How Soon After the 1st STR Would I Be Able to Finance my 2nd STR?

16 Replies

I plan to buy my first STR (Cabin) in July of 2022 in the Northern AZ. I will be purchasing this home under a Conventional Second Home Loan for 10% down.

I was wondering how soon after purchasing the first STR can I count the income from that STR to better my DTI in order to qualify for the next STR?

Is there like a 6 or 12 month period that you got to show consistent income from the first STR to be able to count that income in your DTI ratio?

Also, if I plan to buy the second STR in another Vacation Market (Lake Havasu, AZ) that's 300 miles away from the first would I be able to finance the 2nd one at 10% down since it is in a different market?

Depends on your current DTI ratio. Some lenders will look at your income on the new cabin but most won't until it is reflected on a tax return. With COVID in place some lenders will NOT look at your rental income period for the DTI.

I got burned by that a few months ago and they didn't hit me with that until the 11th hour.  Had to find a different place to get my loan  - one that would look at the rental income of my STRs.  You really have to shop around.  All lenders are different one to another based on what their underwriters will approve and company policies.

Yes if you purchase more than 50 miles away if I am not mistaken that can be a 2nd home as well.

Originally posted by @Account Closed :

2 years.

This was kinda of a before-you-do-anything question, rather than an after-I-bought question. 

Sorry man.

Maybe you can find some other kind of financing instead of conventional

I haven't bought anything yet.  I plan to buy my first next year and doing the planning now.  

 

Originally posted by @Ken Boone :

Depends on your current DTI ratio. Some lenders will look at your income on the new cabin but most won't until it is reflected on a tax return. With COVID in place some lenders will NOT look at your rental income period for the DTI.

I got burned by that a few months ago and they didn't hit me with that until the 11th hour.  Had to find a different place to get my loan  - one that would look at the rental income of my STRs.  You really have to shop around.  All lenders are different one to another based on what their underwriters will approve and company policies.

Yes if you purchase more than 50 miles away if I am not mistaken that can be a 2nd home as well.

Thanks for responding with some personal experience and some actual insight into what I was asking about!

Ok, so best case scenario if I bought a turn key STR in July 2022 and get STR income from September through December reflected on my 2022 taxes i could potentially find a lender to consider that income? If this works then I'm looking at about a year after purchasing my first one.

Current DTI before purchasing first STR is 25% but after the first my DTI will be about 42% if the STR income will not be considered.

 

@Dave Price Yea I mean really everything depends on the lender, how much you want to borrow and DTI. So I would really focus on getting the first one going and make sure you like the business. Running an STR is an active business - make sure you enjoy it or at least get out of it what you want. Then start talking to lenders. COVID changed everything in the lending business.

Account Closed

Very true, that first one is a big one because if you're taking losses or not cash flowing as much as you expected than you're dead in the water for the second.

As long as the first one cash flows what i'm expecting then I will purchase the second one under my wife's name.  That will give me some time to get enough time that lenders are asking to show income on the first to then start thinking about financing the 3rd under my name.

How long after sex are you in the mood for more sex?  All depends on the person.  If you're up for another purchase the day after you close, have at it!

It's definitely a DTI thing like @Ken Boone was saying.  I bought my first, and then bought my second a few months later after I got the hang of it.  Now, my DTI is a little tougher, but after I got my tax returns showing a year of income on them both, I'm in better shape to qualify with my lender.  

@Gerald Pitts

Yes, this is what I was basically asking. So the key is to start creating income on the first and second property as fast as possible to get that income on my yearly taxes. This will help in getting the lenders to consider that income to better my DTI.

Thanks!

Originally posted by @Dave Price :

@Gerald Pitts

Yes, this is what I was basically asking. So the key is to start creating income on the first and second property as fast as possible to get that income on my yearly taxes. This will help in getting the lenders to consider that income to better my DTI.

Thanks!

Yes Sir! 

@Dave Price

I ran into this as well and as others have said, depends on lender. My lender only needed 1 year of income on my Schedule E to qualify that STR income.

As for future vacation home purchases, make sure you check with future lenders to make sure it qualifies for “second home”.

I've already started looking at STR specific lenders who don't look at DTI. Terms are a bit higher but at least you can keep buying!

Good luck!