STR DSCR loan + seller finance

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STR DSCR loan + seller finance

Sean Bramble
Investor · United States · Member since 2020 · 202 posts · 284 votes

Hey everyone - has anyone used a STR DSCR loan with seller finance in second position? I've heard of this being used on multifamily deals, but wasn't sure if STR DSCR loan products typically allow this... and if not, if there are any creative (legal) ways around it

Example: 80% LTV DSCR + 10% seller financing + 10% down

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Zach Edelman
Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
3y

If your DSCR lender does not allow for a second position, those that don't may allow you to get down payment help with an alternative way such as a gift. Where you may run in to trouble is if the down payment assistance is through the medium of a recorded lien.

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    4y

    I'm not aware of any DSCR lender that allows for a 2nd lien debt

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    Harpoon Capital514 Reviews
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  • River SavaPro Member
    Lender · USA · Member since 2022 · 1k+ posts · 1k+ votes
    4y

    Hi Sean-

    Would love to jump on a call with you - I'm a private (asset based lender) in Austin that specializes in short term rentals, so sounds like a perfect match to help! 
    STR regs are definitely a complicated thing to get your head around here, but generally are workable. 


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  • Levi BennettPro Member
    Real Estate Broker · Charlotte, NC · Member since 2014 · 285 posts · 248 votes
    4y

    Hey Sean, I don't think you can do it exactly like that, but I do have a client who "games" the system (so to speak) and creates an LLC where the seller becomes an investor in the LLC, and they have a payout schedule just like a mortgage for the remaining balance, and the LLC is subject to the loan. SO it's not technically a second lien, but functions like seller financing. Very creative, and he's done a few that way. He's usually able to acquire with no money down if they can convince a seller to do it.

    4Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Sean Bramble

    There are select few lenders who will allow seconds on STR. I work with a few. As long as the Ratios come out as passing even with the second, there's no reason why you can't make it work. Let me know if you have trouble finding this. I know lenders who would do the second too if you can't get seller financing.

    Cheers!

    [email protected]
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  • Jourdan Mercer
    Member since 2022 · 40 posts · 18 votes
    3y
    Quote from @Levi Bennett:

    Hey Sean, I don't think you can do it exactly like that, but I do have a client who "games" the system (so to speak) and creates an LLC where the seller becomes an investor in the LLC, and they have a payout schedule just like a mortgage for the remaining balance, and the LLC is subject to the loan. SO it's not technically a second lien, but functions like seller financing. Very creative, and he's done a few that way. He's usually able to acquire with no money down if they can convince a seller to do it.


     That's genius!

    0Reply
  • Roseline Donald
    Laurel, MD · Member since 2016 · 1 post · 0 votes
    3y
    Quote from @Nick Belsky:

    @Sean Bramble

    There are select few lenders who will allow seconds on STR. I work with a few. As long as the Ratios come out as passing even with the second, there's no reason why you can't make it work. Let me know if you have trouble finding this. I know lenders who would do the second too if you can't get seller financing.

    Cheers!

    Hi can you kindly shoot me a message with such lenders? Got a potential deal with Kiavi but they don’t allow me no liens even with good ratios
    0Reply
  • Rich Manfredi
    Member since 2023 · 10 posts · 2 votes
    3y
    Quote from @Levi Bennett:

    Hey Sean, I don't think you can do it exactly like that, but I do have a client who "games" the system (so to speak) and creates an LLC where the seller becomes an investor in the LLC, and they have a payout schedule just like a mortgage for the remaining balance, and the LLC is subject to the loan. SO it's not technically a second lien, but functions like seller financing. Very creative, and he's done a few that way. He's usually able to acquire with no money down if they can convince a seller to do it.


    Hey Levi! Would you be able to share who he uses to finance those deals and also what the operating agreement of the LLC looks like that spells all that out? Are the lenders aware (are they reviewing the LLC docs) or is it just not mentioned? Thanks!

    0Reply
  • Rich Manfredi
    Member since 2023 · 10 posts · 2 votes
    3y
    Quote from @Nick Belsky:

    @Sean Bramble

    There are select few lenders who will allow seconds on STR. I work with a few. As long as the Ratios come out as passing even with the second, there's no reason why you can't make it work. Let me know if you have trouble finding this. I know lenders who would do the second too if you can't get seller financing.

    Cheers!


     Hi Nick!  Would you mind sharing the lenders who allow 2nds and also the ones who would do the seconds?  Thanks!

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    3y
    Quote from @Roseline Donald:
    Quote from @Nick Belsky:

    @Sean Bramble

    There are select few lenders who will allow seconds on STR. I work with a few. As long as the Ratios come out as passing even with the second, there's no reason why you can't make it work. Let me know if you have trouble finding this. I know lenders who would do the second too if you can't get seller financing.

    Cheers!

    Hi can you kindly shoot me a message with such lenders? Got a potential deal with Kiavi but they don’t allow me no liens even with good ratios

     Kiavi has some really restrictive requirements for borrowers to qualify.  Especially around tradeline quantity and history.  Those without well established tradelines or credit history may run into issues with some lenders.  

    @Rich Manfredi

    Much has changed in the past 10 months.  The mezz market is crazy expensive right now.  I'd highly recommend alternative routes unless you are in a real bind and have a clear exit.  Many mezz lenders won't even lend to you if you don't have a clear exit...

    Cheers!

    [email protected]
    Belsky Mortgage, LLC527 Reviews
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    0Reply
  • Zach Edelman
    Lender · New York, NY · Member since 2022 · 1k+ posts · 1k+ votes
    3y

    If your DSCR lender does not allow for a second position, those that don't may allow you to get down payment help with an alternative way such as a gift. Where you may run in to trouble is if the down payment assistance is through the medium of a recorded lien.

    6Reply
  • Alex BekezaBusiness Member
    Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
    3y

    @Sean Bramble We have a program that allows 90% CLTV.(combined loan to value)

    75% from us in 1st, 15% from seller in second (minimum 3 year duration on note), borrower with 10% skin in the game.  Minimum loan amount $250,000 for that product.  

    Air BNB friendly, no DSCR (rates are higher for this program than others which don't allow subordinate debt FYI but these would be in 9s, 30 year fixed). Prepay options ranging from 1 - 5 years. For context, similar products that don't allow second position debt would be in 7s/8s apples to apples.

    [email protected]818-606-8823
    Investor Property Loan5306 Reviews
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    0Reply
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