Real estate investing is a numbers game, and one of the key metrics that rental property owners must know is Debt-Service Cover Ratio (DSCR). Rental property investment through DSCR rental loan programs is PERFECT for the current real estate market, where home sale prices may not be the best for fix & flip projects.
What is a DSCR Loan?
From a lender’s point of view, DSCR refers to the borrower’s ability to pay back a loan based on the monthly rent of the property. Essentially, it is a way to measure cash flow. DSCR is calculated by dividing PITIA (monthly principal, interest, taxes, insurance, and association dues) by the gross monthly rent. While it varies between lenders, typically anything above 1.2 is usually considered good, and anything above 1.5 is considered great. 1.0 means the investor is getting exactly the same amount of rent as their monthly payments.
Is NOW the Right time?
While home prices continue to rise, we are seeing historically low mortgage rates. In today’s market, investing in a rental property with a positive DSCR can lock you into a great rate while also giving you a consistent return from a stable investment. Things to consider when purchasing rental property in the current market are:
● Low mortgage rates vs high home prices
● Real estate offers stability that stocks cannot
● It’s a seller’s market
Buying Rental Properties is an Excellent Hedge Against Inflation
The downside of low-interest rates is that they can be a driving factor in inflation, which can also be impacted by the government increasing the availability of money. Inflation is the devaluation of the dollar in comparison to the goods and services we buy. Generally, the more money that’s injected into the markets, the higher the prices for goods and services.
The Cares Act and COVID-19 Relief Bill injected more than $4 trillion into the U.S. economy, causing concern about the devaluation of the dollar and an increase in inflation.
Many savvy investors know to reduce their cash savings by buying assets as a hedge against inflation. Rental real estate is an ideal asset that will not only protect against the lost value of the dollar but will also provide income during slow economic times.
At First Equity Funding, we understand the importance of offering an array of loan options to serve you because a “one size fits all” approach does not exist in the mortgage industry. If one of our loan options does interest you, contact us to discuss how we can help you take advantage of this opportunity.