DSCR Loans Explained: How Real Estate Investors Finance More Properties

Brett Clark (00:00)

The big thing everybody’s talking about right now is DSCR. I’m pretty sure that the debt service coverage ratio is out there. Everybody’s seen it. It’s on every investor podcast that’s exist. *Bigger Pockets* has been talking about it forever, right? But it really is one of those things because they took the 10 financing cap off. And they’re also taking your debt-to-income ratio out. So it is just the house qualifying for itself.

Scott Bursey (01:56)

Welcome back to the *Real Estate Pros Podcast*, powered by Investor Fuel. I’m your host, Scott Bursey. Glad you’re with us. And today we’re delighted to be joined by Brett Clark, a mortgage professional and educator with over five years of experience helping home buyers, investors, and business owners navigate complex financing. As the creator of The Lending Lad, Brett specializes in solving mortgage scenarios that don’t fit neatly inside a traditional lending box.

specifically focusing on self-employed clients and non-QM products. Listeners, you can expect to learn how to structure creative loan solutions, leverage non-traditional financing, and streamline deal funding. Brett, welcome to the show.

Brett Clark (02:38)

Thanks for having me. I’m so happy to be here.

Scott Bursey (02:39)

Just awesome having you here, my friend. And to help our listeners get up to speed, please give us the ninety second highlight reel, if you will, of how your career ignited and where you’re pouring your fuel now.

Brett Clark (02:51)

Yeah, absolutely. So I was a special operations guy in the US Army, specifically on what I would like to call the propaganda side. We called it psychological operations. Gotten an MBA from UNC Chapel Hill and thought I was going to go management consulting, investment banking like most do. I had this idea of like, let’s just try this out. You got 10 more months in the military, let’s try out mortgage lending. Got in, really got into the creative side. I had been misread.

Other people get misread and they have opportunities in front of them. I got into that and loved it. Put mortgage consulting and investment banking on the side burner and then just ran straight at it. So from that point, just really just passion. It was just passion going from that point. I had seen how people were getting misread inside the military, inside their housing, inside finance, and really have built from there. And that’s where The Lending Lad came from and why I do what I do.

Scott Bursey (03:42)

Thank you for highlighting that and giving our listeners that great background. what really caught my attention about you was the way you’ve been able to leverage your military leadership experience and your education to explain complex financial structures for real estate investors. That is a powerful combination. And expanding on that, curious to know.

What do you consider your biggest strength when structuring non-QM loans for self-employed investors?

Brett Clark (04:09)

Yeah, I think one of my biggest strengths is something I learned in the military was being able to take these giant data sets and being able to synthesize them for higher leadership, for building the PowerPoint out. And then you get that into the MBA, right? Where you’re taking these giant data sets and trying to build a brief for someone. Well, there isn’t a whole lot of people doing that for the mortgage space and breaking it down for the average everyday investor, the everyday

Let’s talk about the contractor, that 1099 self-employed person, the small entrepreneur. Nobody’s really breaking down banking for them. And so I was able to take this big strength of taking large data and bring it back into something that’s digestible, where somebody can understand what to do, how to employ it, how to get it going, and how to take the next steps.

Scott Bursey (04:56)

Love to hear as a follow-up, Brett. How do you continuously sharpen that advantage as guidelines evolve?

Brett Clark (05:03)

I like to call myself the nerd in the industry. And so specifically in the non-QM world, which we you so gracefully did in my intro, that world changes weekly, monthly. It’s not backed by Fannie Mae, Freddie Mac. It’s backed by the Goldman Sachs of the world, the BlackRock of the world. And they could be like, Well, we see this over here, we’re changing our guideline. And so it is constantly reading, well, what’s this? What’s this? What’s this?

I see those all as opportunities. There is somebody that will fit these new guidelines that isn’t getting the information. So that’s where I see the read as much as you can, find the person that fits.

Scott Bursey (05:40)

Brett, help us understand where do most real estate investors make their biggest financial misstep when applying for non-traditional financing?

Brett Clark (05:49)

So I think that most investors make their biggest misstep by going to the bank. There is a difference between bank—the Chase, the Wells Fargo, the Bank of America—and an independent mortgage bank. We only do mortgages, right? But then even inside that realm, you get a loan officer that only does conventional. Well, Fannie Mae and Freddie Mac, the big government entities, they said we’re going to subsidize.

The investor to help the poor credit, low credit, affordable housing situation. And so what they’ve done is priced investors out. What the better loan officers today are doing is understanding which hedge funds, which life insurance companies, which big funds out there are actually reducing the rate and giving better situations, better scenarios to fit ROI for the investor. And so I think the investor misstep.

Is going to somebody that’s just gonna throw them into the box. Here’s a conventional loan, here you go, take it, and then you just get hammered on a higher rate.

Scott Bursey (06:48)

Looking at this, what is the fastest proactive step an investor can take to fix that issue before submitting a file?

Brett Clark (07:44)

I think actually having that conversation, everybody says go shop another lender on rate. All you care about is rate. You can go online and find that situation. But what you’re not getting is service quality and understanding. Any investor, any business owner, your biggest advantage is time. So having the right member of your team that’s like, he knows what he’s doing. He’s got tons of investors. He knows how to have that conversation about ROI.

That is the first step. Before you ever submit anything, don’t ask questions about rate. Ask questions about service quality. How are you going to handle the scenario? What do you have access to? Because that’s what’s going to separate a McDonald’s lender from a Ruth’s Chris lender.

Scott Bursey (08:25)

Let’s dig deeper into this. What is the greatest untapped financing opportunity in today’s mortgage market for scaling a portfolio?

Brett Clark (08:33)

Man, there are so many. The big thing everybody’s talking about right now is DSCR. I’m pretty sure that the debt service coverage ratio is out there. Everybody’s seen it. It’s on every investor podcast that’s exist. *Bigger Pockets* has been talking about it forever, right? But it really is one of those things because they took the 10 financing cap off. And they’re also taking your debt-to-income ratio out. So it is just the house qualifying for itself.

The next biggest benefit from there is that they’ve allowed short-term rentals and that income to be considered in a DSCR ratio. And so those are the biggest opportunities right now that I’m seeing is understanding a DSCR and getting out of the commercial space. Because the commercial space wants a ratio that is a 1.15, 1.25 based on an appraisal.

Whereas all of us in the IMB space will run a no ratio, we’ll run a less than one, because sometimes you as the investor know that you can rent it higher than the appraiser believes that you can rent it. And then that kills your deal. You think that it was a bad deal altogether, even though you had metrics that shows that you could rent it for what you thought you could, but the bank just doesn’t agree with you. And so there are opportunities to push back on that piece itself.

And be like, hey, my ratio is not a 1.25 that the commercial lender wants. It’s a one. It’s a point eight five. And there’s still lending available for you.

Scott Bursey (10:59)

How should listeners position their upcoming acquisitions right now to take full advantage of those opportunities?

Brett Clark (10:05)

The biggest thing that I would say right now is not be afraid. Robert Kiyosaki always talked about when there was big financial hardship, that’s the time to get in. I’m in North Carolina, not a Realtor, right? So I am not going to say this is exactly what’s happening. I don’t have that market data. But from what I’m seeing, I’m seeing rates come down or larger seller concessions, which means sellers are more willing to pay more of your discount points to get a lower rate.

More of your closing costs because their houses are sitting longer than they’re used to. For the everyday investor right now, even though rates are higher, you’re probably going to get a better deal now, waiting for the refinance into the future. I don’t think our economy can stay here for that much longer. But if a deal works at the higher interest rate, how much better would it be when you can refinance?

Scott Bursey (10:52)

That gives our listeners a real strategic edge right there. And insight-wise, what current market shift or economic force poses the greatest threat to investor debt strategies today?

Brett Clark (11:05)

I mean, anybody that was watching the news saw the FOMC yesterday. We have a rate hike. Now, what does that mean for mortgage? I’m so glad that I get to talk to you the day after it happens and clear up some myths. The immediate change in the Fed funds rate does not immediately affect the mortgage interest rate. So it was not a 0.25 increase, therefore we’re 0.25 increase. Our market built that in seven to eight days ago.

So we were already prepared for that to happen. That’s the biggest threat because it is affecting carrying costs of the business owner. It’s affecting carrying costs. Where the Fed interest rate really hits is adjustable rates, commercial rates, HELOCs, credit cards, any of those adjustable rates, that’s where the Fed interest rate hits. It is not directly correlated to the 30-year mortgage. The

adjustable rate instead of the variable rate. And so making sure that you understand what your rate is, what market the bond is on.

Scott Bursey (12:02)

Taking a closer look, what safeguard can investors put in place immediately, Brett, to protect their capital?

Brett Clark (12:10)

So this is something I learned from the day trading world. Yep, I know all of us little like to dabble everywhere. I like to use that as they’re always talking about what’s going on. If I can understand what how capital moves, I can understand how to best advise an investor on that as well. What I learned from them is you cannot acquire on emotion. They always say that if you’re going to place a trade, you have to have your high, your sell limit.

on both sides, like here’s your loss, here’s your buy. And then stick to them and don’t move them. So the biggest safeguard I think an investor can have is this are where the number makes sense. This is where the number doesn’t make sense. If it’s in between that, it’s a good deal. If it breaks either of them, don’t. And so I think that is the biggest safeguard an investor can have right now is actually finding your number and sticking with your number regardless of emotion.

Scott Bursey (12:58)

Brett, if you could break it down for us, how does media and financial education like The Lending Lad help investors get over the fear of non-traditional loan products?

Brett Clark (13:50)

Feel like this is a hard thing that I’ve been working with The Lending Lad recently. There is in psychological operations in the military, we talked about three types of information. There’s information, there’s misinformation, which is using the information that’s there and then swaying it for my own reasons. And then there’s disinformation, which is legitimately wrong. We have all three of those going on right now. And so being able to feed through that.

We’ll start with a conversation, Scott, that you and I had. The Grant Cardones of the world, their information is legitimate information, but when it’s sold to the first time investor, it is not the best advice. They don’t have hundreds of thousands, if not millions of dollars of reserves to fall back on if a deal falls through. So buying an apartment complex, probably not the best thing. An a REIT right off the bat isn’t always the best tax investment.

Talk to your tax people, but isn’t always the best tax investment for somebody. And so having your team of professionals to be able to sift through, well, this super millionaire is doing it, so I’ve got to do it, might not actually be the best situation. You then have misinformation people where they’re selling you something, where it is, I want you to understand this one little piece of information so that you call me so I can sell you on something. Feeding through that is one big thing.

The Lending Lad was specifically removed from my license as a loan officer because it will never sell. It is an education entertainment company built on mortgage information. This is the truth of what’s going on in industry. This is how you can use it. This is how you can be educated. Please come back and learn more, but not to sell. And I think that having people that are available for you for information basis.

is important instead of come buy this product, come buy this seminar, come buy this thing. And I think that is where information right now is sitting, where everybody’s trying to sell somebody on something instead of giving people legitimate information for a good investor decision.

Scott Bursey (15:45)

I always wondered, Brett, what core rule from military leadership applies most when leading clients through high stakes financing?

Brett Clark (15:53)

Calm in chaos. The biggest thing that you see, and I’ve had the amazing benefit of being in the room collaborating with SEALs, collaborating with the Delta Force guys, with the Special Forces guys. What a blessing that I’ve been able to see how they do it.

These guys are just about to go into some of the toughest situations, whether it’s in with the ambassador, whether it’s in with a foreign military force. These guys don’t crack. They know it’s going to be chaos and they execute. And so one of the things that I try to do, somebody could come back angry about the market. Somebody could come back super pumped about this idea that I’m like, hmm, maybe not the best. If I match their emotion.

We’re probably not going to go where we need to be. If somebody yells at me and I yell back, probably not the best. If somebody gets super animated and I go with them and then they have remorse or regret at the end, I didn’t do my fiduciary responsibility. And so I think that is that place that I learned in the military, calm in chaos.

Scott Bursey (16:49)

That’s a powerful breakdown. Brett, if you could describe to our listeners, what does your professional network look like right now?

Brett Clark (16:56)

So, my professional network right now, I’m working with a lot of business owners. So in Raleigh, we have an Entrepreneurs’ Organization or EO, and they’re also building a Vistage out, which are two big entrepreneurial networks where it is about getting together and talking about the 5%, the stuff you don’t talk to your wife about, the stuff you don’t talk to your partner about, the stuff you don’t even talk to maybe your business partners about. But

They affect the way in which you do business. These forms, these groups are essential. And these are the people that I’m learning from. My goal is to be the dumbest person in the room so that I can learn. And at some point in time, I get to be that person that mentors down. And so I always hope that I can be a benefit to other people. And so I join these groups of financial planners, business owners, entrepreneurs to learn from them as we kind of go back and forth and see what’s the best case for everybody.

Scott Bursey (17:48)

Thank you for sharing that overview of your network. Brett, if you could give our listeners just one deep dive piece of advice to unlock creative financing without over leveraging, what would it be?

Brett Clark (18:01)

Education, I think everybody in the world from the Alex Hormozis to the Steven Bartletts are going to tell you to go read a book. I would say read a specific book. *75 Hard* with Andy Frisella says make sure you’re reading a nonfiction. But the one thing in there doesn’t say read a nonfiction that’s going to benefit you. And so be selfish with your reading. If you are looking at how to invest, go in and dive into the Investor Fuel.

And see and learn from all of these other investors. It doesn’t have to be a book that you’re reading. It could be learning from Scott and his guests. It could be learning from different sources where it’s The Lending Lad, where we’re coming in and teaching you those things. But be a constant student. Never let your pride stop you thinking I know enough. Because if you’re truly a student of education and wisdom, the more you learn, the more you realize you don’t know.

Scott Bursey (18:48)

Thank you for dropping that knowledge. And you’ve dropped a lot of knowledge here today, Brett. But is there any additional words of wisdom, a golden nugget or two that you could leave with our listeners?

Brett Clark (18:59)

Yeah. The big thing if you’re in the investor space and residential, make sure you’re talking to somebody on service and what they have access like access to. That’s the biggest golden nugget I can give you in the finance world is we are not created equal. I look at the company I’m with. There are tons of loan officers inside our own company that have access to the same things I do and couldn’t tell you how to use them. So make sure that you have somebody that understands your situation.

And listens to your situation. I always like the joke, God gave you two ears and one mouth. So you need to listen twice as much as you speak. If your service professional is not giving you that courtesy, that is when it’s time to change. So that would be the biggest gold nugget I would give you is make sure that your service professional is serving your needs.

Scott Bursey (19:45)

Brett, thank you for that. And for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you on future deals perhaps, what is the best way for them to plug into your pipeline and reach you directly?

Brett Clark (19:58)

So I have The Lending Lad as you can see on the beautiful sign behind me. The Lending Lad everywhere. So it’s @TheLendingLad on Facebook, Instagram, TikTok, YouTube. I believe it’s the same on X. Please reach out. I am more than happy to just talk about what it is. I’ve been learning from the Bible recently about stewardship. And one of Christ’s things was the good news to the poor.

And as I’ve thought about that, it is regardless if I’m going to help you or not, I want you to have the good news that makes you successful. And that’s what we’ve built The Lending Lad on is making sure that regardless if I make money on you or not, I don’t care. I want you to be a better person after the conversation than when we started.

Scott Bursey (20:39)

Thank you so much for joining us today on the Real Estate Pros Podcast.

Brett Clark (20:42)

Thank you so much for having me. It was a pleasure.

Scott Bursey (20:44)

It has been a true pleasure, and to our listeners we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be fueling your tanks with the lineup of elite guests, just like Brett Clark, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.