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Jon Cave
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Finding STR's that work with a mortgage

Jon Cave
Pro Member
Posted

Hey, hive mind.

I'm a flipper who's not having a great time flipping. I'd really like to get into STR's and I'm trying to figure out how people find STR's that work even with a mortgage. Is this a situation where you need to BRRRR them for them to work or am I missing something? I'm in Memphis so I'd like my first couple to be local while I learn the ropes, but I'm down to buy anywhere. Any tips or groups I should join? I'm reading some books but I'd like to hear from some people with hands on experience.

  • Jon Cave
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    Jonathan Greene
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    Jonathan Greene
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    Replied

    What was your failure in flipping? You don't want to bring over poor operations to STR because you will also fail there. Your question is a little confusing; what do you mean how do you do STR with a mortgage? There are STR specific DSCR loans that account for the previous revenue if you are buying one that has been going already.

    Read Avery Carl's STR book from BP and also follow Bill Faeth, Kenny Bedwell, Taylor Jones to start with to get an idea of what is happening in STR right now.

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    Jon Cave
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    Jon Cave
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    Replied
    Quote from @Jonathan Greene:

    What was your failure in flipping? You don't want to bring over poor operations to STR because you will also fail there. Your question is a little confusing; what do you mean how do you do STR with a mortgage? There are STR specific DSCR loans that account for the previous revenue if you are buying one that has been going already.

    Read Avery Carl's STR book from BP and also follow Bill Faeth, Kenny Bedwell, Taylor Jones to start with to get an idea of what is happening in STR right now.


    I'm not failing at flipping but this slow market isn't helping things. I haven't lost money on a flip but I'm not profiting nearly as much as I'd like. And what I mean is that I see people buying turnkey STR's and cash flowing but I don't see the numbers working if there's a mortgage. Seems like BRRRR-ing is the only way to make it work

  • Jon Cave
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    Nathan M kiefer
    • Rental Property Investor
    • south carolina and michigan
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    Nathan M kiefer
    • Rental Property Investor
    • south carolina and michigan
    Replied

    we do all our STR's as cash deals with 10% finance as a baseline. We have also used a portfolio loan on LTR's to pick up one because we didn't have leverage on around 14 houses so the cash flow from those 14 definitely cover the payment on the str.

    In my experience this is the only way to go one or the other. financing a STR and trying to cash flow and appreciate is a crap shoot right now.

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    Gary Nelson
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    Gary Nelson
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    Finding a short-term rental (STR) that works with a mortgage is achievable, but it's essential to start by working with an investor-friendly real estate agent. They can guide you through market trends, rental projections, and connect you with lenders experienced in STR financing. An agent who invests themselves will often have insights into investor-friendly lenders and can help you navigate the requirements, including debt-to-income ratios and how to factor rental income into your mortgage qualification. They can also help you find assets with consistent demand in your area.

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    John Underwood
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    John Underwood
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    Replied

    I would find a motivated seller yourself if possible. 

    I get much more cashflow from distressed properties that I pay cash for and fix up to be LTR'S. 

    I market directly to owners.

    "Driving for dollars" is another way to find properties. 

    Finding a STR that you have a mortgage on is still doable. You will just have to harder and run the numbers conservatively.

  • John Underwood
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    If you have room in your DTI you can get a Fannie/Freddy loan. If it works as a LTR with rent higher than PITI you can DSCR.

    Plenty of markets with a lower entry point where the numbers work. I heard a STR focused book keeper say that the her Midwest investors are crushing it, while the more typical markets are struggling.

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    Andrew Steffens
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    Andrew Steffens
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    I started as a flipper. I wish I help more flips by BRRR back in the day. I would say hold the ones that make sense and sell the ones you can. You will likely be glad you did later down the road.

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    Replied

    Great answers here.
    I'll throw one more in the pot: we help with this at STRLocator (finding STR, MTR and LTR properties that will cashflow according to your financial goals).

    You don't have to start with a mortgage or BRRR; you can start by arbitraging. Less risk if you use a data-driven approach, and a great way to get a feel for the numbers before you commit to owning.

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    Tanner Lewis
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    Tanner Lewis
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    Hey Jon - you can just use a DSCR loan for them. You can BRRRR a STR (AirBnBRRRR) or just buy one as an acquisition. You would just qualify the deal with AirDNA projected income or use a STR1007 to qualify. They're pretty easy, and honestly even easier than LTR acquisitions since you are not reliant on the appraised market rent (when using AirDNA to qualify).

  • Tanner Lewis
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    Jordan Ray
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    Jordan Ray
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    • Memphis, TN
    Replied
    Quote from @Jon Cave:

    Hey, hive mind.

    I'm a flipper who's not having a great time flipping. I'd really like to get into STR's and I'm trying to figure out how people find STR's that work even with a mortgage. Is this a situation where you need to BRRRR them for them to work or am I missing something? I'm in Memphis so I'd like my first couple to be local while I learn the ropes, but I'm down to buy anywhere. Any tips or groups I should join? I'm reading some books but I'd like to hear from some people with hands on experience.

    You will definitely need to approach your acquisition slightly different on rentals than on a flip, especially in Memphis. I am happy to discuss that with you. Talk soon!

    Jordan Ray - eXp Realty Logo

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    Michael Baum
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    Michael Baum
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    Hey @Jon Cave, so if you are experienced as a flipper, you have some tools already.

    You need to put that experience to work finding a property that would work as a STR.

    It has to be in the right place, with the right amenities.

    First thing I would do is check the Memphis regs around STRs - https://library.municode.com/tn/memphis/codes/code_of_ordina...

    That will help you drill down on the area that it would work best. Then go looking for distressed properties (like @John Underwood said) and apply your talents to getting it ready to go and see what happens! :)

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    Sarah Vann DuRant
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    Sarah Vann DuRant
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    Creative financing is really how I am able to find cash flowing STRs for my buyers right now.. the margin is really low with DSCRs right now especially with taxes and insurance in FL. Feel free to message me with ?s and If you ever venture into the FL market contact me! 

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    Henry Lazerow
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    Henry Lazerow
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    A lot of the posts on here bragging about high cashflow are really just ignoring many of the cap/ex and management costs. Your numbers may be correct that its hard to cashflow significantly on a STR with a mortgage in 2024.

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    Quote from @Tanner Lewis:

    Hey Jon - you can just use a DSCR loan for them. You can BRRRR a STR (AirBnBRRRR) or just buy one as an acquisition. You would just qualify the deal with AirDNA projected income or use a STR1007 to qualify. They're pretty easy, and honestly even easier than LTR acquisitions since you are not reliant on the appraised market rent (when using AirDNA to qualify).

     @Tanner Lewis that's awesome to hear! I have heard mixed signals on this, but it seems that some lenders are allowing them now. Goes to show it pays to call around. 

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    Quote from @Henry Lazerow:

    A lot of the posts on here bragging about high cashflow are really just ignoring many of the cap/ex and management costs. Your numbers may be correct that its hard to cashflow significantly on a STR with a mortgage in 2024.


    The only management cost I have is my own time, which outside of natural disasters is 1-2 hours/week at best. CAPEX can be minimized by purchasing the right property, frontloading fixes, and having a reserve fund- all of which you would have with an LTR as well.

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    Jon Cave
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    Jon Cave
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    Great info from everyone!

    I actually have a flip that's been on the market for a few months now with very little action. I'm thinking I keep it and STR it which would be an AirBnBRRRR. The numbers do seem to work and its a really nice 3/2. I own it using a personal loan from a family member and I have someone getting me mortgage numbers. It'll work with today's interest rates but it'll work much better when the rate goes down to the 5's (whenever that'll be).

  • Jon Cave
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    John Litz
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    John Litz
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    I take a more conservative approach to STR. Analyze the deal as an LTR first. Location is always important, never invest in war zones. Make sure the LTR rental income will service first all of the PITI then handle another 15% for vacancy, repairs and cap x. Then it needs to cash flow even a bit. I analyze with a 25% down because that is what lenders typically want for an investment property in my location. If all of the above are a yes, then you can go further and do research on if your market is even good for an STR. Find out what a typical nightly rate is for your area (not what air bnb charges, the actual nightly rate the owner will receive not including the cleaning fee). See what typical occupancy rates are. Figure out all the extra expenses of utilities, management, perhaps hot tub, internet etc. go low on income and high on expenses and see how the numbers look. STR is not the same as LTR at all, this is a hospitality business not real estate. It is much hard than LTR and you have to be elite at it to make decent money, otherwise it can be a sink hole for money. Best of luck

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    Jon Cave
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    Jon Cave
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    Quote from @John Litz:

    I take a more conservative approach to STR. Analyze the deal as an LTR first. Location is always important, never invest in war zones. Make sure the LTR rental income will service first all of the PITI then handle another 15% for vacancy, repairs and cap x. Then it needs to cash flow even a bit. I analyze with a 25% down because that is what lenders typically want for an investment property in my location. If all of the above are a yes, then you can go further and do research on if your market is even good for an STR. Find out what a typical nightly rate is for your area (not what air bnb charges, the actual nightly rate the owner will receive not including the cleaning fee). See what typical occupancy rates are. Figure out all the extra expenses of utilities, management, perhaps hot tub, internet etc. go low on income and high on expenses and see how the numbers look. STR is not the same as LTR at all, this is a hospitality business not real estate. It is much hard than LTR and you have to be elite at it to make decent money, otherwise it can be a sink hole for money. Best of luck


    I have run the numbers as an LTR and as an STR. I use Rentometer and AirDNA and the Bigger Pockets calculators. It does work as a LTR but cash flow is higher with an STR. There are a few STR's in the area that are comparable. I have a little too much money in this deal as it was intended as a flip but the sale is going very slow and Id rather hold than lower my asking price. My price is correct, but the market is just super slow. It would be a cash out refi situation.

  • Jon Cave
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    John Litz
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    John Litz
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    If you're still planning on selling but waiting a bit you may want to do the LTR strategy, perhaps on a month to month set up. STR is expensive to furnish correctly and you said you already have to much in the property. An LTR tenant will likely be easier on the property than a bunch of guests every few days.

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    Nicholas L.
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    Nicholas L.
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    @Jon Cave

    Hi. I don't invest in STRs myself, but wanted to chime in on this thread and see if I could add any value.  (I do have a unit that I plan to make into an MTR sometime in the next few years... that's as far as I've gotten.)

    My opinion is that you should invest in STRs because: you're passionate about hospitality and therefore want to own and operate an STR successfully. So, I had the same reaction to your question that @Jonathan Greene did - that your question was confusing.  Most LTRs, MTRs and STRs are bought with a mortgage, and even if you BRRRR one, you still have a mortgage, because you'll refinance into one after you rehab.

    Cash flow has been compressed for ALL asset types by the increase in interest rates, and there is also increased competition for STRs.  So, you'd want to go into it knowing you were going to: go all out to beat your competition, have a distinctive property, stand out online, and have your return compensate you for the headache of running a little hospitality business.

    Does that help?  If we are misunderstanding what you are asking happy to continue to dialogue.

  • Nicholas L.
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    Jon Cave
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    @Nicholas L. thanks for the input. Yes I know I would have a mortgage either way. But the mortgage on a BRRRR would be much less than buying a turnkey home. I think it's in my best interest to just sell this one with just a little profit and move along. The cash out wouldn't fully pay back my personal loan plus I'd need to spend 6-7k to furnish the place. I think it would make a decent STR, but I really need to buy a home with the intent to STR it in the first place.

  • Jon Cave
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    Sarah Kensinger
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    Sarah Kensinger
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    Many of us are purchasing STR creatively with low money down and lower interest rates. If you want to check into that option, Robuilt has a group as well as free online content on purchasing a STR creatively.

  • Sarah Kensinger
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    Chris Barrett
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    Chris Barrett
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    I'm buying in Portugal because rates are far lower, occupancy is higher year round. :) However it takes a lot more out of pocket cash than it does in the US. 

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    River Sava
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    River Sava
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    Hey Jon - Reach out to @Jordan Ray ! He is a great investor friendly realtor in the area

  • River Sava
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    Jordan Ray
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    Jordan Ray
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    Quote from @River Sava:

    Hey Jon - Reach out to @Jordan Ray ! He is a great investor friendly realtor in the area


    Thank you so much for recommendation, River! 💪

    Jordan Ray - eXp Realty Logo