Best Way to Finance Acquisition of Short Term Rental??

3 Replies

Hi Bigger Pockets: 

I see that this subject has been covered before in older posts but I thought I'd start a fresh post to get the best current thinking with AirBnb, VRBO, etc becoming more mainstream.

What is the most effective strategy to debt finance the acquisition of a property that you plan to rent out exclusively as a short term vacation property?

The way I see it currently, the options seem to be:

1) Use cash to buy the property outright and then borrow against it after closing.

2) Get a investor loan with terms of a few months to few years with 15-20% down and a balloon payment. Refinance it to a long term loan before the balloon comes due.

3) Convince a conventional lender that the property qualifies as an "investment property" or "vacation property" and get a long term loan with 20-30% down and full recourse.

4) Non-Recourse Loans with 50% max LTV.

There must be better or other debt options out there besides these, or are there? 

How are you all going about financing the acquisition of these short term rentals? If I wanted to buy as many vacation rental properties with as little down payment required as possible per property, how would I go about that?

Thanks!

Originally posted by @DeWitt Gibson :

Hi Bigger Pockets: 

I see that this subject has been covered before in older posts but I thought I'd start a fresh post to get the best current thinking with AirBnb, VRBO, etc becoming more mainstream.

What is the most effective strategy to debt finance the acquisition of a property that you plan to rent out exclusively as a short term vacation property?

The way I see it currently, the options seem to be:

1) Use cash to buy the property outright and then borrow against it after closing.

2) Get a investor loan with terms of a few months to few years with 15-20% down and a balloon payment. Refinance it to a long term loan before the balloon comes due.

3) Convince a conventional lender that the property qualifies as an "investment property" or "vacation property" and get a long term loan with 20-30% down and full recourse.

4) Non-Recourse Loans with 50% max LTV.

There must be better or other debt options out there besides these, or are there? 

How are you all going about financing the acquisition of these short term rentals? If I wanted to buy as many vacation rental properties with as little down payment required as possible per property, how would I go about that?

Thanks!

 You've covered the myriad ways to finance a property.  

If a property or your business is set up for short term rentals like Air BnB, your pool of investors are going to be limited.  Not all Fannie or Freddie lenders have reached 2018 yet and will give you rental based on comp rent analysis in the absence of a long term lease.

To answer your question, your down payment is still going to be limited by Fannie Freddie guidelines to put the least down.  Of course, there are other ways to finance properties and they depend on the borrower's qualifications.  Down payment is not only based on guidelines; it is situational.

Stephanie

@Stephanie P. - Do you think lenders will allow seller carry as a substantial amount of the down payment needed for the first? 

Like a 70% LTV First, 20% Owner Carry, 10% Down Payment?

Originally posted by @DeWitt Gibson :

@Stephanie Potter - Do you think lenders will allow seller carry as a substantial amount of the down payment needed for the first? 

Like a 70% LTV First, 20% Owner Carry, 10% Down Payment?

I provided a link to the Fannie guideline for LTV/CLTV below.

Most of the lenders we work with will only allow a Seller second to a max 80% CLTV meaning the borrower has to have 20% of their own funds in the transaction. Some don't require seasoning of funds, only source, so a large gift or partner may work, but those certainly aren't Fannie/Freddie loans.

 https://www.fanniemae.com/content/guide/selling/b2...