In the realm of real estate, agents build a portfolio to attract more clients in the future. By extension, these real estate properties are also an investment. If you’re an investor, investing in real estate will help build your financial portfolio.
Investing in real estate has a lot of advantages, but the main reason people do so is for the benefit of having passive income, as well as building equity with the possibility of multiple payouts for the long term.
Remember, though, that financing a real estate property as an investment isn’t always easy, especially for those who want to invest but don’t have traditional income. Luckily, an Investor Cash Flow Loan can help.
Understanding an Investor Cash Flow Loan
The Investor Cash Flow Loan is a non-qualified mortgage (non-QM) that allows the borrower to qualify for it based on the cash flow of the desired property they want to invest in.
Example: You want to buy a rental property. Since it generates cash, you can list that as a source of income whenever you’re applying for something. If a renter doesn’t occupy the property, but you intend to list it for rent after closing, the money you could earn will make you qualify.
This loan uses a debt service coverage ratio (DSCR) on the property in question to determine a borrower’s eligibility for the loan. The DSCR is calculated by dividing the gross rental income by qualifying several factors, such as principal, interest, taxes, and association fees (PITIA). The ratio must be greater than or equal to 1 for a borrower to qualify. If it’s below 1, they won’t qualify at all.
To understand it better, here’s a situation: let’s say you want to finance the purchase of a rental property that already has an occupant. The occupant in question is paying $1500 monthly. In total, their rental rate for a whole year is $18,000. With these terms, let’s say that the PITIA is at $950 a month, or $11,400 per year. To calculate the DSCR, the lender will divide $18,000 by $11,400. The final answer is 1.57—which is more significant than one and qualifies the borrower.
The Benefits of Getting the Investor Cash Flow Loan
The Investor Cash Flow Loan is a popular financing plan for many real estate investors because it offers many benefits. These include:
- No required employment or income documentation
- Loan amounts that go as high as $3,000,000
- Competitive interest rates
- High credit scores aren’t a requirement—credit scores could go as low at 580
- Borrowers can finance up to 80% of the subject property’s value
Another great benefit to the financing plan is that there’s no limit to how many properties you can finance. If you have mortgages on two, three, or even ten other properties, you can still qualify for the loan.
Eligible Property Types
The property types that the Investor Cash Flow Loan covers are as follows:
- Residential properties, even those with 1 to 4 units
- Mixed-use properties or residential properties with at least a single commercial property in the building
- Planned unit development properties, such as townhomes and condos
- Warrantable condos
- Non-warrantable condos, but the loan only covers it on a case-to-case basis
An Investor Cash Flow Loan is helpful because you can finance a property regardless if you have a steady source of income or not. If you don’t, you can use it to have a source of income. It’s also pretty easy to get as opposed to other types of loans. The only thing left to do now is to invest!
NetLending is one of the leading loan offices in Santa Ana, CA, topped with professionals dedicated to serving you. The right loan can help you get closer to that dream property of yours, and we can help you get it. Contact us today for a consultation!