LENDING OPTIONS BEST SUITED FOR THE STR INVESTOR

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LENDING OPTIONS BEST SUITED FOR THE STR INVESTOR

Kelly Olson
Member since 2022 · 21 posts · 12 votes

What type of lending product is best suited for STR investing for high income high credit score individuals? I am looking invest in the Smokies looking at both TN & NC sides and also in the Blue Ridge area of North GA.

Thanks!

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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
3y
Quote from @Mitch Davidson:

Hey @Kelly Olson. I agree with @Robin Simon. Conventional financing is always better if your DTI can work. And even if you get to a point where the home will cause your DTI to be a little too high, we can use a rent estimate form from the appraiser and count 75% of the figure to offset most or all of what the property will add to your DTI.

DSCR is a great backup option, but the downsides are (a) if the appraiser's estimate comes in lower than 100% or so of what the property's PITIA will be the deal will likely die, after you've spent quite a bit of money and time, (b) nearly all DSCR programs include a prepayment penalty for the first 3 years, unless you buy it down or out, (c) the rate is higher, and (d) your offers are a little less attractive because the financing type is "other" rather than something more preferred like cash or conventional.

Happy to discuss further if you want to setup a call.


Many DSCR Lenders who specialize in STR can use stuff like AirDNA Projections instead of the appraiser's 1007 - this generally solves the main downside you mentioned since you know upfront qualifying rents and can more likely cash flow as well

[email protected]
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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Kelly Olson:

    What type of lending product is best suited for STR investing for high income high credit score individuals? I am looking invest in the Smokies looking at both TN & NC sides and also in the Blue Ridge area of North GA.

    Thanks!


    If you can qualify for a conventional DTI based loan then that is likely your best bet, however DSCR Loans are typically a strong option here, as DSCR lenders will have more flexibility to qualify based on STR-projection income, allow borrowing through an LLC and/or with partners and some other benefits. Rates will likely be around 0.75%-1% higher though

    [email protected]
    Harpoon Capital514 Reviews
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    5Reply
  • Zach Edelman
    Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
    3y
    Quote from @Kelly Olson:

    What type of lending product is best suited for STR investing for high income high credit score individuals? I am looking invest in the Smokies looking at both TN & NC sides and also in the Blue Ridge area of North GA.

    Thanks!

    I would think a DSCR loan that gives respects to STR experience and the STR income that the property generates would be a great bet.
    4Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    3y

    Hey @Kelly Olson. I agree with @Robin Simon. Conventional financing is always better if your DTI can work. And even if you get to a point where the home will cause your DTI to be a little too high, we can use a rent estimate form from the appraiser and count 75% of the figure to offset most or all of what the property will add to your DTI.

    DSCR is a great backup option, but the downsides are (a) if the appraiser's estimate comes in lower than 100% or so of what the property's PITIA will be the deal will likely die, after you've spent quite a bit of money and time, (b) nearly all DSCR programs include a prepayment penalty for the first 3 years, unless you buy it down or out, (c) the rate is higher, and (d) your offers are a little less attractive because the financing type is "other" rather than something more preferred like cash or conventional.

    Happy to discuss further if you want to setup a call.

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    3y

    @Kelly Olson

    Conventional, if your DTI can support it for sure. There are a handful of DSCR lenders out there who actually know how to price STRs. Don't be fooled by all of them that offer or state they can. Literally, only a handful really use AirDNA projections and can finance these without a dozens of ridiculous conditions and hoops to jump through.

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
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    1Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    @Kelly Olson If DTI doesn't work we also have 30 year fixed and even 40 year fixed products which will use 80% of Air DNA data to calculate DSCR and qualify as high as 80% LTV. We can even do negative DSCR, "rural", etc. (but at lower LTVs than 80% with those factors).

    [email protected]818-606-8823
    Investor Property Loan5306 Reviews
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    0Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    3y

    @Kelly Olson thanks   1) if a  borrower is ultra  strong and chooses to  use a loan to  buy a  rental property - the best  move  would be to  use a  tradtional 30 yr fixed loan   2)  if the y can  leverage their present homes  leverage - they might look at this opion too 

    0Reply
  • Kelly Olson
    OP
    Member since 2022 · 21 posts · 12 votes
    3y
    Quote from @Mitch Davidson:

    Hey @Kelly Olson. I agree with @Robin Simon. Conventional financing is always better if your DTI can work. And even if you get to a point where the home will cause your DTI to be a little too high, we can use a rent estimate form from the appraiser and count 75% of the figure to offset most or all of what the property will add to your DTI.

    DSCR is a great backup option, but the downsides are (a) if the appraiser's estimate comes in lower than 100% or so of what the property's PITIA will be the deal will likely die, after you've spent quite a bit of money and time, (b) nearly all DSCR programs include a prepayment penalty for the first 3 years, unless you buy it down or out, (c) the rate is higher, and (d) your offers are a little less attractive because the financing type is "other" rather than something more preferred like cash or conventional.

    Happy to discuss further if you want to setup a call.


    Mitch,
    DTI is not a problem, just wanted to make sure conventional was my best option. I asked for 1 MIL they approved at 8% with 5% down. My idea is to purchase as many STR properties as I can or as make sense lol, as income taxes are killing me. The market/ economy scares me right now though, that is why I have purchased as of yet. So many sellers trying to sell off of 2021-2022 revenue makes it very hard to find deals where the numbers work. I am open to other financing it the terms are better than what is offered by NFCU.
    0Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    3y
    Quote from @Kelly Olson:
    Quote from @Mitch Davidson:

    Hey @Kelly Olson. I agree with @Robin Simon. Conventional financing is always better if your DTI can work. And even if you get to a point where the home will cause your DTI to be a little too high, we can use a rent estimate form from the appraiser and count 75% of the figure to offset most or all of what the property will add to your DTI.

    DSCR is a great backup option, but the downsides are (a) if the appraiser's estimate comes in lower than 100% or so of what the property's PITIA will be the deal will likely die, after you've spent quite a bit of money and time, (b) nearly all DSCR programs include a prepayment penalty for the first 3 years, unless you buy it down or out, (c) the rate is higher, and (d) your offers are a little less attractive because the financing type is "other" rather than something more preferred like cash or conventional.

    Happy to discuss further if you want to setup a call.


    Mitch,
    DTI is not a problem, just wanted to make sure conventional was my best option. I asked for 1 MIL they approved at 8% with 5% down. My idea is to purchase as many STR properties as I can or as make sense lol, as income taxes are killing me. The market/ economy scares me right now though, that is why I have purchased as of yet. So many sellers trying to sell off of 2021-2022 revenue makes it very hard to find deals where the numbers work. I am open to other financing it the terms are better than what is offered by NFCU.

    5% down? Will the loan be primary residence or investment?

    0Reply
  • Kelly Olson
    OP
    Member since 2022 · 21 posts · 12 votes
    3y

    2nd home, I have another investment property with them, plus our primary home. I will be using it as I am setting it up, then eventually moving it to a true STR with only slight use. Then I will repeat the process.

    0Reply
  • Mitch Davidson
    Lender · Asheville, NC · Member since 2020 · 463 posts · 507 votes
    3y

    Well, NFCU doesn't have the greatest customer service ratings, but if you can get in for just 5% that's pretty attractive.

    0Reply
  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y
    Quote from @Mitch Davidson:

    Hey @Kelly Olson. I agree with @Robin Simon. Conventional financing is always better if your DTI can work. And even if you get to a point where the home will cause your DTI to be a little too high, we can use a rent estimate form from the appraiser and count 75% of the figure to offset most or all of what the property will add to your DTI.

    DSCR is a great backup option, but the downsides are (a) if the appraiser's estimate comes in lower than 100% or so of what the property's PITIA will be the deal will likely die, after you've spent quite a bit of money and time, (b) nearly all DSCR programs include a prepayment penalty for the first 3 years, unless you buy it down or out, (c) the rate is higher, and (d) your offers are a little less attractive because the financing type is "other" rather than something more preferred like cash or conventional.

    Happy to discuss further if you want to setup a call.


    Many DSCR Lenders who specialize in STR can use stuff like AirDNA Projections instead of the appraiser's 1007 - this generally solves the main downside you mentioned since you know upfront qualifying rents and can more likely cash flow as well

    [email protected]
    Harpoon Capital514 Reviews
    WebsiteView Page
    9Reply
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