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in Portola Valley, CA
Real estate investors in Portola Valley have two distinct financing paths for acquiring and developing properties. DSCR loans focus on rental income potential, while hard money loans prioritize quick closings and asset value.
Each option serves different investment strategies in San Mateo County's competitive market. Understanding these differences helps you choose the right tool for your specific property goals.
DSCR loans qualify borrowers based on the rental property's cash flow rather than personal income. Lenders calculate the debt service coverage ratio by dividing monthly rental income by the monthly mortgage payment.
These loans typically feature 30-year fixed or adjustable terms with rates varying by borrower profile and market conditions. They work well for stabilized rental properties generating consistent income.
Investors can purchase or refinance properties without providing tax returns or W-2s. The property must demonstrate enough rental income to cover the mortgage payment, typically with a ratio of 1.0 or higher.
Hard money loans are short-term financing options secured by the property itself. Lenders evaluate the current or after-repair value of the real estate rather than the borrower's income or credit profile.
These loans close quickly, often within 7-14 days, making them valuable for competitive situations. Terms typically range from 6 to 24 months with higher interest rates reflecting the speed and flexibility.
Investors use hard money for fix-and-flip projects, bridge financing, or time-sensitive acquisitions. The focus is on the property's value and the investor's exit strategy rather than ongoing cash flow.
Timeline separates these options dramatically. DSCR loans take 30-45 days to close with standard underwriting, while hard money can fund in under two weeks with minimal documentation.
Purpose differs fundamentally. DSCR loans suit buy-and-hold investors seeking long-term rental income. Hard money serves flippers and developers who need quick capital for short-term projects.
Cost structures vary significantly. DSCR loans offer lower rates with traditional amortization schedules. Hard money charges higher rates and often includes points upfront, but the short duration limits total interest paid.
Qualification criteria focus on different factors. DSCR lenders analyze rental income and debt coverage ratios. Hard money lenders prioritize property value, equity position, and clear exit strategies.
Choose DSCR financing when you're acquiring a stabilized rental property you plan to hold long-term. This option makes sense if the property generates enough rent to cover the mortgage and you want predictable monthly payments.
Select hard money when speed matters or you're renovating a property for resale. This works for competitive bidding situations, properties needing significant repairs, or bridge scenarios while arranging permanent financing.
Some Portola Valley investors use both strategically. They might acquire with hard money for a quick close, renovate the property, then refinance into a DSCR loan once rental income is established.
DSCR loans typically require stabilized rental income, making them unsuitable for flips. Hard money better serves renovation projects intended for quick resale within 6-24 months.
DSCR loans have lower interest rates and fees for long-term holds. Hard money costs more per month but you pay for a shorter period, so total cost depends on your timeline.
Hard money lenders fund properties in any condition including major renovations. DSCR lenders typically require properties in good, rentable condition with existing or projected rental income.
DSCR loans typically require 20-25% down for investment properties. Hard money lenders often require 25-35% down or equity, depending on the property's value and renovation scope.
Yes, this is a common strategy. Investors use hard money for acquisition and renovation, then refinance to a DSCR loan once the property is stabilized and generating rental income.