Purpose built vacation rentals

[Mitchell Maginnis]

Hi!

I recently completed a new build STR. I like the fact that I was able to design it with unique additions that none of my competition is offering, and I want to continue to rinse/repeat this process. I have a parcel that is zoned specifically for multiple units.

With that said, I paid for the entire first cabin out of pocket with cash only, and it has taken me over a year to save up that money. I will use a refinance to build my second unit, but am looking for creative financing ideas that I can implement so that I can continue to build more units faster. Any advice is appreciated. 

[Mack Lengel]

Quote from @Mitchell Maginnis:

Hi!

I recently completed a new build STR. I like the fact that I was able to design it with unique additions that none of my competition is offering, and I want to continue to rinse/repeat this process. I have a parcel that is zoned specifically for multiple units.

With that said, I paid for the entire first cabin out of pocket with cash only, and it has taken me over a year to save up that money. I will use a refinance to build my second unit, but am looking for creative financing ideas that I can implement so that I can continue to build more units faster. Any advice is appreciated. 

Hey @Mitchell Maginnis! Doing something similar to that in the Smokies with some clients. The creative bit we are working with is seller financing land and rolling that into a construction loan. If you are showing ownership of the land and you have enough equity built into the deal then you won't need to bring the 10-20% down from a construction loan. Don't know your exact situation but might be something to conisder

[Zach Edelman]

Would a DSCR cash-out refinance at 75% LTV using Air DNA projections to qualify the loan work? If so, let me know as I'd be able to help you out here!

[Persa Z.]

@Mack Lengel is spot on. For "creative" deals to work, there often needs to be equity involved. His example is a good one.

Another option, you mentioned that you already have a parcel zoned for multiple units. Another idea is to partner with someone to bring in financing for the second unit as a private lender, and you do the design/build/construction management, then after it's built you also take care of the furnishing, listing and renting of it, and they receive payments over time until you can refinance them out after it starts bringing in income and it can qualify for a bank loan. 

[Mitchell Maginnis]

Quote from @Mitchell Maginnis:

Hi!

I recently completed a new build STR. I like the fact that I was able to design it with unique additions that none of my competition is offering, and I want to continue to rinse/repeat this process. I have a parcel that is zoned specifically for multiple units.

With that said, I paid for the entire first cabin out of pocket with cash only, and it has taken me over a year to save up that money. I will use a refinance to build my second unit, but am looking for creative financing ideas that I can implement so that I can continue to build more units faster. Any advice is appreciated. 

 To clarify, I am looking at adding additional units on the parcel I have already built on @Mack Lengel @Zach Edelman @Persa Z.

[Zach Edelman]

@Mitchell Maginnis you'd be able to use the cash-out proceeds to build new units on the parcel you have. 

[Mack Lengel]

Quote from @Mitchell Maginnis:

Quote from @Mitchell Maginnis:

Hi!

I recently completed a new build STR. I like the fact that I was able to design it with unique additions that none of my competition is offering, and I want to continue to rinse/repeat this process. I have a parcel that is zoned specifically for multiple units.

With that said, I paid for the entire first cabin out of pocket with cash only, and it has taken me over a year to save up that money. I will use a refinance to build my second unit, but am looking for creative financing ideas that I can implement so that I can continue to build more units faster. Any advice is appreciated. 

 To clarify, I am looking at adding additional units on the parcel I have already built on @Mack Lengel @Zach Edelman @Persa Z.

Got it. I would definitely consider the partnership route if you have some family or friends with capital and lend ability or by attending local REI meetups and networking

[Michael Baum]

Hey @Mitchell Maginnis, you have managed to save up and build one unit already by yourself, so I think you can just do it again on your own.

Bringing in partners might accelerate the process but dilutes your equity and profit. Plus you have the possible end of life of friendships and estrangement of relatives to think about. Nothing destroys relationships faster than a real estate partnership.

My 2 cents. If you can do alone, one a year, then I would go that route.

[John Underwood]

Heloq will be faster than a refinance.

[Blake Novotney]

Quote from @Mack Lengel:

Quote from @Mitchell Maginnis:

Hi!

I recently completed a new build STR. I like the fact that I was able to design it with unique additions that none of my competition is offering, and I want to continue to rinse/repeat this process. I have a parcel that is zoned specifically for multiple units.

With that said, I paid for the entire first cabin out of pocket with cash only, and it has taken me over a year to save up that money. I will use a refinance to build my second unit, but am looking for creative financing ideas that I can implement so that I can continue to build more units faster. Any advice is appreciated. 

Hey @Mitchell Maginnis! Doing something similar to that in the Smokies with some clients. The creative bit we are working with is seller financing land and rolling that into a construction loan. If you are showing ownership of the land and you have enough equity built into the deal then you won't need to bring the 10-20% down from a construction loan. Don't know your exact situation but might be something to conisder

 This is very interesting, very curious on this process. How is the lender calculating the equity? So essentially if there are good comps (I imagine there are in the smokies) you could essentially be in this all together for very little down?

[Mack Lengel]

Thanks for asking @Blake Novotney

There are two parts to it really. We can look at the deal I am currently working on partnering with a friend who wants to get into investing. 1,000 sqft build (1-2 bedrooms) I can build it for 300k and it will be worth 500k (very conservatively) there's already 200k of equity there so it already checks out to be a good deal from the underwriting side. We structure the low-to-no money-down element with the seller financing the lot we will build on. If we have him hold the note on it for 10k down then when we go to get the construction loan it will pay off the remainder of the balance when the loan closes and we won't have to bring the 10-20% down for the construction loan because it shows that we already own the lot which is essentially our equity in the deal.

[James Hamling]

@Mitchell Maginnis I make some assumptions here. I assume that you were capable of saving up that sizable capital position to acquire this site and develop this first unit with zero financing, that you also work/live in a circle of person with similar capital incomes/positions. 

Now what others are failing to touch on is when taking in private $capital$ there is 2, very different, forms of this; (a) equity partners which as mentioned would sacrifice a % ownership/profits etc. for growth. BUT there is also (b) DEBT partners. And this jumps out as making the most sense. 

A DEBT partner is in simplest terms getting a loan from a person or persons vs a bank. So with this you can direct offer people the interest rate returns vs them putting their $ in a bank/CD and getting a fraction of that return. 

And done right, it's a heck of a win-win. For example, giving them 6% interest is a great return for them vs what's out there vs cd's or savings account, and a heck of a rate for you. You can securitize it via the total holdings, get to set your own terms, it's all at choice so if wanted could make it a 28yr amortization with balloon at 7.5yrs with interest only for the first 12 months, if you wanted to. Point is, when it's PRIVATE $ the terms are open to your mutual agreement. 

I say why not try the private $ route first. Good chance your circle is full of persons of potential, and having already completed 1 of the units you have a proof of action to show, it's not an idea or a concept, it's something you've already done and are now just looking to do more of it. That's sellable. 

And who'd you rather pay that interest to, decent people you know or some random persons in CA/NY/NJ/FL?????? 

Not to mention saving on loan origination fee's and all those other fun filled fee's one get's hammered with from getting any kind of real estate financing. 

Simple, take in private $ via debt. Keep 100% of your equity, done. 

[Bryan S.]

Here’s a couple ideas…

1. Subdivide the land and sell for quick cash
   Private investors: Network with family, friends, or private investors who may be interested in partnering with you on your STR projects. They can provide funding in exchange for a percentage of the revenue or equity in the property.
2. Crowdfunding: Real estate crowdfunding platforms like Fundrise, RealtyMogul, or CrowdStreet allow you to pool funds from multiple investors to finance your STR projects. You'll need to pitch your project to potential investors and offer a return on their investment.
3. Home equity line of credit (HELOC) or cash-out refinance: If you have equity in your primary residence or other properties, you can tap into that equity to finance your STR projects using a HELOC or cash-out refinance.
4. Commercial loans: Some banks and credit unions offer commercial loans specifically designed for investment properties or multiple-unit properties. These loans may have more favorable terms for investors but may require a larger down payment and higher credit scores.
5. Government programs: Check for government-backed programs, such as the U.S. Small Business Administration (SBA) loans or local development programs, which may offer low-interest loans or grants for real estate development.
6. Construction loans: If you're building new units, consider a construction loan. These are short-term loans that cover the cost of construction and are typically interest-only during the construction period. Once the project is complete, the loan can be refinanced into a long-term mortgage.
7. Joint ventures: Partner with another investor or developer to share the costs and profits of your STR projects. This can help you leverage each other's resources and expertise to grow your portfolio more quickly.
8. Hard money loans: These are short-term, high-interest loans from private investors, often used for real estate investments. They're typically easier to qualify for than traditional loans, but they come with higher interest rates and fees.
9. Delayed financing: If you have the cash to purchase the property outright, you can use a delayed financing strategy. You buy the property with cash, then refinance it with a traditional loan after a short period, usually six months or less. This allows you to recoup your cash quickly and use it for your next project.

[Kerry Baird]

I still like a 30 year cash out refinance product on my renovation houses.  Also, for tax purposes, it makes sense to do a cost seg study on my more expensive properties.

[Ryan Heilig]

Quote from @Mack Lengel:

Thanks for asking @Blake Novotney

There are two parts to it really. We can look at the deal I am currently working on partnering with a friend who wants to get into investing. 1,000 sqft build (1-2 bedrooms) I can build it for 300k and it will be worth 500k (very conservatively) there's already 200k of equity there so it already checks out to be a good deal from the underwriting side. We structure the low-to-no money-down element with the seller financing the lot we will build on. If we have him hold the note on it for 10k down then when we go to get the construction loan it will pay off the remainder of the balance when the loan closes and we won't have to bring the 10-20% down for the construction loan because it shows that we already own the lot which is essentially our equity in the deal.

Id be interested in learning more about that and opportunities in the Smokies

[Mack Lengel]

Quote from @Ryan Heilig:

Quote from @Mack Lengel:

Thanks for asking @Blake Novotney

There are two parts to it really. We can look at the deal I am currently working on partnering with a friend who wants to get into investing. 1,000 sqft build (1-2 bedrooms) I can build it for 300k and it will be worth 500k (very conservatively) there's already 200k of equity there so it already checks out to be a good deal from the underwriting side. We structure the low-to-no money-down element with the seller financing the lot we will build on. If we have him hold the note on it for 10k down then when we go to get the construction loan it will pay off the remainder of the balance when the loan closes and we won't have to bring the 10-20% down for the construction loan because it shows that we already own the lot which is essentially our equity in the deal.

Id be interested in learning more about that and opportunities in the Smokies

 I'll text you more about it!