Short-Term & Vacation Rental Discussions

User Stats

2
Posts
0
Votes

Recommended finance option for 1st time STR income property?

Posted Jul 4 2022, 22:18

My wife and I have talked about investing in a STR and occasionally using it as a vaca home for ourselves. We own our primary residence (no mortgage), and we believe we can make good use of our equity. We also have cash set aside for a downpayment if needed. We are learning more and more about HELOC and cash out refinance.

What are some recommendations to proceed? This being our 1st time doing this, we also want to grow at some point and invest in other properties once we get going with the first.

Upstate New York, New York

User Stats

8,422
Posts
9,466
Votes
John Underwood#5 All Forums Contributor
  • Investor
  • Greer, SC
9,466
Votes |
8,422
Posts
John Underwood#5 All Forums Contributor
  • Investor
  • Greer, SC
Replied Jul 5 2022, 04:23

We just used Rocket Mortgage for a large vacation rental.

User Stats

18,054
Posts
28,290
Votes
Nathan G.
  • Real Estate Broker
  • Cody, WY
28,290
Votes |
18,054
Posts
Nathan G.
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Jul 5 2022, 04:33
Quote from @Danny Valle:

My wife and I have talked about investing in a STR and occasionally using it as a vaca home for ourselves. We own our primary residence (no mortgage), and we believe we can make good use of our equity. We also have cash set aside for a downpayment if needed. We are learning more and more about HELOC and cash out refinance.

What are some recommendations to proceed? This being our 1st time doing this, we also want to grow at some point and invest in other properties once we get going with the first.


There are a variety of options. The best one is to save up and buy a vacation home that doesn't impact the equity of your current home. If you borrow from your current home, the success of your primary home depends on the success of your vacation home.

If you refinance, that gives you money to invest in a vacation rental, but once it's spent, it's spent. If you get a line of credit, you can use it more than once and you only pay interest when you borrow against it. This is my preference, as long as you can pay back the amount borrowed in a short period of time.

User Stats

2
Posts
0
Votes
Replied Jul 5 2022, 07:46

So a down payment and taking out a traditional mortgage is the first recommendation. That said, what percentage down is recommended and/or required, 10%, 20%, moreā€¦?

If HELOC is the second option, is the expectation or recommendation to pay it off in less than a year, less than three?

User Stats

666
Posts
552
Votes
Conner Olsen
  • Real Estate Agent
  • Austin, TX
552
Votes |
666
Posts
Conner Olsen
  • Real Estate Agent
  • Austin, TX
Replied Jul 5 2022, 08:00

@Danny Valle When you pay off a HELOC it depends on your personal risk tolerance. I'd say for most people, you should plan on paying it off in a year. If you plan to pay it off longer then really increase the interest rate and see if the numbers still work.

User Stats

407
Posts
279
Votes
Gerald Pitts
  • Rental Property Investor
  • Asheville NC
279
Votes |
407
Posts
Gerald Pitts
  • Rental Property Investor
  • Asheville NC
Replied Jul 5 2022, 08:54

Try to get the lowest down payment.  5 or 10 percent for a 2nd Home loan.  Or 15% for an investor loan.  
If you do a cashout refi or HELOC or HELOAN on primary to pay the DP, just make sure the higher interest rates don't increase your current mortg payment higher than you are comfortable with. As long as you can still cashflow a number that you are comfortable with, go for it. I am working on doing a HELOC, and just paying it off as quickly as possible.