STR - Loan Options

[Alex Todd]

Hey BP! Were in the home stretch of executing a 1031x and securing a loan for our replacement property, an existing STR with a pretty existing DSCR (+1.2) that we have under contract.

We were just planning on doing a conventional 30yr fixed rate (looking like ~7%) through our existing broker and contacting a local (local to the STR) credit union to see what they can offer. My question is : should we be looking at alternative options? 20yr / 15yr term? DSCR loan? any other ideas?

Thanks in advance!

[Ashish Acharya]

@Alex Todd If your STR (short-term rental) has strong income and DSCR (debt service coverage ratio) around 1.2+, you have a few financing options—each with different tax and strategic advantages:

• 30-Year Conventional Loan: Great for long-term fixed rates and lower monthly payments, but underwriting is strict and based on your personal income. Still allows mortgage interest deduction and depreciation, but doesn't help with aggressive tax offsetting unless you also qualify for the STR loophole by materially participating.
• DSCR Loan: Based on the rental's cash flow, not your W-2 or tax returns. Higher rates (~7.5–9%) and slightly lower LTVs, but far easier for investors. From a tax standpoint, this still counts as an investment property—so you can depreciate the building, deduct interest, and take bonus depreciation if you qualify for the STR loophole (material participation, 100+ hours, and more than anyone else).
• Local Credit Union or Portfolio Loans: These may offer custom terms or competitive rates. Ask about prepayment penalties and how they view STR income. Tax treatment is the same—you'll report income and expenses on Schedule E and can still utilize cost segregation and bonus depreciation if eligible.
• 15- or 20-Year Loans: Lower interest, faster equity buildup, but higher monthly payments reduce cash flow. From a tax perspective, interest is still deductible, but higher payments may limit cash-on-cash returns if STR income is seasonal or inconsistent.

Tax Reminder: You can still use bonus depreciation (40% in 2025) to accelerate deductions, including furniture, appliances, and other eligible assets—but only if the property is placed in service during the tax year and you meet the STR material participation rules. Using a property manager or co-host doesn't automatically disqualify you, but your hours must still be tracked and meet IRS tests.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.