DSCR Loans Explained: When to Use Them (And When NOT To) for Real Estate Investors

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Show Summary

In this episode, John Money McKinley shares his extensive experience in mortgage financing, focusing on working with real estate investors in Houston. He discusses strategies for beginners, the importance of building a team, and insights into financing options like DSCR loans and house hacking.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Planet Home Lending LLC’s Website
    • John Money McKinley on Youtube
    • John Money McKinley on Facebook
    • John Money McKinley’s Phone Number: (281) 851-4963

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  John Money McKinley (00:00)
  You really need to have that because at the end of the day, whether you’re buying a home to live in or especially if you’re buying a home for investment, you need somebody who’s there looking at more than just the numbers for you. What are your goals? What are the things you need to watch out for? I have personally myself, no problem sitting down with someone, taking a look at the deal, going over all the numbers, knowing what

  they’re trying to accomplish and telling them, I’m sorry, Dylan, this deal is not going to meet what you’re trying to accomplish. I’m concerned that you could lose some money in this.

  Dylan Silver (02:19)
  Hey folks, welcome back to the show. Today’s guest, John Money McKinley out of Houston, Texas has been helping people finance the American dream since 1999. You can find him on his YouTube channel, John Money McKinley or on Facebook. Welcome to the show, John.

  John Money McKinley (02:35)
  Thank you very much, Dylan, for having me on here. It’s really an honor to be invited on, and it looks like I’m doing stuff right if I’m being invited on your show. I appreciate it.

  Dylan Silver (02:45)
  Well, when we talk specifically about Houston and we were talking before the show, Houston is probably the biggest, if not one of the biggest cities in the South just by landmass size, right? And so there’s so many areas of Houston specifically. I’d like to start there and go back to the beginning. How long have you been in the mortgage and finance space in Houston?

  John Money McKinley (03:10)
  Um, I have been in the wonderful world of mortgages since 1999. And I actually went from construction in the early to mid nineties. And I transitioned from that to going to work directly for a real estate investor. And I used to be an electrician. I was very, very green getting into the real estate world. And I learned so much working for that real estate investor.

  Dylan Silver (03:29)
  Mm.

  John Money McKinley (03:39)
  which really got my brain working in the right direction to use lack of a better term, to be able to really put together some creative solutions for home buyers on the mortgage side. And as I got into the mortgage world, I transitioned that knowledge because look, most lenders out there do not want to touch working with investors because they don’t know how, they haven’t taken the time and they don’t understand

  how to work with them, let alone work with homeowners who need to have a home that needs to be renovated. And that’s something that I understand. And I love that. I love that type of work. Allows me to structure things, put things together and offer a solution for people.

  Dylan Silver (04:25)
  You mentioned ⁓ being an electrician. Interesting way to get into real estate and working with investors. think electricians right now, it’s probably a great time to be an electrician right now. At that point in time, ⁓ were you looking for a pivot or was it just a different time to be in the trades at that point?

  John Money McKinley (04:45)
  Well, I was doing a lot of studying and a lot of reading at that time. That was back in the old days where you read things like paper books and newspapers and things. And I remember a lot of the people I was working with kept telling me, they’re like, John, you have all this knowledge in your head and you’ve been learning all this stuff and studying this stuff. You really ought to look at getting inside the real estate world and your

  fairly decent at communicating. And I was like, okay, okay. And then the opportunity came up to start on board working for a real estate investor with no experience. And my gut said, jump on it, let’s go. Cause I was working 12, 14 hour days, six days a week, wiring houses.

  Dylan Silver (05:28)
  Yeah, long wait.

  When we talk specifically about working with investors, I’d like if we can get a little bit granular here, John, and for folks who are looking at getting into real estate investing, whether they’re in Houston or any part of Texas, and I’d like to use the example of let’s say they have a residence, they have a homestead, and they’d like to get into some realm of real estate investing, whether that’s a long-term, year-to-year lease, a short-term rental, a fix and flip, or something.

  other segment of real estate, maybe a quadplex, right? What’s the best way or maybe not the best way, but what’s the way that you think would be most useful for that type of mom and pop investor to get started?

  John Money McKinley (07:03)
  The best way is you want to get with some experts. I know in Houston, there’s plenty of groups, real estate investment groups. I recommend look some up, not that you have to go jump into one that’s going to ask you for money. I know I’m up here in the Woodlands area. There’s a group that meets once a month right here off of ⁓ Rayford road. I do believe it is doesn’t cost you a dime to go into it’s at a Mexican restaurant.

  and they sit down and you will be able to meet with other real estate investors and really get a better idea of what’s going on. And I also recommend one of the first people you want to have, I call it, you want to have a team in your corner, especially on real estate investing is get a hold of a lender or realtor or both who understand working with investors. It’s a different field.

  Dylan Silver (08:01)
  It is.

  John Money McKinley (08:02)
  Not every realtor is going to work with investors or want to work with investors. Not every lender is going to work with investors or want to work with investors. There’s nothing wrong if they don’t. There’s programs I choose not to work with because I’m like, that’s not in my warehouse. Why am I going to work in something that I’m not even passionate about? Where the real estate investing, I can sit down, I can bring people into my office like I’m sitting right here.

  Dylan Silver (08:22)
  Yeah.

  John Money McKinley (08:30)
  without them leaving their home and sit down and have a one-on-one consultation with them and really get a better idea of where they’re at, what they’re wanting to do.

  Dylan Silver (08:40)
  Right, right.

  You you mentioned about sitting down, having that one-on-one conversation. And then also, you know, if you’re wanting to get started meeting with investors, I still think even though we are in this age of AI and, we’re having this conversation over the internet that

  Real estate is still a contact sport. I don’t think you can take that away. And so when folks are trying to get into this space, I still think that it’s best to be able to have someone certainly in person would be the best way to where you can rely on them either as a deal partner or as a mentor, even if you’re not necessarily an investor, but you’re someone like myself or a lender just getting started in the space so that you have someone who you can kind of benefit through not just a conversation.

  but through osmosis. How do they schedule their day? How are they prospecting? What is their ⁓ lifestyle look like?

  John Money McKinley (09:37)
  No, you’re absolutely right. You’re absolutely right about that. And that’s why with the local real estate investment groups, you get a part of that because typically they have meetings live face to face meetings once a month. What I’ve done is anybody that’s here in Houston or has been to Houston realizes just going to the store from your house is a 30 minute round trip drive. mean, we’re a bit, that’s just going to get a soda. ⁓

  We’re a big city and that’s why I created my human touch system where I can bring people in virtually and give them virtually the same experience as if they were sitting in my office. Another great thing about it is, is I record our meeting and I send them a copy of the meeting with the transcripts.

  People love that because they can quickly glance through the transcripts and go back to the highlights that they want to go to, such as what programs they qualify for, what do the numbers look like, what do the terms look like? Because in today’s times, most mortgage business is done over the phone. And that’s so difficult to try to take the numbers in your head and see them discussing that over the phone. If you can do that, fantastic, more power to you.

  But most people, it’s much easier to sit there and sit down and see the numbers right in front of you.

  Dylan Silver (11:45)
  I was thinking about this the other day, know, when people are buying most things, most things that people buy.

  are going to decrease in value over time. And real estate is one of the few things other than like gold and silver and stocks that’s going to go up over time. Yet most of people’s like consultation is front loaded with how do I get a mortgage? But very little of it is, hey, well, what do I do once I’m developing equity in the property? Or what’s this going to look like in 15 years or 10 years? Right. And I think especially for folks who were fortunate enough to and are fortunate enough to

  homeowners that they’re going to have now and already do have this huge opportunity to do a cash out refinance, to take a home equity line of credit, to get involved in investing. And I think that a lot of people who maybe would like to be mom and pop investors don’t have that type of mentorship or relationship with ⁓ a mortgage professional to where they could even have that conversation.

  John Money McKinley (12:48)
  You really need to have that because at the end of the day, whether you’re buying a home to live in or especially if you’re buying a home for investment, you need somebody who’s there looking at more than just the numbers for you. What are your goals? What are the things you need to watch out for? I have personally myself, no problem sitting down with someone, taking a look at the deal, going over all the numbers, knowing what

  they’re trying to accomplish and telling them, I’m sorry, Dylan, this deal is not going to meet what you’re trying to accomplish. I’m concerned that you could lose some money in this.

  Yeah, but I’ve got the, I’m gonna get the appreciation. Look, everybody, appreciation is a wonderful thing. And since 2020 to 2024, we’ve had on average over 45, 46 % increase in appreciation.

  in America. However, that is not the normal. That is the gravy on top. And you need somebody who can step back and look at it from a different vantage point. Because look, real estate becomes a very passionate thing, especially for people buying it as a home and investors. It’s nice to have people in your corner who are there looking at things and go, hey, look, there’s a trap there or

  You could be putting yourself in a bad position with this. We need to watch out for this.

  Dylan Silver (14:20)
  question. mean, having that second person in your corner is critical. And I think, know, especially when you have a newer investor, I’m sure you’ve seen this, John, people are just so gung ho about getting a deal. They’re like, I got to get the deal. I got to get the deal. That’s that’s how you lose money in many cases. And you know, we were talking before the show, the most important part of most deals, especially in the single family space is what you’re buying it for. Right. And so you can be an effective operator, you can

  run a great crew, but if you’re getting the property on the contract for the wrong price simply because you want to get that first deal, you’re starting off, you know, in a rough spot.

  Speaking of which specifically, you know for folks who are looking for that that first deal There’s so many ways where people could find a deal. It’s you know, wholesalers on market They could look through the ROTI report in Texas right foreclosure report. They can look through probates Do you have any preferred methods that you’ve seen people use that that you think hey? That’s that’s one one area that if I was starting out I would look at that

  John Money McKinley (16:04)
  As a couple of people that you want to have is you want to have a very good realtor. That’s one of the first things you want to have. The second is make some contacts with some wholesalers. Just know that if you’re new, you need to have some people who can review what’s coming across your desk from a wholesaler’s perspective. Because typically when you put down earnest money,

  on a wholesale deal, it’s not refundable. And you need to make sure you’re not putting yourself at risk because you’re a newer investor. You’ve really, can’t stress this enough, have a team in your corner who can help guide you through this until you start becoming very comfortable. And I know this may sound crazy, Dylan, but

  You’ve you, you can’t trust everybody. You have to cover your ass sets to make sure you don’t lose money. And I pride myself on working with people and doing what I can to help them so they don’t lose money in a transaction.

  Dylan Silver (17:09)
  Yes, Ryan.

  I’d like to ask if we can get a little bit granular on some of the strategies that I’ve seen emerging on DSCR and then I’ve seen more people getting into like house hacking and being able to use the additional, you know, doors and a quadplex as income for themselves. Have you seen, you know, really a proliferation in DSCR and then what’s your thoughts on, you know, buying a duplex or triplex or a quadplex?

  John Money McKinley (17:50)
  Here’s let’s start with the DSCR because that’s the new buzzword. Everybody loves the DSCR loan. It’s fantastic. It’s a great loan. But know this. Your best option for financing if you do not already have 10 financed single family homes is Fannie Mae and Freddie Mac. It has the best terms. It has the best interest rates. However,

  It requires you to be able to prove income. It requires you to have assets. Okay? Which is fine. Do not, unless you absolutely have to, burn up one of your 10 Fannie Mae and Freddie Mac spots with a DSCR loan so you can pay a higher interest rate and a little bit higher closing cost. They’re a great after you have 10 finance properties because people, I’ve had people come to me and go,

  Well, I’ve got seven other loans, but they’re not with Fannie and Freddie. So I’ve got 10 spots left. I’m like, no, you don’t. It doesn’t matter who financed any one of those seven homes. That still counts as a finance property against Fannie Mae and Freddie Mac. That comes back to where you need to understand what’s going on. We have people that come across all the time that look, proving income for them is a little challenging at times, which is fine. We got no problem with that.

  We see, we know they have the income, then yes, that may be a great option for them. DSCR loan is the way to go because all we care about in the DSCR loan is the property’s cash flow. Will the property cash flow? If it does, if it all sets, all sets the new debt you’re getting, it’s good. You still have to have good credit though. That’s one thing that I can’t stress enough. Credit is one of the most important things.

  Dylan Silver (19:41)
  Right?

  John Money McKinley (19:44)
  that you wanna make sure is in a good position because the lower your credit score, the higher your interest rate and the higher the down payment us lenders are gonna want.

  Dylan Silver (19:54)
  Yeah, what’s your thoughts on the house hacking and know folks who may be looking at getting ⁓ a Homestead for themselves, but also looking at you know if I could potentially cash flow from this and it’s also gonna add to my my Potentially like earned income and I may be using the wrong word here But it’s it’s a cash flowing asset the other doors that it may be even easier potentially for them to buy a quadplex than a single-family home

  John Money McKinley (20:24)
  Duplexes, triplexes, fourplexes, they’re fine, but people need to understand this with those. Those are kind of a, are they really a single family? No. Are they a multifamily? No, they’re not that either. We still classify them as what’s called one to four single family residences, but you’re not going to get a lot of appreciation. And I always ask this of people.

  We can give them loans for these properties, but how comfortable are you going to be as the landlord living next door to your neighbors? I mean, to your tenants. Now, another big thing is too. I can promise you if you’re doing this and saying you’re going to buy this to live in and you’re going to rent out the other properties, it’s fine. I have a problem to do that. But if you get a knock on your door six months down the road,

  Dylan Silver (21:04)
  Great point.

  you

  John Money McKinley (21:22)
  with somebody wanting to come and check and see that you’re still living there or you are living there and you’re not and you got a tenant in there, you’re probably gonna be called into court for a nice little investigation on what we call loan fraud.

  Dylan Silver (21:35)
  Yeah, so you don’t want to do that. That’s one way to get to not have a good real estate experience. I think, you mentioned.

  John Money McKinley (21:42)
  That’s a one-way ticket to a place with bars. I’m just saying. Unless you’re an

  elected official, then no. Loan fraud? No, they don’t have to worry about that. Oh, I apologize. I did not mean to go there.

  Dylan Silver (21:55)
  You you mentioned, you know, that people really, you know, getting

  I would say popularizing DSCR and then buying small duplex, triplex, quadplex, but there’s also risk to that, right? And so you have to kind of identify what’s your risk tolerance and what are you willing, like you mentioned, living next to your tenants. That seems like an obvious thing, but I haven’t actually heard someone mention that to me. So if you are looking to buy a duplex, are you going to be comfortable collecting rent from that person if they’re living next door to you and maybe they’re a little bit delinquent?

  We are coming up on time here though, John. Any new projects that you’re working on and then as well, what’s the best way for folks to reach out to you?

  John Money McKinley (22:37)
  One of the biggest things that I would like to let people know about is my system that I have. I call it the Human Touch Mortgage Solutions System, where I’m going to meet with you face to face. I’m going to virtually bring you in my office so you don’t have to leave your home or have to leave your office. And you’re going to get the same experience as if you were sitting in my office here at my desk right behind me, looking at my screens.

  We’re going to give you a true loan analysis so you can get a true understanding of what your options are and what you’re able to do. And I send you a recording of our meeting with the transcripts. Another thing that I’m working on with real estate agents for is I’m going to start teaching this class in the very near future, and I’m going to work with agents to show them

  how they can go to a new source of getting leads for listings, where really not many, if any, agents are going after. So it’s gonna be a very good opportunity for some agents to really have a new way to go get some listings and start selling houses and generating buyer leads. Plus, if you’re a wholesaler, you definitely wanna reach out to me and find out about this, ⁓

  you guys are gonna really enjoy this because you’re part of this program that’ll be a win-win for both sides of the both sides of the transaction

  Dylan Silver (24:15)
  John, thank you so much for coming on the show today. Thanks for your time.

  John Money McKinley (24:19)
  Yeah, not a problem. And last but not least, the best way to get a hold of me is the easiest way to find me is you can Google me, John Money McKinley. Got to make sure to have the money in there. You’ll be able to easily find me. My direct number is 281-851-4963. Either way, find me. Let’s book an appointment. Let’s sit you down and go over your options.