All Forum Posts by: Daniel Christopher

Shmuel,

Couple questions for you to better help guide you here:

1) The current loan you have on the property is it a short term loan meaning a bridge loan/reno loan that has a balloon payment coming up soon or a 30 year mortgage designed for short term rentals?

2) Are you looking to take cash out above the existing loan amount on the property or rate & term refinance the existing loan amount for a lower rate or to extend the term of the existing note?

With enough STR income history you will be able to do up to a 75% cash out or 80% rate and term with a DSCR loan. If the income history does not qualify or does not have enough time built up then using projected STR income can get you to qualify but usually at -%5 LTV from the previously mentioned LTV terms for CO & RT refies.

Since your plan is to access more traditional financing once you have two years of income history, pay attention to any prepayment penalties that are priced out in your quotes. You'd likely want to take a 2/1/0 prepayment options or a 1/0/0 prepayment option so you are not dinged with fees when looking to refinance down the line.

We price out every quote on a 5 year prepayment penalty structure as a basis as most investors are looking to hold the note for longer than 2 years, so the lower PPP options will likely need to be custom requested from the loan officer wherever you shop.

 Thanks for the vote of confidence @Sarah Kensinger!

We can qualify using STR Projections from AirDNA without having to rely on an appraiser's 1007 comp report on STRs in the area. The chances typically are low (not impossible but unlikely) for appraisers to use STR comps on their 1007 reports so AirDNA projections are the most reliable. Also, with projections you will know at the start the income underwriting can use to get an actual LTV you can qualify for without waiting mid-process for the appraisal report to come in. It's possible to get upwards of 70% LTV cash out on rural properties.

Happy to help you with anything for financing STRs.

When shopping just have to be mindful to ask the right due diligence questions as there are lenders that claim they can do Short Term Rentals/Mid Term Rentals but they don't tell you that to qualify they are underwriting with market rents. Due the nature of the DSCR underwriting process and using the properties income, if they are using market rents they might quote you at 80% to get you in the door but the more times than not on the appraisal report, the market rent survey will come in and the long term rent income number won't debt cover (qualify) at a 80% LTV. At that point you're at least 2 weeks into escrow and either have to come up with more liquidity for a higher down payment or have to go back to shopping and hope you close in time.

When you go shopping for lenders, here are some important due diligence questions to ask any potential lender:

1) What type of income are you using to underwrite? It's important they use STR projections rather than market rents

2) Is Under Writing Team (lending guidelines) aware this is property is being purchased as a short term rental/mid term rental and is allowed?

3) Is there a lease up period require after purchase ? Is there a lease required for for underwriting to close (refinances)?

Good look on your first purchase + reno! Let me know if you have any other questions! Always happy to help!

 Love the vote of confidence Sarah! Thank you!

Alex, just to clarify here, these types of loans (DSCR Loans) are qualified using the properties actual or projected income, and in the case of Host Financial - short term rental income. The STR income is not used in valuing the property as these residential properties are not valued the same a commercial property (Cap rate valuation). Essentially the underwriting component is similar to a commercial underwrite (DSCR) and the value of the property is still based on sales comps. The reason being is no lender will base a residential property on income due to the fact that in the case of a default/foreclosure, the market for selling off this type of asset to clear off the debt are primarily traditional home buyers and a small minority of home buyers would be looking to purchase the property as an STR and thus value it as such.

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