Renting Out Home to Create Income History & Build Rentals

11 Replies

Hello Friends,

I am toying with the idea of renting out my home for a year, either as a traditional rental or an Airbnb. During that year, I would live in an apartment. The goal being to create income history so that I can qualify for a loan to buy a second home. I would likely live in that second home and continue to rent out my original home.

Has anyone done anything similar? I am trying to get creative but am unsure if a lender would look favorably on this.


Thanks!

I would go meet with a few local lenders to see what their specific requirements are. Some may only be able to use your Schedule E, whereas others can use a percentage of the rental lease itself, sometimes sooner than a full year. I was actually able to use roommate and basement unit rental income from my first property after only 6 months to qualify for purchasing a triplex. But, times have changed, and lending rules have tightened up during covid. Talking to a few mortgage brokers will give you a better idea of what planning is needed for your specific situation.

As far as traditional rental vs. Airbnb, in my experience lenders seem to prefer more stable long-term leases. I do sometimes rent my personal residence out as a furnished short term rental (typically 1-4 weeks) during the summer months. I find this duration to be a happy medium between the hassle of constant airbnb cleaning and turnover, but with higher than normal rental income. But, this is simply for making some extra cash off my primary residence. It gets included in my Schedule E income, but I can't really use a lease from it for mortgage qualification. All of my other units are long term rentals for 1) ease of management, 2) lender perception and 3) because I'd just rather provide units to local residents than short term visitors while we have such a crazy housing shortage in town.

A good option for you might be to rent your place out fully furnished on a month-to-month lease. You could find someone like a travel nurse, visiting professor, or remote worker who may want to stay semi long-term - perhaps even find someone to sign a 6 month lease. The monthly rent will be much higher because it is furnished and turn-key, and a mortgage lender might view this as a long term rental for income purposes.

@Nathanael Isaac LaCorte

I have been apart of a lot of masterminds groups that say lenders are using proforma rent when adding the properties income to your personal income.  I have not bought a residential investment property in awhile but they were also telling me that instead of only getting to count 75% of the income from the rental you can count 100% of it.

@Nathanael Isaac LaCorte so yes, lots of people do this...but not to qualify for their next property.  You should be able to qualify for your next property regardless of rental history.  Did someone tell you that you had to show history before you qualify for your next property?

In all my experience here in Missoula, they use 75% of rental contracts, and most want a year of rental history. Maybe this is different for a commercial loan, but I’m assuming you are asking about a residential investment mortgage.

Hey Nathaniel,

I'd definitely stick to renting over Airbnb. I'm in the middle of getting both a construction loan for some backyard townhouses, and a refinance of my primary residence, and banks FAR prefer stable rent income. I have two Airbnb units and a rental, and it depends on the bank, but I usually get far more credit for my income from the rentals than the Airbnbs, even though I make more cash from the Airbnbs. I'll probably be transitioning towards more rentals in the next year so I can scale faster, and for the same community reasons Daniel mentioned above. 

But Daniel nailed it when he said to just reach out to lenders and ask them. Banks are busy, but you can always just call them up and get a loan officer on the phone to ask them their lending policies directly. 

Hope to see you on 5/18 at 6 pm at the Highlander for the real estate meetup, we can chat more then!

Hi @Andrew Postell , since I am currently in school, my wife and I are primarily working off one income. I am getting impatient and would love to buy another house now. Although we do have significant equity and some cash on hand for a down payment, I don't think a bank would approve based off our one income stream. So my thought behind renting out our home was to build additional income history. I should go talk directly to them and get the details

@Nathanael Isaac LaCorte none of the lenders I have gotten loans from (conventional or otherwise) have required rental history.  Some ABSOLUTELY will though....but we don't work with those.  You should be able to find good solutions without requiring you to have history (usually smaller lenders).  Lean on some other real estate investors in your area.  I'm sure a few of them have good suggestions. Bigger Pockets has some good state forums as well.  Feel free to post in there to see if any in your state have some places for you to start with.

@Nathanael Isaac hit up Scott Lucier with Envoy Mortgage here in Missoula and run the question by him. I run a lot of financing through him and he knows how to put this type of stuff together so it looks good for underwriters. I've worked with him on similar rental income qualification issues.