Quote from @Jennifer Frame:
We are an owner/builder, duo. Just completed a SFH. Great area, great credit, experienced landlords and builders. Build was completed for about 50% of the appraised value. Used cash plus construction loan. The problem we are having is that we will be holding the property and using for a STR. Right now, due to costs out for the build, DTI is a bit too high plus we are the builders, so can't use appraised value (direct cost only) for conventional loan and LTR appraisal doesn't support the 1.0 or 1.15 ratios for DSCR (rate and term vs cash out) - BUT, the STR market does... however, lenders don't use those until 1 full year reported on the tax return. Frustrating. Working with hard money lender now to close the deal, but I'm concerned about only having 12-15 month terms due to the above referenced. Basically going through the hoops of a bridge loan to ultimately get to conventional loan. That said, I have shopped around A LOT and of all the resources, local HML has been by far the best option for the interim. We are trying to position ourselves for the next step to be as "seamless" as possible. The difficulty seems to be coming largely from 1) it being an investment property, 2) us being the builders, and (probably most importantly) 3) this will be a short term rental.
Anyone have any insight?
You have to do what you have to do in terms of the hard money lender. You may be able to get a longer term than 15 months (some go to 24 months). If you profit well over the first 12 months, you may be able to get a DSCR loan. Worst case scenario, you sell and do it again.
Short term rental guidelines are finicky. DSCR lenders were at 6 months and now they're at 12 and as liquidity tightens, I wouldn't bank on terms getting easier. Make friends with a local bank and tell them you will use them on your next build and maybe they'll finance you with a high DTI. They may or may not do it. I think this is your most feasible exit strategy, particularly as time goes on and you have a track record of profit with this particular property.
A note on DSCR lenders. DSCR lenders will not alter their guidelines or give exceptions on short term rental guidelines. The guidelines are going the other way. The lenders sell these loans into pools and if the loan doesn't fit the parameters, it won't get sold. In this market, DSCR lenders are not so well heeled that they can originate loans that won't get sold. They care about your experience, but don't really care about your success in that space. Additionally, they don't care about you as people. They care about originating loans that they can sell and if they're servicing the loan, getting paid; period. Sounds harsh, but it's reality.
All the best
Stephanie
