The housing market has seen massive changes in the last 3 years. We've seen COVID related supply chain shortages causing massive increases in housing prices nationwide and inflation related federal rate increases leading to a sharp increase in mortgage rates. As an investor, these shifts have had differing effects on your business. On the one hand, increasing home prices made the idea of buying a renovated home more attractive to individuals and families when compared to new construction. On the other, a broad based increase of housing prices increased the cost of getting into new investments. When it comes to federal rate hikes, we have seen both housing prices begin to decrease and end buyers become more skeptical to buy now that their cost of financing has gone up. All in all, we can agree that we are living in interesting times with regards to the economy, and it is having an impact on real estate investors across the country.

When navigating uncertainty, it is important to know what all of your options are moving forward. That is why Bench Equity has begun offering DSCR loans that allow our borrowers to refinance their short term hard money loans into 30 year fixed and 10/1 ARM loan programs that are still based on the value of the asset (hint: Think conventional financing without all the conventional requirements). A DSCR loan is largely based on the ability of a rental home's monthly rental income being high enough to pay for the costs of owning and operating it (Hence the name Debt Service Coverage Ratio). If your property qualifies for DSCR it means it can pay for itself, and you as the investor get to enjoy all of the financial benefits of owning the property (appreciation, tax write-offs, and cashflow) without the strain on your bank account. This new loan product is a perfect alternative for landlords who want to stop worrying about extensions and refinancing in favor of locking in their 30 year fixed rate.

Why Fix & Flippers should pay attention to DSCR

For most investors, renovating a home is like an art form. It allows them to design something, flex their creative muscles, and feel the rewards of putting some sweat equity into a project. The process can be very rewarding, but those feelings can quickly be replaced by stress and anxiety when the beautiful home you’ve built from humble beginnings doesn’t sell how you had hoped. In a CNBC news article titled “Homebuyers are canceling deals at the highest rate since the start of the pandemic,” by Diana Olick, we read that contract cancellations have increased to just under 15% as sharp increases in mortgage rates and decreased urgency from homebuyers to get in before the price increases lead to cooldowns in the housing market. The bright side is that it’s not just you who is experiencing this problem in today’s market. The dark side is that not even a signed contract guarantees you’ll be able to offload your property. We hope that isn’t the case, but if you find yourself in a situation where your beautifully renovated home gets priced out of the market, you can always transition your strategy towards keeping it as a high value rental and refinancing into a DSCR. Of course, this loan product isn’t a one size fits all solution, but it can be a helpful tool in your toolbox when navigating through uncertain markets. We have seen many investors take this exact approach and turn a bad situation into a profitable rental property in just a few weeks!

Here at Bench Equity, we pride ourselves on being a source of fast, reliable financing for our borrowers. We’ve been able to keep our hard money rates low and simple in the face of rising Fed rates because we rely on our own private capital structure instead of money from the banks. When we noticed that our borrowers had a need for a different form of more permanent financing, we answered the call and made that possible through adding a DSCR loan product offered by one of our strategic capital partners. No matter what the market throws at you, Bench Equity is going to be ready and waiting to provide funding that allows you to grow your business. If you need a hard money loan to acquire your next property, visit https://benchequity.com/apply to complete an application and receive an approval within 24 hours. Once you are ready to refinance that Hard Money loan into permanent 30 year financing, reach out to our DSCR specialist Pierce Harmon at pharmon@benchequity.com to get started!