Fix, Refi, Rent | The Step-By-Step Loan Strategy Helping Investors Scale

In this episode, we break down one of the most effective strategies for scaling a real estate portfolio in 2025: Fix, Refi, Rent. You’ll learn how investors use fix-and-flip loans to acquire distressed properties, how DSCR loans work on the refinance side, and the biggest mistakes new investors need to avoid. Whether you're flipping your first property or building long-term rental income, this conversation gives you a full insider view of today’s lending landscape.

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Transcript

0:00: Welcome back, everyone. 

 0:01: I'm Tim Jones, Business Development Manager at foreclosure.com. 

 0:04: Today, we're diving into one of the most powerful strategies in real estate investing right now, fix, refi, rent, the step by step loan approach helping investors scale even in a challenging market. 

 0:16: to break it all down, I'm joined by Rick Raw. 

 0:20: Rick, thank you for taking the time to join us today. 

 0:23: Absolutely, thank you very much for having me. 

 0:25: No, it's our pleasure. 

 0:26: would you mind telling the audience a little bit about your background in real estate? 

 0:30: Sure, I started, on the mortgage side, really finance company side in 1994 with what, with what was then known as ITT Financial. 

 0:40: I then worked for another mortgage company and then I started my own in 2000 excuse me, 1997. 

 0:48: I had that till, 2011, made it through the crash, did all types of loan, I had my eagle, did FHA, Fannie Freddie. 

 0:58: , via USDA, any iteration of alt-A subprime, everything, and then got out in 2011. 

 1:07: The crash was terrible for everybody. 

 1:09: It was good for those of us that had a good base, but it was not a lot of fun. 

 1:14: , it was kind of, what did you do for us yesterday? 

 1:18: The rules have changed today, and it just made it tough, not just for me, for everybody as we were, as they said, bouncing on the bottom trying to find footing. 

 1:26: So in 2011, got out, the whole time I was a real estate agent, became a broker. 

 1:30: , and was president of the board of Realtors in Maryland here. 

 1:36: I'm still a real estate broker, but I don't operate in that realm. 

 1:40: and in 2015, a good friend of mine, who was also in the business with me, you know, we had bought, fixed, renovated homes. 

 1:49: We realized that there was just a gap in funding between banks and what was known as hard money, and, you know, hard money, obviously it is for the asset, but it's known as hard money for a lot of other reasons because it's not very friendly. 

 2:03: and we saw a need and I said, you know, there has to be somebody with our background knowledge between the, the lending side, the real estate side, title side, and real estate side that we could offer a better product. 

 2:16: , a lot of people will give us a phone call and they'll say, Hey, you guys are hard money. 

 2:20: So no, we're not, we're private capital. 

 2:23: We're not in the loan to own business. 

 2:24: We're genuinely concerned with what our clients' wants and needs are, and that's really what started us. 

 2:30: Somebody comes to us, they have a dream, we cut our teeth with fix and flip. 

 2:33: We raised our own capital, started the company in 2016. 

 2:36: We're going into our 10th year, and our genuine concern is, are you going to get what you want? 

 2:42: You have a dream, you want to go into an area. 

 2:45: Maybe it's being gentrified, the regentrification is happening. 

 2:49: You go into a project, you fix it, you sell it, you make a nice profit, but ultimately help put out a family in that home, whatever that family is today, and we're part of that. 

 3:00: That's what makes us tick. 

 3:01: We get to make a difference. 

 3:04: so we then started with fix and flip. 

 3:06: , went to new construction bridge, and we really jumped on the DSER, product as soon as it came out, because we believed in it. 

 3:16: We know that it's a, it's a good product. 

 3:18: It's very easy to do, and it is a makes sense product. 

 3:22: we lend our own money. 

 3:23: We are not a correspondent, white labeler, anything in between. 

 3:27: It's our money. 

 3:28: We, we, process our own loans, underwrite them. 

 3:32: We do our own loan docs, we fund them. 

 3:34: And on the, on the construction fix and flip, we'll typically portfolio those on DSUR we'll bulk and sell the DSUR products because we are not in the 30 year business so it short. 

 3:47: That's quite the impressive background. 

 3:49: So it seems like this is a perfect, perfect person to talk to about this topic. 

 3:53: So, let's just jump in, OK? 

 3:57: so for a brand new investor, can you explain, a fixed refi rent strategy and how the fixed and flip loan pairs with the DSCR refinance? 

 4:08: Sure. 

 4:08: Well, the, the biggest thing is, as I said, someone comes to us with a dream and they, they have an idea of, ultimately, it's primarily gonna be profit. 

 4:15: I wanna buy it, I wanna rent it, or excuse me, I wanna buy it, renovate it, and then I want to sell it at a profit. 

 4:21: And that has changed in today's marketplace a little bit because of just, marketing time, how long they're not getting what they wanted. 

 4:30: It's not worth what it praised for when they originally took it out. 

 4:33: And, you know, they go and they do the renovation, they may list it for sale, and it's not going anywhere, and they're like, OK, well, what are my other options with this? 

 4:42: And realistically, if we're not involved with it initially, we'll step in and try and help them. 

 4:47: But, but really what they should be doing is looking at the product, excuse me, the project as a whole. 

 4:53: What's it going to cost? 

 4:54: What are my renovations, what are my carry costs to do this? 

 4:57: When will I get done? 

 4:59: And what's my profit gonna be and where is this gonna put me in a tax space? 

 5:03: If I talked to my accountant, how is this gonna affect me? 

 5:07: and a lot of times in today's environment, rather than taking it, a lot of people have a pride issue. 

 5:13: It's worth this. 

 5:13: I know it's worth this. 

 5:15: I'm not selling it. 

 5:16: And they just continue to carry it and they have it listed and it's not going anywhere. 

 5:22: and, you know, playing ostrich is really not a plan, you know, they just put their head in the sand and we asked them, could you look at the equation a little bit differently? 

 5:30: Maybe you should rent it for a year, get some value on it. 

 5:33: If the market is as you say, and as we're saying, we're in 38, 39 states, it's going to change and it will. 

 5:40: it's a new administration. 

 5:41: , it's taking a while for the effects in the economy to be felt, you know, let's see what the next year happens and why don't you take a look at renting it. 

 5:51: The DSUR is a great product because it just uses that property, that income based upon the cost of that income, the principal interest payment, possibly interest-only payment, plus taxes, insurance to hold it. 

 6:05: And as long as the rents are more than the payment, you qualify, so you're not in a negative situation. 

 6:12: So it's a makes sense product. 

 6:15: Is there a certain percentage on that where it has to cover like, is it 100% of the rent potential, or is it great, great question. 

 6:23: Let me get back to the fix and flip part. 

 6:25: When we do fix and flip, we have different, percentages that we will lend individuals typically if you have some experience. 

 6:32: We'll lend 90% of the purchase and 100% of the repairs, so you need 10% down, but typically what we're looking for on that, and it can change based on the value of the property. 

 6:43: A 25 to 30% equity position, OK? 

 6:47: So that you know that you have a pro that's your profit incentive in there. 

 6:52: And for those who got in, couldn't sell it, that was gonna be the money that they were going to make. 

 6:57: But for the DSR product, it's essential because we're not gonna give you a 30-year mortgage at 100% loan to value. 

 7:04: Those days are gone. 

 7:05: Max is gonna be 80% on a rate and term refinance. 

 7:09: So that's the percentage you're looking to max. 

 7:11: The more you borrow, OK, the more your cost of funds are going to be. 

 7:15: , but if you are lower, your cost is going to be less. 

 7:20: So if you're at the 70 to 75 or 80% loan to value, you're going to get a, you're going to qualify for a DSER loan based on the loan to value percentage from a debt service coverage ratio, which is DSCR calculation. 

 7:36: It is just a 1 to 1 ratio. 

 7:38: So for easy numbers, let's say your mortgage payment is $3000 a month and your rents are $3000 a month, you're at a 1 to 1 ratio. 

 7:48: OK? 

 7:49: OK. 

 7:49: If you're at $3300 a month in rent, And your rent, your all the mortgage payment, which again is principal interest, taxes, insurance, flood insurance, HOA, condo, whatever it takes to hang your shingle is 3000, you qualify. 

 8:06: there's basically we're lending our own money. 

 8:09: We have 5 different institutions that we will end up transferring your servicing to, whether it be hedge funds or insurance companies, and each one has their own appetite for what they like, which is different products that we offer. 

 8:21: There's basically several buckets, 0 to 0.75 DSER. 

 8:26: So for easy numbers, if you're renting for $1000 a month and you, you have a 7, a 0.75% or below percentage, it's really, you're losing money every month, OK? 

 8:41: So in that case, your costs are $1000 a month and your rent's $750 you're $250 in the red each month. 

 8:49: You can qualify with that. 

 8:50: It is risk-based pricing, so your loan to value will be less and your rate will be higher because you're at, you're in the red every month. 

 8:58: There's another bucket that goes from 0.75 to 1, which means you're still in the red every month. 

 9:04: You're renting. 

 9:05: You're renting for $800 a month, but your cost is $1000. 

 9:09: You're $200 in the red, and that again is a different bucket. 

 9:13: And then there's 1 to 1, which is basically, hey, it pays for itself. 

 9:17: You're going to get very good pricing. 

 9:19: You're gonna get maximum loan to value, and then there's two other buckets greater than 1.15, which means rents are, let's say, 1150 a month and your all-in payment is 1000, you qualify, you're going to get a little bit better rate, and then there is a 1. 

 9:39: greater than 1.25 service ratio. 

 9:42: So there's, there's a number of different calculations that we look at that combine with credit score, loan to value, debt service ratio, and loan purpose. 

 9:54: Is it a purchase? 

 9:55: Is it a cash out refi? 

 9:57: Is it a rate and term refi? 

 9:59: OK. 

 10:00: I definitely ask more questions about the DSCR loan, but, what do lenders look for during the initial fix and flip approval, and what should a new investor prepare for before applying for one? 

 10:13: Great question. 

 10:15: while we will take inexperienced borrowers, the, the, the, the majority of our borrowers have experience because the fix and flip in and of itself, watching HDTV, even if you watch thousands of hours going back to COVID, you're not an expert in fix and flip. 

 10:30: You're not, sorry, because it takes a lot of nuances. 

 10:35: You have to know how to work with the contractors. 

 10:37: You know how to, how to get permitting done. 

 10:39: You have to know where you can save money. 

 10:42: So really kind of when we're looking at it, we're looking at does the borrower have a decent score, 660, 680 is probably our floor. 

 10:52: do we make exceptions to that sometimes if there's, there's, answers to it or, or reasons for it, but a fair credit score. 

 11:00: and then it's experience. 

 11:01: And the more experience you have, the more you've proven to yourself and to us that you're able to get this transaction done. 

 11:09: And then the third thing would be cash. 

 11:11: This is the individual we're looking at. 

 11:12: So it's credit score, experience, cash, and then ultimately it comes down to the asset. 

 11:18: What are you buying it for? 

 11:21: What is it going to cost you to do the renovations? 

 11:24: And what is it going to be worth when you're done. 

 11:26: So you have the as is value and then the after repair value. 

 11:29: The difference, the delta in between your, your acquisition costs, your repairs, and for your calculations, the carry cost plus what it's going to be worth in the end, that's where you have your equity and you have your options to sell or hold it as a refinance. 

 11:46: Got it. 

 11:47: Got it. 

 11:48: And I'm sure that's a little bit of a juggling act essentially between experience, cash on hand, credit score, and the actual asset itself. 

 11:55: So I'm sure if you maybe you don't have as much experience, but you have a little more cash, or if the if you find a great deal, those kind of balance itself out or is, do they wait, do one, does one of those qualifications outweigh the others for new investors? 

 12:11: , I would say cash is always king. 

 12:15: It always helps to have more because from a lender's perspective, the equity position for us is less, which means we have greater security. 

 12:25: but it, it definitely all three of them help. 

 12:27: There's no magic. 

 12:29: The beautiful thing about what we do is we get to be creative, so long as we can to the best of our pro prognosis. 

 12:38: Prognosticate, excuse me, how you're going, if you're going to be successful. 

 12:44: So that really is the key component for us is, you know, all these things, not there's always a story to everyone, and everyone's story is a little bit different. 

 12:54: So cash might be the biggest thing on one experience might be on the other. 

 12:57: We treat it as guardrails and it's kind of a flowing river, and we're trying to just get it in so that it makes sense. 

 13:03: So at the end. 

 13:05: You, the client, are getting what you want, and we, the lender, know that you're gonna get that, which means we're protected because you we're gonna get paid off once you're done. 

 13:14: Got it. 

 13:15: No, that's great information. 

 13:17: So, once the renovation is completed, they did the fix and flip, loan, What determines whether the investor qualifies for a DSCR refinance? 

 13:29: Is that primarily the 1 to 1 balance you were talking about earlier or? 

 13:36: Well, one of the other things that, that we really pride ourselves on too, before I get to that is, I didn't touch on this is We buy it. 

 13:44: You want to renovate it. 

 13:45: You possibly may want to sell it. 

 13:46: You want to keep it as possibly rental is what is that after repair value, which is one of the things that really is important. 

 13:54: Now, we have a lot of people who come to us and they'll say, oh, the house is gonna be worth $500,000 when I'm done. 

 14:00: It's in bad shape now. 

 14:02: These are my renovations, and here's my realtor's comparables. 

 14:06: Now, I'm a past president of the Board of Realtors. 

 14:08: I'm a broker myself. 

 14:09: , I'm not impugning any realtor's reputations, but a lot of times they're not totally accurate, and there might be some self-motivation because they want to get this initial sale and then get the listing. 

 14:22: So the key component to that portion of it is ensuring that when you buy it to renovate it, you give a very detailed scope of work. 

 14:30: And then when you give it to someone like us who has been doing this a long time, we have typically handpicked appraisers. 

 14:36: , or at the very least with an appraisal management company that we know is very familiar with our type of business, and we get comparables that based on your scope of work choose other comparables that have the same quality of construction, you know, and that the timeliness of the of the comparables make sure that. 

 14:57: The value is going to be there, and we can't guarantee it's going to be worth 500 at the end. 

 15:02: But when your realtor gives us comparable sales that are in a different zip code, a different school system or across the main thoroughfare, that doesn't make sense. 

 15:11: So we're trying to ensure that that ARV is, is going to be correct so that you have the equity position to do what you want, sell it or refinance it. 

 15:20: So, that's really a key component because in order to get to the point where you say, hey, I want to turn it into a rental, you have to have that equity position. 

 15:27: The maximum in the marketplace right now is 80%. 

 15:31: So 80% loan to value. 

 15:33: So if the house is worth $500 the maximum loan you're going to get is 400. 

 15:37: The key question, which really should be, if you say, hey, I'm gonna buy this, renovate it, and hold it, the first question you should ask is, what is it going to rent for. 

 15:49: And approximately, because you might be 68, 1012 months down the road, what is my total payment going to be? 

 15:58: Now some of those costs are going to be fairly static. 

 16:01: You know what the taxes are going to be. 

 16:03: Now they may adjust after the property is renovated. 

 16:06: But you're going to get a snapshot in time of what it's worth. 

 16:09: You could look at the, the neighborhood's or excuse me, the neighbor's taxes to give you an idea. 

 16:13: You can get a quote from your insurance agent as to what the taxes are going to be. 

 16:17: So, you know, pretty much within a tolerance of what that's going to be. 

 16:21: What is not known is where our rate's going to be. 

 16:24: So you could throw that in. 

 16:25: You could be conservative and make it a 0.5% or 1% higher than market rates. 

 16:30: So you know, hey, I'm going to owe $380,000 on this. 

 16:36: The house is going to be worth 5. 

 16:38: I'm going to get a loan for somewhere around 4 once I put my taxes, my insurance, because these loans have escrows, and, you know, I'm gonna have some closing costs. 

 16:48: So maybe I, I refinance for 3395. 

 16:51: What's my total payment going to be? 

 16:53: OK. 

 16:54: That's really the biggest, the, the first question is, do I have twofold. 

 16:59: One, is it gonna be worth the ARV value? 

 17:02: Am I gonna be in a good equity position? 

 17:04: And really, how much is it gonna rent for? 

 17:06: And that's as simple as the person for yourself. 

 17:09: You can, you can look at other market rents in the area, or you can have your, your, Realtor look at it and say, hey, could you let me know what you think rents are going to be in this area? 

 17:19: Give me comparable so that you have a really good basis of whether or not does this make sense? 

 17:25: Is it going to pay for itself? 

 17:27: Last thing you want to do is do all these renovations. 

 17:30: Have the loan to value, but yet you can't qualify because your mortgage payment is more than market rents will allow. 

 17:36: Really a key. 

 17:38: That's really the, the, the, the, the first question. 

 17:40: And again, as we were talking, you'd like to be at least 1 to 1, right? 

 17:46: you know, the other thing is too, long term, the question is tax-wise, how does it fit in with you and unfortunately in today's market. 

 17:53: , there's a lot of inflationary pressure, so rents keep going up and up and up. 

 17:59: So your mortgage payment, with the exception of taxes going up or your homeowners increasing a little bit, the, the increase in rents are outpacing that. 

 18:08: So you should be making more and more as time goes on because your mortgage payment should be pretty static. 

 18:14: Got it. 

 18:15: No, it's great advice, It's definitely in the weeds a little bit, but it's definitely great advice for someone who's trying to get started. 

 18:24: I it is, it is. 

 18:26: And, and knowing these things upfront as everybody who comes to us, and that's where the experience factor comes in, you know, I've already looked at this. 

 18:34: I know what rents are gonna be, you know, within a tolerance, this thing's gonna get service. 

 18:39: It's gonna get service and I'm gonna make $4000 to $500 a month. 

 18:42: , and that's on long term rents. 

 18:44: You could also buy the property to be a short term rental. 

 18:47: It's, it's an area near a college town. 

 18:49: It's, near the beach. 

 18:50: It's at the lake, whatever it may be. 

 18:53: Those may be a little bit more subjective, and they could actually have higher debt service where you're getting even more money. 

 19:00: Interesting. 

 19:01: Yeah, I didn't even think about the short term rental aspect of that. 

 19:03: That's. 

 19:04: , All right, well, what, what are the biggest mistakes that you've seen some first-time investors make when trying the strategy and, and, what would your advice be to, to them as far as to how to avoid them? 

 19:19: ,, first is, is, is, not doing the math, but let, let me go back to your last question too, because there's some other things that, and I wanna get to that, but I wanna make sure that everybody understands this too is knowing that that service. 

 19:38: , the other thing is, you know, besides the equity and the debt service, how else am I gonna qualify for this, this long term rental, Number one, do you own your primary residence? 

 19:52: You know, the biggest concern with our investors when we do this loan, when we go to sell them is fraud. 

 19:58: , you, you can't qualify to purchase your own house based on your taxes and your insurance or your, your income. 

 20:06: so do you own your own property? 

 20:09: And if the answer is yeah, I own my primary residence, well then, you, it's pretty much, OK, good, you can do it. 

 20:14: If you're leasing a property or for whatever reason you live in your mom's basement, it's gonna be frowned on. 

 20:20: Doesn't mean it can't get done, but knowing the basis of how to get qualified for this loan is so important. 

 20:27: , and we're not accusing anyone of fraud, as we always say this, we're just looking at this and saying, hey, if you own your primary residence, cool, you've got it, you're qualified, you're ready to go. 

 20:36: If you're leasing, great, but if you're leasing a 1200 square foot house half a mile away from your purchase, and it is a 25 square 100, 2500 square foot house. 

 20:47: How does that make sense? 

 20:49: It certainly looks like there could be issues there. 

 20:51: So, owning your primary residence is key in it. 

 20:56: having experience in it is, is good too. 

 20:59: You can be an inexperienced. 

 21:01: You could be a first-time investor getting DSER loan. 

 21:03: , typically, experience counts as you own you own one within the last 12 months. 

 21:10: Inexperience, you can do it. 

 21:11: There's a credit score restriction depending on what you're trying to do. 

 21:15: Typically 680 or 700 score, and you're typically 5% loan value reduction. 

 21:21: So instead of getting 80% purchase, it would be a 75%. 

 21:24: , score would be you need at least a minimum of 6 640. 

 21:29: , and typically you need about 2 months' reserves. 

 21:34: So if your mortgage payment is $2000 a month on your subject properties, it's only that property, you'd need to have about $4000 in savings, and that's kind of a rainy day fund. 

 21:44: That could be cash in the bank. 

 21:46: It could be 70% of any IRA 401k you've got, so that helps you qualify too. 

 21:57: But I think that that's, I don't wanna get too much in the weeds for you, but your next question is with the mistakes. 

 22:02: Yes, sir. 

 22:03: All right. 

 22:04: So, What are the biggest mistakes? 

 22:08: Can you repeat that to me just so I'll make sure,, what are the biggest mistakes first-time investors make when trying this strategy and, and what would your suggestions be to them for to try to avoid those mistakes? 

 22:23: Great question. 

 22:24: so this is where we try and forecast for our borrowers or prognosticate, as I said before, where it could go sideways. 

 22:30: So,, it sounds trivial, but you need to expect the unexpected, meaning you have cost overruns because you're buying it to renovate it. 

 22:41: during COVID there was a supply chain. 

 22:42: God, we hope that never happens again, but there were issues that, you know, you had longer carry costs which cut into your profits. 

 22:49: So, expect the unexpected basically means that you have reserves. 

 22:54: You have a contingency reserve. 

 22:55: So, if you're doing $100,000 in repair, we'd like to say conservatively 10 to 15% on top of that. 

 23:02: So, if you had $100,000 to $15,000 on top of that cash in hand to Help smooth out some of those wrinkles. 

 23:10: Costs go up on the product, labor goes up, things of that nature, you know, and also just making sure your crews are there and getting the work done on time. 

 23:23: it's really a, we talked about the math, and we talked about, you know, knowing your DSCR, expect the unexpected. 

 23:31: , and timing is really the third thing. 

 23:34: The typical fix and flip loan is going to be 12 months. 

 23:37: Like ours typically is 12 months interest only payment to keep the costs as low as they can with no prepayment penalty. 

 23:46: getting in and getting the work done and getting out is essential, and part of that is not only getting it done. 

 23:53: You know, getting it ready to, you know, be appraised in the final condition. 

 23:57: , but then you need about 2 to 3 weeks to complete the transaction. 

 24:01: DSC DSCR loans do not take long. 

 24:04: If anybody's telling you it takes longer than that, they don't know what they're doing, it's really not a tough process, 23 weeks, 4 at the most, to get it done, but that's really the time frame. 

 24:15: And why is that important? 

 24:16: Because if you go past your 12 month, time frame for your fix and flip loan, you're gonna be subject to extension fees. 

 24:24: You're gonna be extension subject to which are costs. 

 24:28: You're gonna be subject to maybe increase in rates, default rate, and those are things that are unexpected, and you can control that by just completing the project. 

 24:36: The sooner you get done, the less carry costs you have, the more opportunity you have to refinance and get out of it. 

 24:43: , I would say the other part of it is in the fix and flip part, which a lot of people overlook is not paying attention to your credit score. 

 24:55: So you come to us and you want to do a fix and flip loan and fix and rent, you know, it may, it may change over the timeline. 

 25:03: And the fix for going to a fix and then rent, and you came to us and you had a 7-12 score. 

 25:08: That's good credit. 

 25:10: But during your renovation, you maximized your credit cards. 

 25:14: Your credit utilization went high. 

 25:17: So you had a $15,000 limit on Home Depot and you owe $14,250 when you applied to me. 

 25:25: That in the scoring model for all three of the bureaus is going to reduce your score because it shows you're living kind of beyond your means. 

 25:32: Now it doesn't mean you have, but it's showing a propensity that you may fail. 

 25:36: You may not be able to make these payments. 

 25:38: So not paying attention to your credit score as you're going along can really be a detriment to you. 

 25:45: So. 

 25:47: You know, someone come to me, oh, we're ready to refinance. 

 25:49: I've got a, you know, 7, 12 score, and we pulled their credit and they've maximized everything and they're below our minimum score. 

 25:55: Guess what? 

 25:56: Now we have a problem because you're not qualifying. 

 25:58: So if you're using a credit monitoring service, we recommend that. 

 26:02: However, I would caution those are not credit scores. 

 26:07: They are kind of a, a predictor. 

 26:09: So just be careful. 

 26:11: Credit for us is good for 120 days. 

 26:15: Meaning I can pull it and then I just have to close the loan within 120 days. 

 26:20: So if you know you're gonna have a credit issue, not missing payments, but, you know, I gotta buy a truck in 2 months. 

 26:27: I'm gonna have a credit pull. 

 26:29: I know I'm going to maximize this card. 

 26:31: My daughter's graduating. 

 26:33: I have to get the funds, those type of things. 

 26:35: They're all just managing your debt. 

 26:37: You're not doing anything wrong. 

 26:39: When we do your loan, it's a snapshot in time of what your credit score is what it is. 

 26:43: Let's say that's one of the most overlooked, which is I did it all, cost me more than I wanted, and we pull the credit like, yeah, and you maximize every one of your cards, and you now have a 612 score. 

 26:55: I can't help you. 

 26:58: So, The other thing that that I would say. 

 27:04: I don't. 

 27:05: , don't stop yourself from marketing the property before it's done. 

 27:12: In today's environment, I mean, all real estate is local, but there is a great demand for housing. 

 27:19: And the ability to get out there and see the house coming soon for rent is key. 

 27:24: A lot of people will wait till they Have it exactly the way they want it. 

 27:30: And while we understand that and while that does that does show that it rents for more, getting it out there and having somebody saying, yes, I can rent it and having somebody in place right away means revenue coming in right away because it's costing you money until that happens. 

 27:48: it, it, it, it really is a key component. 

 27:50: The other thing is too, on purchases the houses can be vacant, no problem, no restrictions, no loan to value restrictions. 

 27:57: On refinances, they can be vacant too, and I can get maximum loan to value of 80%, but you have to have the highest scores to do that. 

 28:06: So if it's vacant, well, it can still be done and you may not need it based on what you owe and what the house is going to be worth. 

 28:12: , is getting it out there and finding out what the rents are. 

 28:16: If at the very least, you know, hey, I was right, it was going to rent for $4000 a month, or, hey, it may go more than that, which is great, and it gives you, you know, an idea of, of what you're doing. 

 28:27: So I'd say as soon as you find it reasonable to rent it, do it. 

 28:33: And I would say one of the last things to do when you're doing the fixed part of it is. 

 28:38: Don't overimprove the property. 

 28:40: If it's in your budget, and forgive me, if your spouse says to you, you know, what'd be great in here, a canister lights all over the place, and it's $3700. 

 28:50: And while it may be great, you're not gonna get any more rent for it. 

 28:54: If you want to live there, great. 

 28:56: If you know that's what it's gonna take for it to rent the most and you've got the data to support it, great. 

 29:02: Don't overimprove the property and spend money you haven't budgeted. 

 29:06: That's great information. 

 29:07: And then you, I actually had a side question that you answered there, you know, I was just curious if you had to have a renter in place already before they will, give you, before you'd give a DSCR loan, but it sounds like that's not the case. 

 29:21: No, and the reason for that is when you do the DSCR. 

 29:24: If you're just talking about a single family house, you're getting the appraisal report is what's known as a Form 1004 that gives you your valuation. 

 29:31: You've got three comparable sales within all the parameters to determine your market value. 

 29:36: OK, so that's what it's worth. 

 29:38: The second part is the 1007, which is your market rents, and that's typically three other rents. 

 29:43: These are not sales, but other properties in the area and similar to yours in style, bedroom, bath square footage, all that stuff. 

 29:51: , what did they rent for? 

 29:53: And that's what we will use to qualify as your baseline. 

 29:56: Hey, market rents are $3000 a month. 

 30:00: That's what we're going to use to compare it against your mortgage payment. 

 30:04: And if you have a renter in there, typically you get it done. 

 30:09: I will get an appraisal done and it's going to have market rents. 

 30:12: And let's say the market rents are $3000 a month, but you're renting it for $3500. 

 30:18: You have a signed lease, you got a security deposit, and you can show me that you got that money, one in your bank account. 

 30:24: I can use the market rents to do that. 

 30:27: Now, that leads you to another thing which is, wow, I can qualify based off of what I'm renting it for, not what the appraiser said. 

 30:35: Because appraisers are good at their jobs, but an appraisal is an opinion of value. 

 30:40: It's not the actual marketplace. 

 30:41: It's based on marketplace values, so if you can document probably conservative too, I would think it, you know, it just depends on the marketplace, I will tell you in my humble experience, not to impugn any, any appraisers, if I give them a baseline and I say, hey. 

 30:59: Here's the lease, and this is what it's renting for. 

 31:03: They look at what others are, are appraised or are being rented for, but it kind of sets the market like, hey, the house is rented for 3500. 

 31:11: Maybe this guy just did it on the cheap, you know, they're not, they have a very systematic way of giving you the value. 

 31:18: If they don't have an appraisal, if they don't have a lease, this is what it's leasing for based on the other ones. 

 31:23: If I have a lease in hand and, hey, it's looking, it's getting a little bit more because it's brand new, it's got another half bath, whatever it may be. 

 31:30: You might get a little bit more value on it. 

 31:32: That's why it does help. 

 31:34: But no, it does not have to be leased, but you may be subject to some, loan to value reductions and because the property is not, leased at the time that you close the deal. 

 31:46: Understood. 

 31:46: That's great. 

 31:48: OK, so in today's market, why might keeping a property as a rental be smarter than just fixing and flipping it? 

 31:55: , First thing is you may be in the market right now and it's just not selling. 

 32:05: You know, and it, it, it may not be the value you want to get for it or that you know it's going to be, you know, valued at. 

 32:13: You know, we're in a, in a, in a market that is not unique, you know, rates are higher than we would like, but they are going to be coming down. 

 32:23: So you can play the odds of, you know, the housing becomes more affordable. 

 32:29: So as I go on, I'm carrying my, you know, someone's paying my mortgage payment, right? 

 32:33: It's paying for itself. 

 32:34: And then over time, you know, cost is going to increase as far as, you know, the value I should say of the property, and hey, I could get my money out of it. 

 32:43: I've got my money covered. 

 32:44: I've got equity in it. 

 32:46: It's growing, and rates come down, it may even increase in value more. 

 32:51: So, you know, that might be. 

 32:54: One thing again, the positive cash flow, you know, you might be making, you know, it might not just be the 1 to 1 ratio, you might be 2:1. 

 33:02: It could be renting, you know, you, your payment could be $2000 a month and you're making $4000 a month. 

 33:08: That's real money that you can. 

 33:10: , pay down the principal one that you can, Put in your pocket that you can do whatever you want with it, invest it, put it towards your next deal. 

 33:21: I mean, that's, that's also a key component too, You know, and, and as you're holding it longer and longer, you're building more and more equity, as I said. 

 33:31: So it's just really a personal tax strategy and where you're at in your life cycle of your investment for that property and your long-term goals. 

 33:41: That's great information, I appreciate it. 

 33:46: One of the key components with that too, I will say is that you, You want to make sure these products. 

 33:52: , these are kind of what we call a minus products. 

 33:55: So they're typically you can do a 1015, 2025, 30, even a 40 year mortgage, which I think this will fall into another question you're going to ask me. 

 34:06: but they, they are great products. 

 34:08: But these are non-GSC products, meaning they're not backed by the government. 

 34:14: This is just private industry, and the end securitizer who's buying these loans wants or servicer wants a certain return. 

 34:23: So one of the key components when you're doing these loans is knowing, it's not like an FHA or Fannie or Freddie loan, that do not have prepays. 

 34:32: These loans typically have prepayment penalties anywhere from 0. 

 34:37: To 5 years to 7 years. 

 34:39: We don't do anything more than 5. 

 34:41: Probably the most used is a 3-year prepay. 

 34:45: So you want to ensure that if you are going to keep the property and you've got a year lease on it, you're just going to ride it out, see where the market goes, grow your equity, that you know what your prepayment penalty restrictions are and that it is explained to you. 

 35:00: Now this, we are very reputable in what we do. 

 35:03: We give all of our terms up front and then you negotiate, hey, I don't want a 3 year, I want a 2 year term, OK. 

 35:09: And the rates change. 

 35:10: It's not really a loan to value issue. 

 35:13: It's really a rate issue based on what we can offer you as far as the product because our backend investors want a certain return on their money over a certain period of time. 

 35:22: So you can get a no prepayment penalty. 

 35:25: if you take a 5-year prepayment penalty, you're probably going to get a little bit better rate. 

 35:28: You are going to get a better rate. 

 35:30: And then within those there are hard and soft prepayments, also known as declining. 

 35:34: So if you did a 3 year hard prepayment penalty, it could be. 

 35:38: 3% a year for every year. 

 35:40: So for 36 months if you sold it, you're going to get charged 3%, could be 5%. 

 35:45: That's why you need to ask these questions. 

 35:47: That's why you need to be with someone who knows the products when you're dealing with your loan officer, making sure it fits your right goal as to how long you want to hold the property. 

 35:56: And then it could be a, declining prepay, which is, it could be a 321. 

 36:01: So in the 1st 12 months it's 3%, and this is the principal balance of the loan. 

 36:05: And then the second from the 12 to 24, 2%, and then from 24 to 36, it could be 1%. 

 36:11: , and one of the other key factors, if you're in that loan, you're saying, why would I want to keep this? 

 36:17: Why do I want to do this? 

 36:18: I'm getting $20,000 a month extra over my payment. 

 36:21: You want to know that you can pay principal down if you want to. 

 36:24: All of our loans allow up to 20% a year in principal reduction. 

 36:29: In your prepaid period without kicking in any type of penalty. 

 36:34: So if you had a $500,000 loan and you paid $100,000 in one of the first three years, if you had a 3-year prepay, there's no penalty. 

 36:43: Why? 

 36:43: Well, we're still getting paid and you're paying it down, and we know we're in a better equity position. 

 36:49: It's one of the benefits of doing business with us is we want you to be successful. 

 36:53: A lot of people in short term rentals like to do that. 

 36:56: You don't have to, but it's a, a personal preference. 

 36:59: That's great information. 

 37:00: I mean, you really gotta think of the whole project, before you even get started, have your systems in place and really think it through. 

 37:07: I mean, when you look at all these different. 

 37:10: You have to, you have to be with someone, and it's so true, and you have to, it's like, you know, whether it's a state planning, financial planning, planning for your kids' college, talk to someone who knows the product, the process, and more importantly, asks you what are your goals? 

 37:28: What, what are you doing this for? 

 37:31: did it change? 

 37:32: Were you trying to sell it? 

 37:33: Why do you now want to keep it? 

 37:34: OK, if we do that, what are the tax advantages? 

 37:37: , and ask someone who understands the loan side of it and also coordinate it with your financial planner, your accountant to say, hey, how could this most benefit me and not just going to someone who's, oh, we do DSER loans. 

 37:54: Well, there's other people who do great business in the marketplace, very reputable. 

 37:58: There's others who just, you know, it's just another loan, and, and we don't do that. 

 38:03: We want clients for life. 

 38:05: I get it. 

 38:05: No, that's great, Now, this is another side question I just thought of, When someone's interested, if I was interested in getting a DSCR loan or starting off with a fixed and flip loan, would I present the project to you, or is this something that I would work with you to create the, you know, all of the financials that are needed to, to, to present it to, to your company? 

 38:32: Like, I guess my question is this something you help your clients work through as far as getting all the numbers, or is, like, do you have a, how would someone apply almost to, to get this process started? 

 38:45: Sure, so for us. 

 38:47: We do a lot on the web, so we know a lot of people, a lot of people we don't know, they just approach us and then they come in and they, they say this is one, let's say they're buying the house is in disrepair. 

 38:57: This is what I want to put into it. 

 38:58: This is what it's gonna be worth. 

 39:00: So what our sales staff is trained to say, OK, so that that deal will work in and of itself. 

 39:06: It doesn't or it doesn't, or it does. 

 39:08: So no, there's not enough equity in this. 

 39:10: It doesn't make sense for you to do this. 

 39:13: That I don't care. 

 39:14: That's OK. 

 39:15: I'm gonna put more money into it. 

 39:16: And then the next question would be, OK, that's great, but why? 

 39:20: I'm keeping it as a rental. 

 39:22: OK, now that's already explained it for us. 

 39:24: If it is, no, the equity does work, then we're, our sales staff is trained to say, OK, well, when you get done with this, you could turn it into a rental. 

 39:31: Are you familiar with how that works? 

 39:34: because a lot of people don't feel they've heard of this loan, they may not be well informed about it, but they don't understand. 

 39:42: It's a very good loan. 

 39:43: It is. 

 39:44: , very simple to get done, but there's a lot of gears that have to mesh with it. 

 39:50: So, when they come to us, and they first say, if they're coming to us in, in your example, I want to buy and renovate it and I want to hold it. 

 39:59: We're going to say, OK, we're gonna look at the as is value, we're getting an appraisal done that says, here's what you're paying for it. 

 40:06: This is the renovations you're gonna do to it, and this is what it's going to be worth. 

 40:10: So that's your equity position. 

 40:11: So we've got that in there. 

 40:13: You know, the next thing will be, OK, so based on your credit score, if you would like to turn this into a rental, you're gonna have the equity because we're gonna make sure you got 25 to 30% based on your, what you're gonna borrow and what the house is going to be worth, OK? 

 40:27: So, there, I've got at least enough equity in there to turn around and do a rate in term refinance. 

 40:33: It may be worth more and you say, hey, I want to take money out of it and I want to cash out on it. 

 40:41: you absolutely should, should, you know, if you need it, take it, and it debt services. 

 40:46: And they say, OK, well, I'm gonna turn it to a rental, and we will say, OK, have you talked to your realtor of what, about what market rents are. 

 40:55: And because we're not in the business of telling you what it's going to rent for. 

 40:59: I mean, I can give you an idea, but it's not, you know, that's why you, you are paying for results from your realtor, and the realtor is going to do it because they're gonna, they know, hey, I'm going to get the sale, and hey, I'll get the rental. 

 41:10: And after if he wants to turn around and not rent it anymore, and I did a good job, I'm going to get the listing. 

 41:14: It's just smart business. 

 41:16: So we give them a game plan of, you know, this is what we would need to get into the property. 

 41:22: This is what your loan amount would be. 

 41:25: This is what it's going to be worth afterwards. 

 41:27: You will qualify for the DSER based on loan to value. 

 41:30: In order to give you a full picture, I need to know what it's going to rent for potentially. 

 41:35: And then we'll look at, as we said before. 

 41:38: This is what property taxes are currently. 

 41:42: Let's look at the neighbors who's very similar to you. 

 41:45: that's what it's probably going to be. 

 41:47: And then this is what your insurance is based on, you know, just a calculator, and yeah, it's going to debt service and that, that makes sense. 

 41:57: That's great. 

 41:57: No, so I mean it seems like it starts with a conversation, having a high level overview of your, your project and, and, you know, the scope of the project and what you're trying to accomplish, and then, I'm sure once you can say you could do a, you know, potential qualification and then you go get the details after that. 

 42:13: OK, that's, and, and again, the key component there, so we, we've known we can forecast what the property is gonna be worth and that's subject to market, you know, fluctuations. 

 42:23: , we don't know where rates are going to be, but they haven't been outrageous, and all signs look towards pretty stable, maybe some declining. 

 42:32: The one thing that I mentioned before is when we talk to them, credit score, credit score, credit score, please don't miss payments. 

 42:42: don't, if you know you're gonna get this loan and you have an impulse purchase, do it the day after you take the loan. 

 42:49: Don't do it before it. 

 42:52: Don't affect your credit scores. 

 42:53: That's really what you're trying to say is that please keep yourself if you change your situation on something that I can't control. 

 43:00: I can't control it. 

 43:01: I, I know exactly what you're saying. 

 43:04: my wife's been talking to me about buying a new car and I'm like, well, we got this, so we should wait a little bit until we figure out this loan, so I'm totally with you on that. 

 43:11: I understand. 

 43:14: Rick, it's, it's been great talking to you and I, I do have one more question. 

 43:18: It's a little off topic, but it's trending and this current administration has been talking about it. 

 43:23: So I just want to get your perspective on it because you're, you know, you're in the game and you got your, you know, boots on the ground. 

 43:29: So, do you think the new fifty-year mortgage is facing the same skepticism, skepticism, the thirty-year mortgage did when it was first introduced? 

 43:37: , you know, I hate that, well, I'll tell you the way it was explained to me. 

 43:47: everybody wants to be a skeptic and it's kind of the principle of social media. 

 43:51: It's kind of a race to the bottom. 

 43:52: So, oh, it's bad, it's the boogeyman, we don't want it. 

 43:55: It's terrible. 

 43:56: And there are some pluses and minuses. 

 43:57: The, the, the thirty-year mortgage came out around the, the Great Depression. 

 44:01: I think memory serves me right, FHA. 

 44:04: , the Federal Housing Administration was open in 3rd week was starting in 34, and it was designed to promote homeownership. 

 44:12: , and 30-year mortgages were. 

 44:16: You know, it was the bogeyman. 

 44:18: It was voodoo. 

 44:18: Who would we, I mean, I'll be dead by the time that's done. 

 44:22: Now that's kind of the thing with this 50-year mortgages, but the math is the math is the math right now, which is we, we have a shortage of housing. 

 44:31: It's pricey. 

 44:32: The rates are what they are, and it, I think this is just looking at an equation and saying, OK, if we could, if we can't drive rates down, which is your cost of funds factor. 

 44:42: , you know, based on what your term is, what you're paying, how, what other equate, what other formulation could we do, that would bring down the cost and make it more affordable. 

 44:55: So, You know, It's the naysayers. 

 45:04: are going to say you're just going to be a permanent renter. 

 45:07: You know, this is akin to permanent renting. 

 45:09: Well, that's not really true because you do within the tax codes, or you're able to reduce your taxable income by the interest you're paying. 

 45:17: You own something, it's the American dream. 

 45:21: but it is also on the other side of that coin is, it's kind of the law of diminishing returns. 

 45:25: Your payment on the 30-year. 

 45:26: Is not much less than a 50 year even though it is, but that might be what it takes to get you to qualify in today's day and age based on the, you know, the cost of the housing. 

 45:37: So It, it is, I, I, you know, for me right now we're in a marketplace where we can only build so many houses. 

 45:46: People sometimes are landlocked based on their jobs. 

 45:49: There's not any inventory, and they need the ability to purchase something, so we, it, it will help. 

 45:55: Now there's others that will say that, you know, It's gonna exacerbate the problem. 

 46:05: So now I just made it a little bit cheaper, right? 

 46:08: So now I can buy more. 

 46:09: So it's really gonna have a negative effect. 

 46:10: It's gonna be a zero-sum game in that, well, now I can apply, I can afford more. 

 46:15: Well, now everybody else can afford more. 

 46:17: So now I'm gonna have to pay more. 

 46:19: All real estate is local. 

 46:22: My opinion in the financing, if you educate the client on what they're doing. 

 46:27: They need to know their own finances and they make reasonable informed decisions for their life and their family, then it's an option. 

 46:35: They don't have to take it. 

 46:37: So I think it's, it's going to be, Just one more tool to help them navigate, you know, the landscape, to get it done. 

 46:45: It's, you know, as I said, the 30-year was the boogeyman. 

 46:49: I didn't, no one took out a loan more than 5 or 10 years, and that was like unheard of. 

 46:53: But if you can afford it, you can write it off. 

 46:56: I think there's, there's gonna be some validity to it. 

 46:59: It's a lower monthly payment. 

 47:00: It's an easier qualification for the borrower. 

 47:04: We'll see where it goes, As others would say, it's well above my pay grade to put this into, a practical application, but I think it's, it's, it's worth it, and you could do a 40 year right now with DSER if you want. 

 47:19: How many have we done? 

 47:21: 0. 

 47:24: Well, but you can. 

 47:26: The other thing is too that, and I will bring this back to the DSCR is, you can qualify interest only on these. 

 47:33: So it's a great product that allows you to do it. 

 47:35: You can do up to 80%. 

 47:37: , And it's a good thing. 

 47:42: I, I will say one other thing too, and this might be something, That a lot of people, a lot of people touched, you could do 2 mortgages for DSER too. 

 47:52: So if you're an investor and you have a property. 

 47:55: , that has equity in it and let's say you want to buy another property, and you're short on cash, you can cash out to 80% of your home's value, just has to qualify to 1 to 1 ratio. 

 48:07: The property has to be leased. 

 48:09: You can do a loan amount of minimum of $75,000 because they want our investors back and want a return on it, and you can do a loan up to $750,000. 

 48:19: There's really no negatives to it because the property still has to qualify, meaning. 

 48:23: The rents received can be no more than the 1st and 2nd mortgage together. 

 48:28: So it's still at the very least a zero-sum cost basis or it has to be positive cash flow, and it opens up a lot of doors for investors who see a project, but they just put it into another one and they're not, they're a little bit light on cash, but it makes sense and they've got a couple $100,000 in equity and the property, they might use it. 

 48:50: So that's great. 

 48:51: thank you for sharing all this knowledge with us. 

 48:54: definitely appreciate your perspective,, for everyone that's still watching, please like this video and subscribe to our channel. 

 49:02: It, it helps our, our channel grow. 

 49:05: if you, if you want to look for foreclosures or you're in the market and want to understand what's going on, make sure to sign up for our free foreclosure alerts at foreclosure.com, to stay ahead of the trends. 

 49:17: Until next time, I'm Tim Jones, and thank you for joining us today.