Financing Options on VRs? Hard Requirement on Investment Loan?

[Brett Shoemaker]

Hi All, 

Currently pursuing the VR market and I've been researching best options for financing a VR property and need some clarification. To point out, this will be our 1st VR. As I understand it there are 3 main options (4 if you include paying cash...I wish:) 1. Conventional Loan at 10% minimum down. 2. Investment Property Loan at 20% minimum down. 3. HELOC against primary residence.

My issue is understanding what if/any implications exist for going the Conventional Loan route and the lender attaching a "Second Home Rider" in the loan agreement. What issues does this cause? Does this setup some potential legality issues since we'd plan to AirBnB/VRBO the property greater than 75% of the time? Our underlining issue is the 20% down. I've looked into HELOC, but I will reserve that option for leveraging the 1st VR against a loan for a second for scaling the portfolio, leaving our VR(s) unassociated from our primary residence.

Any guidance and thoughts are greatly appreciated.  

[Michael Greenberg]

I think it depends on the lender, however I have purchased two additional properties using conventional lending.  The 2nd  unit was at a slightly higher rate.  I did disclose that they were rental properties but there was no where in the application to decipher between short term and long term rentals (and no one asked).  As with any closely held business, I view it as being a business owner and it comes with some risk and the banks are going to secure your personal assets against any investment.  So far, so good.  I then spun an old 401k into a Solo 401k and have been using these funds to buy property with cash - all costs and proceeds flow in and out of the 401k.  A very cool way to create future retirement wealth by controlling your own interests.  

Mike