL. Fuck HMBL.
The conventional mortgage market is so subsidized by the government that no one borrows against their portfolio if they have normal income. And anyone that over-leverages out of conventional mortgages goes to DSCR loans.
Homes or apartments, same thing. The only way to expand with little down payment is going through a DSCR loan which is a CMBS loan. Doesn't change the structure of his financing nor the over leverage he is doing.
Plenty of DSCR lenders that go 10-15% equity for residential investment loans. And those 10-15% I'm sure he uses hard money lenders to give him the down payment then his plan is to refinance and pay back the hard money lenders and keep his DSCR loan.
Not rich, he uses DSCR loans, debt service coverage ratio. Instead of the lender using his income to qualify, the lender uses income of the property to qualify for the loan. There is a rider on the loan that says technical default the lender can call your loan due if your net worth on paper decreases, doesn't matter if he makes his payments on time.
He didn't use a HELOC. HELOCs are only for primary residence. What he used was DSCR, debt service coverage ratio loans. What lenders do is instead of qualifying his income, they use the income of those units to qualify. He over leveraged himself by doing that. What this guy doesn't understand, is that there is a rider in every CMBS called technical default. If the market dips then that changes his net worth on paper, where the lender comes in and calls all the loan due regardless if he's been making his mortgage payments on time.
I am starting to see your point more clearly.. I also think we are talking about two different parts of the country, where lenders may have more choices. In your example, the lender is already trapped. I am thinking about the Miami market, where property is still salable. The question is... What will they do? If they "extend and pretend" they end up like your NYC example. Trapped. If they have the ability to nip the problem in the bud, take the property and sell it, they may protect themselves from greater losses. I find this more plausible for my market area, especially with the growing concern around inflation and recession. Which brings up another point, as we see the cost of capital increase, and knowing that many commercial loans are tied to market rates, the issue is compounded with interest rate hikes. Vacancy up, debt service up, a borrower could blow through the DSCR pretty fast. In my CRE markets, I think they would be less forgiving, and they would demand that the borrower bring the DSCR above their minimum, or take the property. What I can say with certainty, is that we are going to see some real pain in the CRE markets, and it will be interesting to see what lenders do.
I understand what you are saying. I understand the concept. I just disagree that this practice is going to have a meaningful effect on vacancy due to overpricing. I admit that **I could be wrong about it...** **(and I am not disagreeing with the underlying principles)** In response to your question, "Why do that tho?", to avoid larger losses from further declines in NOI. As an added issue, if vacancy rates are going up, it would make sense that CAP rates are as well, and the value of the underlying asset could deteriorate exponentially more than just the value of the lost rents. I am sure there are lenders that are going to be sticklers about the DSCR, and some lenders who are not. I would say that it is more about the lender's risk tolerance, and I would also say that the overall assessment on an economic outlook would play a huge part in whether or not they take the assets, or "extend and pretend". Please don't take this as argumentative, absolutely not intended that way.
Haven’t heard of that. Will look to learn a little more about it. However, it still calls for a renegotiation with the bank, and they have the right to take the property, even if they don’t do it. The other choice is to bring the DSCR in line with the note, sort of like a margin call.
DSCR loans are just commercial mortgages, they're the same type of mortgage used by private equity and syndications to buy shopping centers and office buildings. The lender is financing based on the asset's return rather than on the strength of the individual borrower. It's not so complicated that you'd require a course to understand them. The issue is being qualified to obtain such a loan. Private lenders won't deal with you unless you can prove you have a decent amount of assets/worth or can show some real estate investing experience.
No. It's based on the DSCR (the debt service coverage ratio), which is based on your NOI (net operating income). They don't care what your rent is, but that you have the cash flow, and more importantly, enough cash flow to cover the DSCR. If you fall below the DSCR, you can absolutely lose the commercial property. If you keep rents high, but have no income due to vacancy, there is no protection.
I used DSCR for several rental properties, they’re all fixed rate. So my rate will stay the same but the rent I get goes up. The only costs that increase are taxes and insurance, but if values go down or flatten so too will those costs. Not sure why anyone would get an adjustable rate DSCR loan unless it was to rehab and flip.
It seems many of them used DSCR loans (Debt Service Coverage Ratio). When the ratio between the montly mortgage payment and thevtotal monthly rent income begins to flatten, the bank can (and will) increase the intereset rate. 😐
If they used DSCR (Debt Service Coverage Ratio) loans, I think they can be in some trouble. The bank can increase the interest rates on those, if they see the monthly cashflow drop too much.