All Forum Posts by: Adam Windham

@Jesse Imes echoing what other have said here, the value is going to be based off of sales comps rather than a cap rate on the potential income. You can however use the projected short term rental income to underwrite the DSCR and approved the loans. Depending on the location, 80% LTV as a Rate & Term refi should be no problem and 80% as a cash out is possible but would depend on the other deal factors. Hope that helps!

@Patrick Forelli 50/50 split over an 8% pref when the LP is bringing 70-80% of the initial investment is not going to be all that attractive. In more complex real estate deals there's usually a tiered waterfall structure with multiple IRR hurdles and corresponding splits between LP and GP, getting more favorable for the GP as the different hurdles are cleared. Not saying you need to get that complex, but just keep in mind where risk-free returns are right now. You can buy short duration treasuries and rip 4-5% at the moment.

@Grace Santos if your existing lender / appraiser is allowing you to use short term rental income on the appraisal 1007 form, then the best way to rebuttal the income they determined is to provide them with more data. I would suggest an AirDNA report and any other documentation you can get from property managers, other hosts, etc. that support the higher income figure. 

This is a big reason why its import to vet your potential lenders to see if they can use short term rental projections from AirDNA, Rabbu, etc. While many lenders will say they can lend on STR's, often times they are relying the appraiser to determine the income on the 1007 which can open you up to this kind of risk. Hope this helps and you are able to get this closed!

From purely a lending perspective, the projections from AirDNA and Rabbu are the only commonly accepted sources for underwriting a short term rental purchase or refinance DSCR loan.

Hi @Adam Rose - second what many have said here about financing, a second home/vacation home loan will get you the most leverage and possibly better rates depending on your FICO score and DTI calculation. A DSCR loan will be the easiest to qualify for as it does not require any personal income documentation such as W2's, Tax Returns, etc. DSCR rates may be comparable or even lower than the second home/vacation home loan option depending on the other deal factors.

Hi James - its true that construction financing can get a little tricky when its in a rural location, but its still doable. It will largely come down your past experience on executing on these types of similar deals. Feel free to DM me if you have any follow up questions. 

Second the above recommendations, a more "conventional loan" that is going to look at your personal income as part of the underwriting/qualification process is going to have the best rates, a DSCR loan that only looks at the potential income of the property itself is going to be the fastest/easiest way to qualify. DSCR loan downpayment will be between 15% - 25% depending on the deal specifics. If you go the DSCR route, make sure you properly vet the lender and make sure they can qualify the loan using projected short term rental income from sites like AirDNA and Rabbu. Many DSCR lenders say they will do short term rental loans but will want to underwriting with traditional market rental rates which often times wont be sufficient to approve the loan.

Request a copy of the CCR's from the HOA/Condo Association so you can read exactly what is or is not permitted.

Correct - the total amount actually spent on the build (land, hard costs, soft costs, etc) will be your cost basis. 

Hi @Matthew Masoud - I can confirm that most lenders will NOT value the property any higher just because it is generating more cash flow operating as a short term rental or mid-term rental. A lender is always concerned about a default scenario where the property is foreclosed on and then needs to be sold, and there is no guarantee a future buyer would operate the property in the same short term/mid-term manner or pay the same premium above the standard comp value.

That said, there are buyers out there that WILL pay that premium because of the higher cash flow and established operating track record. That premium just needs to be made up with equity because they will be constrained on the amount of leverage they can get from a lender for the same reasons.