I'm working through the best way to structure financing for a high-demand STR property near Sedalia, CO, and I'd love insight from others who have done similar deals. It's in Douglas county I believe, super curious if anyone has experience with any red tape there!
Deal Breakdown:
• 3 structures:
• 1 already income-producing
• 2 will generate significantly more after rehab
• Purchase Price: $500K
• Stage 1 Rehab: $240K (focus on 2 structures)
• ARV Projections:
• After Stage 1: $1.2M
• Long-term potential: $2.2M+
• Seller willing to do partial owner carry
I’m exploring creative financing options to make this work, but lenders I’ve talked to have mixed responses—some say it’s too rural, others require $100K+ in liquid cash.
For investors familiar with STR deals, especially in mountain or semi-rural markets:
• How have you structured financing on similar projects?
• What’s worked for you with lenders in these types of markets?
• Any insights on DSCR loans or alternative funding options for a property like this?
Would love to hear how others have approached similar deals!
Attorney · Salt Lake City, UT · Member since 2025 · 144 posts · 180 votes
1y
You're in an interesting position with this STR deal, especially given the mix of income-producing structures and the potential for significant value-add through rehab. There are several financing strategies you might consider, depending on the lender's risk tolerance and your available capital.
One option is a DSCR loan, which could work well if you can show strong projected STR income, but rural properties often require a higher DSCR (1.25x or more) and may necessitate a larger down payment. Some lenders may allow you to use AirDNA rental projections to justify income, while others might discount STR revenue in their calculations. Expect to put down at least 20-25% if DSCR underwriting is strict.
If a DSCR loan isn't viable, private or hard money lenders could be another route. Given the strong after-repair value of $1.2M post-rehab, a short-term bridge loan or hard money loan might allow you to secure the property and cover the rehab. These typically come with higher interest rates (8-12%), but if you can refinance into a more favorable DSCR or bank loan after the rehab, it could work well. Some hard money lenders offer up to 85-90% loan-to-value (LTV) on the purchase and 100% of rehab costs, reducing the capital you need upfront. If the seller is open to carrying a second-position loan, you could further minimize out-of-pocket costs.
A seller financing + bank loan hybrid could also work. If a traditional lender will finance 50-70% of the purchase price, the seller could carry the remainder in a second position with flexible terms, such as interest-only payments or a balloon structure in 3-5 years. This could allow you to preserve liquidity while still securing financing.
Additionally, local banks and credit unions can be more flexible in financing rural STR properties than national lenders. Some community banks have portfolio loan programs that do not have the same strict DSCR requirements. It's worth reaching out to banks that are already working with STR investors in Douglas County, as they may offer more competitive terms or lower down payment requirements.
If you’re open to bringing in investors, equity partnerships or syndications could help cover the down payment and rehab costs. In exchange for capital, you could offer investors either a fixed return (e.g., 10% annually) or a share of future profits. A joint venture structure could help you avoid loan qualification issues while still moving forward with the deal.
One key consideration is any red tape in Douglas County that might impact the STR operation. While the county isn't as restrictive as some other Colorado areas, it's important to verify zoning laws, permit requirements, and occupancy limits. Some regions impose restrictions on the number of guests or rental days per year, which could affect your projected cash flow.
Ultimately, the best strategy may be a mix of seller financing and a DSCR loan or private money, allowing you to acquire the property with minimal upfront capital and refinance once you've increased cash flow. Given the seller's willingness to carry part of the financing, it would be useful to understand their expectations—are they open to interest-only payments, or do they want a higher rate? Structuring a favorable seller-carry agreement could be the key to making this deal work.