[Music] hey gang this is Carl white and I am coming to you broadcasting here in the studios today and you're listening to the author showcase uh powered by the Scotsman guide and this is where we interview the authors that uh write the articles for the scotsman's guide and we do both the commercial side and the residential side uh as one is released each month and uh this month we have Mr Tom Davis who wrote a great article uh that talked about well you know I'll let you tell what it's about Tom so uh Tom out of Fort Lauderdale Florida the October Edition uh take it away brother thanks Carl thanks yeah thank you for having me yeah so the article uh was about dscr loans uh which are Debt Service coverage ratio loans uh it's it's a it was a the piece was a focus around investment properties and how to finance investment properties and so uh if you just look at uh year to date uh approximately 26 to 27% of the purchase transactions year-to date have been investment properties and if you look at is that Tom let me stop you there just say I was just floored by number I found the article very interesting frankly uh and if you want to go read it which I strongly recommend people do is uh invest in your future invest in your future is the name of the article so I had no idea that many homes were bought as investment and you said what what was it get 20 I think it was 27% you said AR is that like what was it five years ago like that that number seems incredibly high or is that kind of that number was actually uh lower let's call it five years ago then coid happened there was a migration people started buying second homes and investment properties and so you've seen uh you know an increase in investment properties uh you know to Great hedge against inflation there's tax benefits and um you know real estate every night when when you go to bed you put your head on your your pillow that's called real estate and so I just would never have guessed it'd be anywhere remotely close to one out of four I mean that's a that's a that's High number yeah it is a high number so if you look at the purchase just marker just originations in general right and you go back to 2021 which is a an alltime kind of record the the market was 4.4 trillion 72% of the market was refinance transactions the other 20 plus perc were purchase transactions well two years later uh you have a market that's at a 1.7 trillion 1.6 to 1.7 trillion so the originations are down 60% over the two years because of the rate environment and uh the the the transactions a share count or the market size purchase is up significantly it's about 75% and refi are in the 20s now so um if you're an originator right it we you got to focus on the purchase money side of the business because it's the majority of of of the market 70 plus percent and of that 70% 25 the 27% is going to be investment properties now there's certain States like California is actually at 34% that's the highest in the country Texas and Georgia are in the lower 30s where I'm at out of Florida I think it's 29 so there's certain markets that are higher than others um but um yeah it's it's uh it's definitely we've seen a growth there and it's a great opportunity a great product uh you know to help you know to to purchase real estate for invest properties it just blows me away I had no idea it was that big and you know the first so I'm a uh uh branch manager uh one of the largest branches in the nation where we do hundreds of loans each month and uh man I'm I'm embarrassed maybe we might edit this part out but I'm embarrassed that out of the hundreds of loans I I don't know if I think we're really missing out on this because nowhere near 25% of our purchase loans nowhere near that were for investors so I think this is an area that not just myself but probably most uh loan officers or mortgage companies mortgage brokers might be uh might be very well missing out on let's backpedal just a little bit so uh dscr so tell us again what it is and kind of give us a little bit of what exactly is it in case somebody's hearing that term uh for the first time so debt service coverage ratio it's basically a cash flow program the property or the loan is is qualified by the cash flow of the properties so let's say the payment all in is a th000 but your rent is over a th000 let's call it a, one so your ratio you divide those two the ratio is actually over A1 so it's a you know the it qualifies over one so um you're basically qualifying the the property off the cash flow of the property you look at the appraisal what the appraiser says the market rents are and you go off that number and then you determine what the payment is Piti taxes Insurance you lump that in and you just divide uh the the the rents uh divided by the payment and that's how you qualify the property it's it's really like a a commercial kind of a transaction we're just looking at the cash flow we don't require or you don't need the qualify the borrower off off that off that uh what is it called um of their personal income right right so it helps with the the the debt to income ratio uh that's that's where this uh seems to uh shine now if if I go do it like when we're marketing this to the consumer uh do I as a consumer do I need to be show how much of a track record do I need to show that I've been I've been that I'm a successful landlord and I've been managing properties for x amount of years how does that work that's a great question uh we could work with firsttime investors as well as all the way to professional investors uh with our program we could actually go up to $10 million exposure for one borrower uh and uh we also allow the the the the the the allow for llc's to close in the LLC so it could actually be originated in the LLC in the company's name and uh close in an LLC so with that product or the dscr offering you can actually Target firsttime investors Carl and then you could also Target your let's call it professional investors and so uh you you named it how you know if you're not seeing 25 26% of your production in your your branch then there's ways to to think about okay how do I Target this market right that's what non- agency or non-qm allows you to do it allows you to serve the underserved borrowers and so you have to start thinking about you know that Mark and how you could tap into that and we help you with that and give you ways and and ideas but look there's 19 over 19 million uh investment properties in the United States that account for 49.5 million units of the 19 million properties plus 19 A5 million uh approximately 18.3 to 18.5 or 1 to four unit uh single family the four unit property so um there's a ton of opportunity there's just like you know uh there's agency borrowers there's non- agency borrowers in every town There's investors in every single town in the United States how do you tap into that market um there's plenty of ways to do that we could talk about that if if you like as well very interesting so this so I can use this for I'm a I could be a a brand new investor right yeah and and I can do this on either single family residences or up to a four unit correct correct and up to a $10 million exposure for one borrower correct does uh and and how does how does condos uh in tow houses are they uh open for these two any any limitations on that yeah so we allow for condos we allow for Town Homes uh we allow for uh non-w warable condos as well very so there's uh pretty much all all properties are allowed for dscr except some of you know like a BM home or something like that but your traditional you know properties that you're originating through the agencies those are the properties we're looking at now I'm getting ready uh uh I'm I'm in the process of doing the one of these myself can can we use the dscr uh loans for if I'm doing a 1031 exchange to buy the property does that uh can I can I use a a dscr loan for the home I'm buying using a 1031 exchange yeah we we allow for 1031 exchange very interesting all right so let's talk about um my favorite thing to talk about which is the marketing of it right I I I love the marketing so I love things that help me help more families uh and then helps my family you know through closing more loans so who do I who do I partner with or who do I uh who do I need to get this information about this type of loan to so that they'll start referring to me so I can help more families uh I.E close more loans how who's my target I say I always say start talking about it to everyone right uh if you know if you're an originator I would definitely start with your realtor base right and that Network Realtors uh many of them are investors and or and they want to buy more investment properties and they also know other investors so that's a great place to start if you spend time with Realtors you'd be interest it's kind of interesting a lot of the realter will will want to do that loan and leverage that loan so it's it's not you're not asking the realtor for a deal you're actually providing solution to them and then they'll send you their own personal loans which is interesting um we have many clients that do a realtor lunch and learn to present to Realtors and their target is the realtor not even going out and finding borrowers they just Target Realtors and educate the Realtors and those deals you know that you know those webinars and lunch and learns turn into deals uh another place to start is uh I would go to your local Ria uh real estate investment club uh those are great places uh there's professional investors firsttime investors private money uh there's there's uh uh hard money investors uh and the hard money needs a takeout so the dscr loan is perfect uh someone is purchasing a loan and they're doing a fix in flip and they want to you know take the end loan out with the dscr loan that's great but that that's a great place to go on a monthly basis to the local Marriott or Hilton where they're having these clubs and get get to know the investors actually where you're located I believe in Tampa there's actually two or three on the west coast of bu South Florida there's about five of them so we always recommend uh you know Originators go there become the the cash flow or DCR expert and master the product uh because it it it it's a untapped market and allows you to differentiate yourself from your competitors yeah so H how long are these D brother I think the investment club would be I think it'd be a home run for those guys they've been looking for stuff like this for as long as I've been in the business how long have the DS uh CR loans been uh been in existence is it is this a new thing well uh you've seen them with the banks and uh private lenders it's just you know qualifying off the cash flow actually uh deep aen uh was a Pioneer in the non- agency or nqm space back in 2012 we helped bring Capital to the market and you know uh were instrumental and actually developing the dscr loan so it's been around uh you know at Daven since 2012 but you you've seen uh Banks you know that have portfolio programs and private lenders they they just you know just like traditional commercial they're just relying on the the cash flow of the property to qualify so it's it's not something that's really uh new but you it's it's you're getting a lot more attention Originators outside of the agency side right and focusing on that with production being down Originators need more tools to compete to re to retain Talent to to uh differentiate themselves with their realtor base to tap into new Realtors and drive those relationships and you know the DSR is a great uh product to do so and um you know so it's it's to give you an idea in the non- agent or non-qm space it's about 35% of overall production in non-qm today I would have never guess it was that uh I mean I've always seen the need for it but it just seems like recently this has just become a I don't I I'm just hearing it all over the place and and I uh you know it's kind of big news is is there something going on like with the um um I don't know the the the the the way the economy is Now with uh with uh a lot more people renting and uh and the prices of homes uh obviously increasing over the last few years uh pretty dramatically has that spurred more um I don't know interest in this yeah I think on the investor side investors want you know properties that going to cash flow uh and if you look at just the characteristics of a dscr on average it's like a 70 to 75% LTV um the property cash flows so the investors like that also one thing that investors like is um look there's a under supply of housing in the United States uh by like 5 to 10 million units so there's not enough property out there and there's a supply demand imbalance uh as we all know you know the vast majority of borrowers that own or folks that own homes that have a mortgage that have a rate that's lower than um the current rate environment and so um there's kind of like a seller strike that's going on no one wants to move out of their home into twos and threes right so no one's properties aren't coming on the market and rates where they're at it's hard for folks to to actually afford home so so um there are some challenges in the market but the investor space uh it continues to remain bullish because of the supply de demand imbalance and you know we've had a a migration uh close to 40% or 40 million people in the United States were not born in the United States and if you look at the home builders when coid happened they stopped Building Homes so between the migration and the the home builders you know kind of pumping the braks during coid that that has increased that Supply demand and balance and housing and so um there's always a need for real estate and investors really like uh the appreciation of the properties and the cash flow and uh they've been great Investments over the last let's call it you know five 10 years for just seems like a remarkable opportunity now I know you mentioned a couple areas or a couple States like Florida and California are are there uh any notable like cities or other regions where uh dscr loans are making a significant impact yeah I would say for the most part you know the coastal the large Metro areas um you know you're seeing the Florida Georgia the Carolinas uh California Arizona uh uh are the bigger States and for dscr loans and investor loans uh I would say where you sometimes you run into issues on the cash flow of the property is in states where properties have really appreciated in value and you know with that payment um in the current interest rate environment it the property might not cash flow so so sometimes that could be an issue there are certain markets that have short-term rentals uh markets that are you know that um just have a higher Cash Flow versus a long-term rent so we're seeing some some of those markets continue to do well uh but overall once again there's there's investors in every uh town and there's need for housing and there's once again the supply demand imbalance and so uh we continue to see that that that market across the United States continue to remain strong now you just mentioned something that um I didn't even think about until just now can so can are there cases where we can use Airbnb income properties uh for this type of loan also yeah we could look at the short-term rental we could look at the history of the short-term rents to determine right uh if if we could use it but yeah there's uh uh each property each uh location Geo code or you know city is going to be a little bit different um you know some areas like in South Florida you just tend to have more folks you know visit uh you know uh from out of the state in the winter so um short-term rents might work uh you know maybe in Tennessee where there's you know you have uh you know homes in the mountains and people go to rent you know those properties or beach beach towns right so th that's where you're going to uh see maybe Orlando where you have you know the theme parks there's a lot of visitors and travelers that come in and out of there so that's where you see really where the short-term rents you know tend to work are more favorable uh than you know a a town in the middle of let's call it uh Georgia where you know it's just a smaller rural town you just don't get a lot of visitors the short-term rents might not work there get it get it yeah so the good old uh I was going to insert in name of a city but sure as the world some might be listening lives in that town and go hey right this is a nice place right so but I I get what you know it's it sounds like this is one of those uh very elusive uh Common Sense uh type of loan products which um uh boy it's great idea hey uh Tom for somebody wants to hear more get more information on these types of loans number one would refer them to the October edition of the Scotsman guide and again the title of the article is uh invest in your future uh by Tom Davis uh Tom you work over at uh deep Haven mortgage do you have additional information over there yeah just go to deep Haven uh.com uh that deaven mortgage on our website we also have webinars where you could actually sign up for one of our upcoming webinars we have a lot of webinars with uh different folks from uh you know our industry the chief Economist Economist at the National Association of home builders The Mortgage Bankers Association so just trying to always keep our our customers up to speed on what's happening in the market and we cover a lot of these things through that um uh if you're looking to tap into the the the the dscr space or just non- agency and you want to you know build a competitive advantage in your Marketplace we do a lot of one-on-one training around our products how to leverage the products where to Source where to find find these investors and Target those you know 26% of the purchase Market uh we also have uh White Label marketing as well so if you need flyers you could just put your nmls and Logo uh onto those flyers so we have all the resources we can look at we have a scenario desk that can look at those uh transactions and the appraisal and and credit qualify for you so um just go to deaven mortgage.com and uh connect with us there outstanding well Tom looking forward to Future articles in the uh in the magazine uh the scotsman's guide so uh thanks for being here today and brother thanks for some absolutely outstanding information uh to help our listeners uh have more uh more Arrow another arrow in their quiver another tool to help more families close more loans thanks a lot Tom great seeing everybody thank you very much Carl have a good one take care all right for our listeners thanks so much for hanging out with us today and uh myself and Tom and the uh the Great great group over at the scotsman's guide uh the only thing we ask in return is boy we love those five star reviews are just an honest review so whatever platform you're listening this on uh whether it's Stitcher or iTunes uh YouTube wherever you might be watching it if you could give us a review we're really appreciate it and for this to three of your F favorite loan officer friends they'll thank you for it and certainly I will too so on behalf of the gang over at scotum guide my name is Carl white and I'll see you on the next episode of author showcase thanks again everybody bye-bye [Music]