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

Question

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?

Joseph Bafia · Answer

@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!

Ken Boone · Answer

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.

Gerald Pitts · Answer

Yes Sir!

Dave Price · Answer

@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!

Gerald Pitts · Answer

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.

John Underwood · Answer

Ask your mortgage broker.

Frederick Wofford jr · Answer

@Dave Price

There’s not necessarily a time frame for buying another home even if using the 10% vacation/2nd home method. Most lenders will require you have 100 mile radius between these homes though. However I’ve found a bit of a loophole & it works for me. After buying that first STR as a vacation home at 10% you’ll need to show the income on your taxes (schedule E). When you claim income on a vacation property, guess what? That vacation home turns into a investment property on paper. Meaning you no longer technically have a vacation home. You can repeat this process again to buy another vacation home at 10% rent it as a STR then just throw it on your schedule E again & continue to repeat.

Once you’ve done this about 5 times banks will start to take note. Actually it’s already well known which is why as of April 2022 most lenders will charge vacation homes with the same rates as investment properties. Not the end of the world, but just a heads up on rates. Once you’ve reach the 5 or so amount of these so called vacation homes that the banks begin to question you, you should have built a strong enough portfolio to begin investing with a higher down payment 20-25% making purchase as straight up investment & in which case making purchases should be much easier as DTI will matter less.

Dave Price · Answer

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.

Dave Price · Answer

@Joseph Bafia  Very true, thanks for the info!

Collin Hays · Answer

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!

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

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