Chris Shank NMLS 2562885 | 31 May 2024

Look, we all know that guy. The one who has “a few properties” that he rents out. The guy who calls himself an investor and drives a fancy car and is quick to credit his success to “smart investing in real estate”. Whether or not you admit it, most of us want to be that guy. Heck, I’ll happily admit it. Maybe not so much the car, but I would love to have a few properties bringing in a steady side income for future security (let’s be serious though- in my case, “future security” most likely means “financing my gardening addiction”).

That said, the dream of establishing one’s own real estate empire is often locked behind a pretty hefty gate- qualifying for financing.

“Wait one minute”, you’re probably saying, “I thought getting the actual money together to buy properties is the hard part! How is qualifying for financing so difficult?”

Allow me, if you will, an opportunity to do the Chris Shank thing and explain my reasoning with a story of a client we’re going to call Bob (not going to drop his real name due to privacy concerns). Bob, like the rest of us, has that investing empire dream. Twenty-two years ago, Bob bought his first home. He purchased his place on a 30-year mortgage, so he’s still got eight years left. Bob is currently halfway through financing his truck, and one year into a five-year loan on his wife’s vehicle. Bob also co-signed on his daughter’s mortgage earlier this year because neither her nor her husband had the credit to afford a house on their own. (This last act was one of self-preservation as much as it was kindness; she’s got a brand new baby and bonus rooms are not the ideal location for a newborn… especially if said bonus room shares a wall with the master bedroom.)

Anyway, Bob has more than enough money for a down payment on an investment property, but when the bank ran his debt-to-income ratio to see if he qualified for an investment loan, they turned him down hard, telling him to try again in eight years once he’s paid off his house. Right…

Bob was saved when this crazy mortgage advocate talked to him about qualifying for a Debt Service Coverage Ratio (DSCR) loan. Unlike your traditional financing options, which base your ability to repay your loan off of your personal income and expenses, a DSCR loan qualifies you based off the investment property’s cash flow.

Here’s how it worked for Bob. He started by working with his crazy loan guy and was qualified initially with his his credit score (Bob worked hard for his 749, darn it!). He then brought on board a trusted real estate advocate, who spent the next several weeks examining various markets for potential properties. Eventually, the pair found a house close to Pigeon Forge that was for sale for $200k by another investor who needed some cash. After crunching some numbers, Bob was able to determine that if he put $40k down on the house, the short-term rental income that was generated by that property would more than cover the projected mortgage and property management fees for that house. Past that, his loan processers took his loan to underwriting, and less than one month later, Bob had earned the right to call himself a real estate investor. He’s now putting the net profits of this property into a savings account and is eagerly counting down the months until he can acquire a second property using a DSCR loan.

Here’s the thing- everyone can achieve their dreams of real estate investing. The hard part is finding the path best suited to you in order to make that dream come true. When I talk to clients, my step-by-step advice is always this:

1. Decide what it is that you really want and make the commitment to actively work toward achieving that goal.

2. Surround yourself with professionals who will stop at nothing to help you achieve that goal.

Real Estate Investing is no easy journey- just ask Bob. He saved up for years to be able to put that $40k down for his first investment property. Still, he stayed committed and is now earning a few hundred extra dollars per month, but his property is actively generating equity which could be leveraged to purchase new homes and expand his empire.

If you think you have what it takes, or simply wish to chat theoreticals, please don’t hesitate to reach out. After all, as a crazy mortgage advocate, I’m in the business of making dreams a reality.