Investing in Florida real estate long-term tends to be a profitable venture. However, with increasing property values, it can be challenging to own an investment property without breaking the bank. DSCR loans offer a quick solution for Ocala Investors who need a unique way to finance their rental property with minimal obstacles.
Today we will take a quick look at DSCR (Debt Service Coverage Ratio) financing solutions and highlight some of the benefits investors should know.
What is a DSCR Loan in Ocala?
Debt service coverage ratio (DSCR) financing is a type of mortgage loan that evaluates the ability of the borrower to repay a loan. These loans are often used by investors to finance both long-term and short-term rental properties like Airbnb and VRBO.
It is calculated by dividing the net operating income (NOI) by the annual debt repayment. This financing solution is quite popular among real estate buyers and investors looking for adequate funds to purchase their property quickly.
The debt service coverage ratio can be formulated by a simple equation. Firstly, you will need to calculate the Net Operating Income (NOI) by taking the gross rental income and deducting operating expenses like utilities, and maintenance. Subsequently, divide the NOI by the debt service (payment) amount to get the DSCR ratio. Lenders usually prefer a DSCR ratio above X1.0 as this indicates that the borrower will have enough revenue to repay the loan.
However, new options are now available that permit 0 and even negative DSCR with greater down payment.
Note: When calculating the DSCR, the loan payment should include principal, interest, taxes, and homeowners insurance (PITI) plus any HOA dues if applicable. Property management fees, utilities, lawn care, etc. are not included in this formula.
Example: Let’s say a real estate investor decides to purchase a rental property with a monthly rental income of $3,000 and a monthly loan debt of $2,000. When you divide $3,000 by $2,000, you get a DSCR of 1.5X meaning the rental property generates 50% more income than what is required to repay the loan.
Why Would Ocala Investors Use DSCR Financing?
The short answer is that DSCR purchase loans are simple. There is very little documentation needed from the buyer in a DSCR transaction. Tradition conforming loans require income documentation like tax returns, W2s, etc. and buyers have to meet strict debt-to-income ratio requirements. This can be an issue for many investors as most of them are self-employed. DSCR eliminates ALL of this – no tax returns, no income verification, no employment verification.
DSCR transactions can be completed quickly with minimal paperwork, making it ideal for short-term investments and purchases that need to close fast.
Benefits of DSCR Financing:
DSCR financing solutions provide an array of benefits to Ocala investors, including:
- Close in the name of LLC
- Unlimited number of properties owned
- Lower down payment requirements
- Competitive interest rates and better terms when compared to hard money loans
- Rate-Term and Cash-out refinance programs are available
- Interest Only options
- Faster application and approval process
- Increased cash flow to reinvest and grow investor portfolios
Investing in real estate can be a lucrative venture. DSCR financing for Ocala investors provides an excellent opportunity to own property while minimizing hassle and time. With a wide range of financing options, investors can find the solution that best fits their individual needs.
DSCR Loan Source is here to help make this process easy and efficient. Contact us today to learn more about all the lender requirements and start the process. We are happy to serve investors throughout Marion County 7 days a week.