We currently own one short-term rental in Gatlinburg, TN. The property cash flows very well to the point we'd like to expand by owning multiple properties. We'd like to employ the BRRRR strategy but after doing some due-diligence before we buy we keep hitting the debt to income road block with banks since many won't recognize short term income until after a tax return is filed to show true income. In other words, after the 6 month seasoning, we still may not be able to get approved since we don't have a "lease" even if we have prior monthly income and future bookings. Has anyone found a way around this? Is there a special way to structure the deal? Or do I just need to call 100 banks until i find one that will play ball?
So your subject says BRRR but it sounds like you're asking a financing question?? Just find a lender that will count "projected rent" in favor of your DTI. Talk to Parker Borofsky She's on BP but not often. Tell her I sent you. If you've got a down payment you'll be in decent shape.
As for BRRR in Gatlingburg Pigeon Forge.... David Greene's book is Fantastic. But contractors in THIS market have been ripping off out of staters for years and they have no reason not to continue this practice. Unless you're going to relocate and live in it for 2 months to manage the rehab (I assume you don't live here... very few people do) I wouldn't buy a junk house in this market. Talk to Avery Carl about this side of things.
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Thanks Lucas. I guess this was more of a financing question than BRRRR. Thanks for the input and contacts.
Financing is tough in the short term rental market. Many banks want to see a signed lease for 12 months at $1000 a month rather than $30,000 in pre-paid rentals. I think they will come around eventually but I won't hold my breath. Go to a broker that deals with vacation rental financing. They should be able to get you a lender who can help.
What our loan officer was able to do is do a "Market rent appraisal" and assume a 25% vacancy.
Essentially they said we could rent out the place for a LTR at $1400 and assuming a 25% vacancy, the only counted the difference towards our DTI.
$1400 assumed rent
$1400 x .75 = 1050
Only $350 was counted against our DTI. I hope that made sense.