But, before all these become accessible, you must invest in suitable properties. Sadly, several factors can cripple your dream of becoming a successful real estate investor, the topmost involving financial limitations.
But again, wise investors have surmounted this obstacle and continue doing so regularly. What's their secret? Funding solutions like debt-service coverage ratio (DSCR) loans.
As you may already know, a DSCR loan is a non-QM financing solution for real estate investors. It has many perks, including no income verification, high loan amounts, and unlimited cashouts. But there's more to DSCR loans than that, and this piece will introduce everything.
Why get a DSCR loan in Flagler County, Florida?
Let's start with a conflagration of reasons to go for a debt-service coverage loan in Flagler County.
No income verification
Many lenders ask their clients to submit income verification documents like earnings statements, W2 forms, tax returns, and pay stubs while applying for financing. They use the information to cut the risk of lending to borrowers who can't meet repayment obligations.
For instance, a specific lender can ask you to present pay slips dated less than X weeks before the application date. The documents you submit should not be outdated or miss essential information like your name, the employer's name, and relevant deductions.
The problem with income verification is not all borrowers have access to some documents. Consider pay slips as an example. Many organizations rely on online HR resource departments today. And many of them don't email their workers complete pay slips. On the contrary, they let their employees download what they need.
Downloading your pay slip from a portal can be challenging, mainly when vital details are divided into different tabs. Not to forget, if your employer pays you in cash, you won't even have access to this document in the first place.
But a lack of employment verification documents should stop you from getting a loan and investing in real estate. You can get a DSCR loan without income verification or job history. This platform primarily uses your investment's potential earning power to determine your creditworthiness.
Quicker closing
A debt-service coverage loan can close faster than your average financing solution. Why? First, you don't need employment verification to get a DCSR loan.
Lenders often face numerous challenges when handling employment verification documents, including fraud and misinterpretation. Institutions have noticed this issue and addressed it by prioritizing diligence over speed. That means they take their sweet time verifying borrowers' documents.
Employment verification alone can take several days to a couple of months. Couple it with the hurdles associated with additional checks like job history confirmation, which involves contacting your workplace and talking to the employer or any other stakeholder, and the process takes even longer.
Since DSCR lenders only ask for information about your real estate investment, less time is spent sourcing documents and verifying their authenticity. That, in turn, leads to significantly quicker closing times.
High Loan amounts
There are numerous real estate investment options in Flagler County, Florida. These include raw land, residential real estate, and commercial real estate.
Generally, you can buy an average acre of raw land in Florida for as little as $6,100. But turning it into something profitable might cost more. The numbers shoot much higher when your preferred investment is commercial real estate. On the other hand, you have to cough much more- at least $100,000- when your plans include residential properties.
Unfortunately, investing in your preferred property may be out of reach, especially when a lender can only offer you so much. Don't forget that your finances dictate how much you can pay.
But here's excellent news for investors. DSCR loans come with sizable limits. So, you don't have to worry about shortlisting your dream investment properties only for insufficient funding to stop you short.
Note that not all borrowers get the highest DSCR loan amount possible. Your financing depends on various factors, including net operating income and total debt service.
Unlimited cash-out
If you're a seasoned investor, you likely know a thing or two about cash-out refinance. For those who don't, consider cash-out refinance as a solution that allows you to convert an existing mortgage into a bigger loan with new terms.
But more often than not, cash-out refinancing is associated with one issue: limited cash-outs. Put, a specified amount of money lenders allow you to cash out after refinancing a mortgage.
Luckily, DSCR loans don't come with limited cash-out restrictions. You can take out as much money as you need, which becomes incredibly helpful when your business has to cover unexpectedly large expenses.
All-encompassing
Are you just starting in real estate investment? Congratulations. You are about to take on an endeavor that's highly likely to help you outpace inflation, earn high returns, and build wealth. If you play your cards well, making upwards of $100,000 won't be an issue.
Your journey to becoming a formidable real estate investor won't be smooth and easy. You will likely face various challenges, the most significant involving funding. Not all lenders will willingly dish out vast sums of money when you're starting. Some may outright deny financing because you are new to the game and, therefore, high risk.
With the above in mind, if you are a novice investor, don't give up yet; there's still a ray of hope. That is so because DCSR loans are tailored for all sorts of borrowers, from beginners to seasoned pros.
As a beginner, a sizable DCSR loan should ensure your business takes off on the right foot. And when you transition into a professional real estate investor, you can still use a debt-service coverage ratio to take your venture to the next level.
How does a DSCR loan work?
Before we go any further, let's discuss the details of DSCR loans.
DSCR loans are essentially non-qualified (non-QM) financial solutions for real estate investors. As the name suggests, a DSCR mortgage uses your debt-service coverage ratio to determine your venture's ability to repay loans on time.
Since DSCR loans don't require employment verification, they are ideal for real estate investors with complex incomes. But eligibility for these mortgages requires you to invest in properties that meet or exceed a specific lending institution's coverage ratio requirement.
Here are general steps you can follow when applying for a DSCR loan:
Find a lender with DSCR programs
Before kicking off, ensure your lender offers DSCR loans. Please don't skip this step because it may frustrate your efforts even before they take off.
A reputable lender will make the entire application process more manageable by expounding on essential characteristics of your DSCR loan, including fees, period, and value.
Fill out the relevant paperwork
Like other financial solutions, DSCR loans come with paperwork. But this program won't ask for personal financial details, so there is no need to fret over that. The only information you'll need to fill out concerns your rental property or business.
After filling out the required forms, verify the information provided at least once. That will save you from major impending headaches and the risk of rejection.
Closing
Once you've confirmed all paperwork is in order, hand it over to your lender. Since DSCR loans don't demand a pile of verification documents, the entire process should be relatively faster, from finding an excellent institution to submission.
If your application is approved, the lender will likely follow it with a loan estimate covering every essential detail, including closing costs, monthly payments, and interest rates.
You are supposed to review said terms and respond accordingly. Property appraisal follows if your feedback is positive, then you close on your loan.
How is DSCR calculated?
To calculate the debt-service coverage ratio, divide net operating income by total debt service.
What is net operating income, you may ask? Net operating income is your business's total revenue less operating expenses. On the same note, total debt service covers sinking funds, interest payments, and principal payments.
Sometimes, professionals refer to net operating income as EBITDA-CAPEX. This acronym stands for earnings before interest, taxation, depreciation, and amortization minus CAPEX (capital expenditures).
DSCR= NET OPERATING INCOME (revenue-expenses) ÷ TOTAL DEBT SERVICE (sinking funds+ principal payments+ interest payments)
Lenders use this formula to calculate your DCSR. The results tell them if you are creditworthy. A DSCR below 1.0 spells financial doom for real estate investors, lowering your chances of getting a loan. On the other hand, institutions rank DSCRs above 1.25 "strong."
How to determine DSCR payment
We've already introduced the formula for computing DSCR, net operating income divided by total debt service.
Suppose your real estate venture brings in $60,000 monthly in net operating income. Moreover, assume its total debt service is $54,000. In that case, your debt-service coverage should be around 1.3.
As mentioned earlier, a DSCR of 1.25 and above is considered vital by most lenders. So, 1.3 is an ideal number.
After establishing your ratio, you can use it to estimate the maximum DSCR payment to expect. How? Multiply the debt-service coverage ratio by your net monthly income, i.e., 1.3 x $60,000. Your max payment is approximately $78,000.
With the above in mind, you can use a DSCR loan to buy residential properties like single-family homes, commercial properties like apartment buildings, hotels and resorts, and mixed-use properties like buildings with apartments and retail stores.
What is the minimum DSCR to qualify in Flagler County, Florida?
The minimum DSCR requirements in Flagler County, Florida depend on specified lender stipulations. With that in mind, most institutions cater to borrowers with debt-service coverage ratios above 1.2.
However, if your DSCR is too low, you can improve it by:
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Avoiding higher operating expenses
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Boosting your business's net operating income
- Clearing significant debts
The best cities to invest in Flagler County, Florida
As an investor, your priority should be owning real estate in an area with high capital appreciation and growth history. That is important because you may want to put your property on the market at some point, and location will determine the resale value.
That being said, if you want to invest in Flagler County, check out the following cities:
Palm Coast
With a population of around 93,833, Palm Coast is one of the most populated cities in Flagler County. It's considered one of the best places to live since the area has enticing beaches, beautiful sceneries, and a peaceful atmosphere. Plus, Palm Coast is home to a thriving community.
The best thing about Palm Coast is that this city's rental properties are considerably affordable. So, if you want to hedge against inflation, bolster income, or enjoy any other pros of investing in rental properties without breaking the bank, check this region for easy, pocket-friendly pickings.
Additionally, Palm Coast is the #1 city to retire in 2022 by retirement living. That makes it prime pickings for investors considering properties for retirees.
Bunnell
Being the county seat of Flagler County, Bunnell is one of the best places to invest in Flagler County.
Bunnell's population isn't as large as that of areas like Palm Coast. By 2021, the region had around 3,438 residents. Also, its population hasn't grown above 2.0% since 2017. That being said, most people living here rent their homes.
Statistics indicate that 53.73% of the housing units in this region are used as dwelling spaces by renters. The number of renters in Bunnell shows that if you build rental properties in this region, chances are high you'll recoup your investment quickly.
Here's another priceless tip. The land is quite affordable in Bunnell. So, with a sizable DSCR loan, you can purchase a large tract. And the best part is Bunnell is among the fastest-growing cities in Flagler County.
Beverly Beach
Beverly Beach is a picturesque town in Flagler County. It's primarily known as an exquisite beachfront community. Retirees love it here because it features uncrowded strips of sand, fishing is permitted on the beach, and the area is quiet and peaceful.
Generally, the Beverly Beach community has many condos and beachside homes. Beverly Beach may be a good starting point if you've been considering investing in a condominium complex that offers residents unrivaled views and peace of mind.
Most golden agers treat their dwelling places with care and respect. So having them guarantees your property will stay in tip-top shape for a long time.
Flagler Beach
Flagler Beach isn't just a beach; it's a city in Flagler County. As of 2021, Flagler Beach had approximately 5,265 residents.
Locals and visitors alike often relish Flagler Beach because it's conveniently located between St. Augustine and Daytona Beach and boasts numerous sparkling beaches, waterfront restaurants, natural parks, fishing spots, etc.
Most importantly, over the last decade, real estate in Flagler Beach has appreciated by over 165.36%. What does that mean? If you buy raw land or developed property in the area today, the likelihood of reaping juicy returns in years to come is relatively high.
Flagler Beach is also home to many retirees, and more will likely move here in the future. If you want to invest in a stress-free community for golden agers or any other accommodation facility, this region is ripe for the picking.
Ready to Grow Your Investment Portfolio Quickly?
Are you ready to take your real estate portfolio to the next level? Apply for a DSCR loan today. But, before you do, use the formula we've explained above to compute your debt-service recovery ratio. Remember, financial institutions have DSCR requirements.
Most importantly, weigh the pros of DSCR loans and compare them with the potential benefits of other programs. And if the odds are in the debt-service coverage ratio program's odds, go for it. Best of luck.
