Brrr + STR "Refinance" best lender today?

[Eddy Baik]

Hi All: Doing my first BRRR + STR (will do hybrid STR/MTR; MTR = mid-term rental) in Indianapolis, educating myself on which lender might be best for cash out or rate & term refinance that specializes or takes into consideration the increased projected rents from doing this as opposed to LTR (long-term rental).

Reading the forums, it seems Visio and Aloha Capital do STR specific refinancings. What other lenders do this and what terms/rates are you seeing? Which is the best lender in your opinion for this strategy?

[Mark Munson]

Quote from @Daniel Christopher:

Quote from @Eddy Baik:

Hi All: Doing my first BRRR + STR (will do hybrid STR/MTR; MTR = mid-term rental) in Indianapolis, educating myself on which lender might be best for cash out or rate & term refinance that specializes or takes into consideration the increased projected rents from doing this as opposed to LTR (long-term rental).

Reading the forums, it seems Visio and Aloha Capital do STR specific refinancings. What other lenders do this and what terms/rates are you seeing? Which is the best lender in your opinion for this strategy?

Happy to help you with anything for financing STRs.

When shopping just have to be mindful to ask the right due diligence questions as there are lenders that claim they can do Short Term Rentals/Mid Term Rentals but they don't tell you that to qualify they are underwriting with market rents. Due the nature of the DSCR underwriting process and using the properties income, if they are using market rents they might quote you at 80% to get you in the door but the more times than not on the appraisal report, the market rent survey will come in and the long term rent income number won't debt cover (qualify) at a 80% LTV. At that point you're at least 2 weeks into escrow and either have to come up with more liquidity for a higher down payment or have to go back to shopping and hope you close in time.

When you go shopping for lenders, here are some important due diligence questions to ask any potential lender:

1) What type of income are you using to underwrite? It's important they use STR projections rather than market rents

2) Is Under Writing Team (lending guidelines) aware this is property is being purchased as a short term rental/mid term rental and is allowed?

3) Is there a lease up period require after purchase ? Is there a lease required for for underwriting to close (refinances)?

Good look on your first purchase + reno! Let me know if you have any other questions! Always happy to help!

 I would add a few things to this:

1. What is your rate lock policy? 

2. If you use STR projections, does the DSCR still have to be above .75x if we were to use the long term rental income?

3. Are there any alternatives to STR projections?

On the 3rd question, there are typically alternatives. For example, if you have other STRs in the area, some lenders will use those statements as evidence of the STR income. If you don't have other properties in the area, they can contact a property management company that does and get STR figures from comps that operate as STRs.

Lastly, if you are planning to BRRRR, just make sure you understand the lender's seasoning period of ownership in regard to fully cashing out at the max LTV. Typically, it is 6 months. However, some lenders do 3 months or shorten it to 3 months if you use them for both the short-term loan and the long-term loan.