All Forum Posts by: Zach Edelman

Unfortunately, STRs as single family homes are still considered residential assets. Thus, they are appraised as such - valued based off the sales comp approach - i.e how much have other similar single family homes sold for? Not how much can this property earn as an Any DSCR lender is going to go to lend off the income approach. One of the main reasons for this is let's say the lender were to lend off a value that is tethered to how much the property can earn as an STR, and they're at 80% LTV let's say. Ok, well now STRs are regulated in that city, and that same income approached value plummets since the home can only be rented as an LTR. The lender is now overexposed (perhaps at over 100% LTV) which is a position no lender wants to be in for obvious reasons. It's a tough part of STRs that some investors struggle to understand, but lending off residential assets based off how much the home can earn as an STR is far too risky.

Are you planning to occupy the property as a 2nd home or as a true vacation home? The lending options will differ based on this: For 2nd home, 10% down is available, but there are restrictions regarding how much/long you can occupy the property. For investment, 20% down is typical with some 15% down options out there but there are restrictions (not sure if this is available for STRs, just LTRs.) 

Thomas -

Please DM me. As an STR focused lender, I have a great network for you for this.

Are you self managing or outsourcing for management?

I would advise you on the DSCR loan to implement/request a low duration prepayment penalty (i.e 3 years - 1 yr PPP). This way you can easily refinance in a short time frame after closing and capture the equity you are obtaining from getting a property at such a quality price.

How do you plan to build those tiny homes? I know from experience financing additional tiny homes (not sure if you're looking to do this) can be difficult without having someone that has previous ground-up construction experience. Building a structure from the ground up, since you need to build/create foundation, can be difficult. 

Nice deal. How's the cashflow going so far? Lexington, KY certainly an underrated STR market.

No - but I'd say about 90% of my borrowers/investors utilize an LLC for what it's worth.

Thanks, Scott! Great outline. 

Why is this better than just paying off your entire balance before the statement closing date? Is there a difference?