A Plain-English Guide to Financing Florida Investment Property

What short-term and DSCR loans are used for

Private short-term loans, often called hard money or bridge loans, are business purpose loans secured by investment property. Investors typically use them for a fix and flip, a bridge between a purchase and a longer-term refinance, or ground-up construction. They are underwritten mainly around the property and the plan for it, which is why they suit projects where the building needs work before a conventional lender would be comfortable.

A DSCR loan is built for rental property. DSCR stands for debt service coverage ratio, a comparison of the rent a property produces to the payment the loan requires. Instead of leaning mainly on personal income, the lender looks at whether the property supports its own debt. Investors use these loans to buy or refinance stabilized rentals.

Both are for investment and business purposes only. They are not consumer loans, and they are not for a home you live in.

What a Florida investor should prepare

A clear package makes any conversation with a lender easier. Before you request terms, gather the items below. Specific requirements are set at underwriting and vary by loan.

• The purchase contract or, for a refinance, the current loan statement and payoff figure.
• A plain description of the plan: scope of work and budget for a rehab, or the lease and rent roll for a rental.
• The entity that will own the property, with its formation documents and a list of who owns it.
• A real estate schedule showing your experience with similar projects.
• Proof of funds for the down payment, closing costs and any required reserves.
• Quotes for insurance, including flood and wind, before you commit to the deal.

Taxes that attach to the note and mortgage

Florida charges documentary stamp tax at 35 cents per $100 on notes and mortgages. The statute states the tax on a note or similar written obligation may not exceed $2,450, and the Department of Revenue says all parties to the document are liable for the tax regardless of who agrees to pay it. How this applies to a specific loan is something to confirm with your title agent or counsel (Florida Statutes 201.08).

A one-time nonrecurring intangible tax of 2 mills also applies to obligations secured by a mortgage or other lien on Florida real property (Florida Statutes 199.133). As a simple example only, a mill is one tenth of one cent per dollar, so 2 mills is 0.2 percent. Ask your title agent to estimate both items early so they are in your budget rather than a surprise at closing.

Condos: inspections and reserve studies

If your deal involves a condominium unit, the building matters as much as the unit. Condominium and cooperative buildings of three or more habitable stories need a milestone inspection by December 31 of the year the building reaches 30 years old, and on a repeating schedule after that (Florida Statutes 553.899). Investors buying or refinancing condo units should expect lenders to ask about it.

A residential condominium association must also have a structural integrity reserve study at least every 10 years, with reserves required for listed items such as the roof and load-bearing walls (Florida Statutes 718.112). The study affects association budgets and special-assessment risk, so ask for the inspection and reserve documents before you rely on a condo's carrying costs.

Flood, wind and foreclosure basics

FEMA states that most homeowners insurance does not cover flood damage and that flood policies typically carry a 30-day waiting period. Florida's Office of Insurance Regulation says the same of most homeowners and business policies, and Citizens states that most of its personal residential wind policies must also carry flood coverage by January 1, 2027. Price and confirm coverage before you commit to a coastal or low-lying deal, and build the premium into your numbers.

Two legal points are worth knowing. An instrument that conveys property to secure the payment of money is deemed a mortgage in Florida, and a mortgage is not effective against creditors or later good-faith purchasers until it is recorded (Florida Statutes 697.01 and 695.01). And Florida foreclosures are court actions: for residential foreclosure complaints, the original note must be filed with the court before any judgment of foreclosure is entered (Florida Statutes 702.015). Your counsel can explain how these rules apply to your structure.

Putting it together

A strong Florida deal pencils out after the tax, insurance and building costs are counted, not before. Start with the property and the plan, price the insurance, ask your title agent about the stamp and intangible taxes, and check any condo's inspection and reserve status. Then talk with a lender early so the loan type matches the strategy, whether that is a short-term loan for a rehab or a DSCR loan for a rental. Terms for any loan are set at underwriting, and nothing here is a commitment to lend.

Common questions