Types of loans available for airbnb property CONSTRUCTION?

Short-Term & Vacation Rental Discussions
4yFollow

Types of loans available for airbnb property CONSTRUCTION?

Ian Siegel
Member since 2022 · 4 posts · 0 votes

My family owns 120 acres of land in Augusta County, VA in land use. Currently there's only a working well on the property and we're working on electricity. We're wondering what mortgage options would look like if we sectioned off a piece of the property and transferred ownership to an LLC involving same members of the family and then have revenue from the airbnb go through the LLC.

In this case, would we able to get loans from the SBA, etc?  Or what else am I not thinking of?  I ask because we were hoping to avoid having to convert the land loan to a construction loan and then to a conventional loan.  Because once it switches to a conventional loan, the interest rate skyrockets because the size of the loan is above some benchmark like $600k (I forget the exact number).  Please correct me if I'm mistaken on any of this.  AndThanks for any advice!

0Reply
35 views

Most Popular Reply

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

@Ian Siegel

I love deals like this!

Ok, so you can definitely look at SBA and move into an LLC. Another option would be to do a bridge loan for the construction, then refi to perm once the build is completed. I work with a few lenders who love STRs and another who loves GUC. Putting them together gives builders/developers a nice package to help finance the construction, and then help them recover their costs rather quickly. Similar processes for both loans, but there are very different criteria for each.

SBA will go up your arse with a scope. Tax Returns, income, DTI, etc... very much like a conventional loan. The terms will be much better than private GUC lending, but it is a lot of work to qualify upfront. Often, you can also get a OTC GUC loan with SBA. That's a One Time Close Ground Up Construction.

For GUC then Perm lending, we won't need taxes, Income, DTI, etc... we will look more at liquidity, experience with GUC or Fix and Flips, and location. For the Perm refinance, we can use AirDNA to project rental income and use that for a DSCR calculation to qualify for usually 70-75% of the new appraised value after the build is completed.

The biggest question I see from your post so far is.. what kind of Development or GUC experience do you or your family have?

Cheers!

[email protected]
Belsky Mortgage, LLC522 Reviews
WebsiteView Page
2Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    4y

    Hey @Ian Siegel, sounds like a cool property. A couple of questions:

    Can you subdivide? What parcel sizes? That can have adverse tax consequences so double check.

    If you own the property outright, there shouldn't be any downsides to moving it to an LLC. You will have to borrow at a higher rate most likely.

    Jumbo loan limits are 647k right now for most areas. What are you building that has a construction cost of over 600l?

    0Reply
  • Nick BelskyBusiness Member
    Residential and Commercial Broker · Member since 2021 · 1k+ posts · 704 votes
    4y

    @Ian Siegel

    I love deals like this!

    Ok, so you can definitely look at SBA and move into an LLC. Another option would be to do a bridge loan for the construction, then refi to perm once the build is completed. I work with a few lenders who love STRs and another who loves GUC. Putting them together gives builders/developers a nice package to help finance the construction, and then help them recover their costs rather quickly. Similar processes for both loans, but there are very different criteria for each.

    SBA will go up your arse with a scope. Tax Returns, income, DTI, etc... very much like a conventional loan. The terms will be much better than private GUC lending, but it is a lot of work to qualify upfront. Often, you can also get a OTC GUC loan with SBA. That's a One Time Close Ground Up Construction.

    For GUC then Perm lending, we won't need taxes, Income, DTI, etc... we will look more at liquidity, experience with GUC or Fix and Flips, and location. For the Perm refinance, we can use AirDNA to project rental income and use that for a DSCR calculation to qualify for usually 70-75% of the new appraised value after the build is completed.

    The biggest question I see from your post so far is.. what kind of Development or GUC experience do you or your family have?

    Cheers!

    [email protected]
    Belsky Mortgage, LLC522 Reviews
    WebsiteView Page
    2Reply
  • Ian Siegel
    OP
    Member since 2022 · 4 posts · 0 votes
    3y
    Quote from @Michael Baum:

    Hey @Ian Siegel, sounds like a cool property. A couple of questions:

    Can you subdivide? What parcel sizes? That can have adverse tax consequences so double check.

    If you own the property outright, there shouldn't be any downsides to moving it to an LLC. You will have to borrow at a higher rate most likely.

    Jumbo loan limits are 647k right now for most areas. What are you building that has a construction cost of over 600l?

    Hey Michael. 

    1. So the deal is we cannot subdivide outside of our own family.  We own the right-of-way easement but no public access (legal info below).  
    2. We just got the land and have a mortgage on the land of $600k+ so that + construction costs are going to push us to a jumbo loan I believe.
    3. The property is in land use so part of this would be parceling out one acre that would be taxed as residential, corrct?

    So I'm wondering what's worse--jumbo loan vs SBA separate loan.  Thanks so much for your help!!


    Augusta Country Rule: 

    A family member exception lot is an exception to the normal minor subdivision regulations allowing property owners to create lots that have no road frontage.

    The Augusta County Zoning Ordinance (Chapter 25) requires that lots have at least 50 feet of road frontage on a public street. If the 50 foot requirement cannot be met, you can create a lot and convey it to an immediate family member.


    0Reply
  • Ian Siegel
    OP
    Member since 2022 · 4 posts · 0 votes
    3y
    Quote from @Michael Baum:

    Hey @Ian Siegel, sounds like a cool property. A couple of questions:

    Can you subdivide? What parcel sizes? That can have adverse tax consequences so double check.

    If you own the property outright, there shouldn't be any downsides to moving it to an LLC. You will have to borrow at a higher rate most likely.

    Jumbo loan limits are 647k right now for most areas. What are you building that has a construction cost of over 600l?

    Sorry Michael meant for this second response for someone else!

    0Reply
  • Ian Siegel
    OP
    Member since 2022 · 4 posts · 0 votes
    3y
    Quote from @Nick Belsky:

    @Ian Siegel

    I love deals like this!

    Ok, so you can definitely look at SBA and move into an LLC. Another option would be to do a bridge loan for the construction, then refi to perm once the build is completed. I work with a few lenders who love STRs and another who loves GUC. Putting them together gives builders/developers a nice package to help finance the construction, and then help them recover their costs rather quickly. Similar processes for both loans, but there are very different criteria for each.

    SBA will go up your arse with a scope. Tax Returns, income, DTI, etc... very much like a conventional loan. The terms will be much better than private GUC lending, but it is a lot of work to qualify upfront. Often, you can also get a OTC GUC loan with SBA. That's a One Time Close Ground Up Construction.

    For GUC then Perm lending, we won't need taxes, Income, DTI, etc... we will look more at liquidity, experience with GUC or Fix and Flips, and location. For the Perm refinance, we can use AirDNA to project rental income and use that for a DSCR calculation to qualify for usually 70-75% of the new appraised value after the build is completed.

    The biggest question I see from your post so far is.. what kind of Development or GUC experience do you or your family have?

    Cheers!

    Nick, thanks so much for this! My mother, brother and I are on the land mortgage together. We're new to real estate investment/development but have liquidity to support what we need (I believe) but need to hold onto the cash to secure mother's retirement etc. So we're trying to figure out the difference between a jumbo loan that it would become (because of high land costs to start with) if we went that route or if there's a better route for us financially. Thanks, Nick!
    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    3y

    Ok, so this is a bit complicated. I think you are going to have to go the SBA route and run it like a business rather than a passive investment. Not being able to break up the 120 acres is a showstopper for jumbo loans seeing as you owe 600k on it. If you could break it up, you could maybe use conventional financing on each property.

    I am not familiar with "land use" and what it means so I can't help with that.

    So can you even section off that one piece into an LLC? An LLC wouldn't be a family member legally. I am not sure.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free