Lender needs a long term lease for refinance - can I lease to my LLC? Other ideas?

Question

I have a few successful strs in Georgia.  I am looking to refinance a couple of them, however my lender requires 2 years of income shown, and I don't have that for these particular houses.  They will, however, accept a long term lease.  I read somewhere that it might be possible to long term lease them to my LLC, since the LLC is for the STR business, (essentially rental arbitrage myself).  Anyone have thoughts on this?  I'd love to hear!

Zach Edelman · Answer

Another vote for DSCR loans - plenty of DSCR lenders can qualify the rental income either with actual booking history or Air DNA depending on how long you've owned the asset and whether or not you rehabbed it (and how recently).

Scott Mac · Answer

Hi Evan,

Did you ask the lender if this is acceptable to them--that might be a good person to talk to about it--everyone else will just be guessing.

Good Luck!

Adam Windham · Answer

@Evan Holly Not much to add here other than the DSCR loan is the way to go - make sure to vet your lender and ask them specifically how they are going to underwrite the debt coverage ratio and get you approved - are they going to use projections from AirDNA, Rabbu, or Others (if so, what if any % discount are they going to apply to the gross income), or are they going to rely on the rental rates on the appraisal 1007 form. If they are using the 1007 - are they going to request that is be completed on a STR or LTR basis? Will they apply any % discount to this income figure? Ideally you would get this underwritten using projections, assuming it debt covers, so you know up front that the DSCR wont be an issue and you won't get re-traded on the loan terms mid-process.

Andrew Steffens · Answer

Every decent lending broker should have multiple options just for situations like this.  Not every lender does, thats why a broker will shop it to multiple brokers.  You should definitely be able to refi it based on the appraisers long term rental estimate or using a DSCR lender (some accept LTR rent projection, and some even do STR rental projections).

Alex Bekeza · Answer

@Evan Holly No need to get that creative. I think you just need a new lender.  There are programs that will allow you to calculate DSCR using Air DNA data so you don't need to worry about 2 years of income, what the long term market rate is, a fake lease or any of that.  www.shorttermrentallender.com. We do this all the time even on AirBnBRRRRs that have no operating history at all and just got the place furnished and listed.

To answer the question directly though, no, most lenders would not approve a lease from you to yourself if they're requiring a lease to qualify.

Doug Smith · Answer

Some lenders require a long-term lease...others to not. Often times, there might be an LTV ding without a lease, but in the case of most DSCR lenders, they use the figure from the 1007 in the appraisal. Ask the lender/broker if they have other options. There are options without the long-term lease.

Michael Baum · Answer

I would be really curious about renting the property to an LLC that you own in order to acquire a better rate or lower down.  This sounds like fraud to me.

It might be time for me to get on the horn again with a bunch of lenders to see what they would say about it.

Sarah Kensinger · Answer

Yes, you can "rent" a property to your LLC but if you can get a DSCR loan for a STR, that would probably be the best option. Host Financial and The Lender both offer DSCR loans for STR, and I've heard really good things about Northpointe Bank.

Jonathan Taylor · Answer

@Evan Holly DSCR loans (already mentioned above) have STR specific options for you considering you have experience. These loans are very similar to LTR DSCR loans but use appraised market ST rents to qualify the debt coverage ratio. These loans can close in an LLC or personal name (state dependent) but would solve your problem. There are a lot of pitfalls to renting from your own LLC that could potentially kill the deal and are more amenable options that would make this loan work.

Lender needs a long term lease for refinance - can I lease to my LLC? Other ideas?

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