Financing STR Same neighborhood as current property
Obviously the location of a property doesn’t impact the down payment/financing but there is a property 2 doors down from the property my wife and I just purchased and started renting April 1. We are killing it this month with 0 reviews to start. I know we just bought it but I see huge upside/potential.
I would like to buy the other one for sale but the 50k down payment would not be super practical right now as I just shelled out $50k down payment for the next be I just bought. The property for sale is overpriced (they bought it for $175k last year and want $183k for it. I’m sure they have a mortgage so I can’t get it for say $160 for example. Any ideas?
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#1 Short-Term & Vacation Rental Discussions Contributor
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Owner financing, buying subject to, Owner carrying back a 2nd for just the downpayment part.
Quote from @John Underwood:How can the owner finance it if they have a mortgage and owe a lot on it?
Owner financing, buying subject to, Owner carrying back a 2nd for just the downpayment part.
There's no easy answer. You have to find the money somewhere if you want it that badly. If you don't have it, you have to find a lender (bank, mortgage broker, private money, etc.) or convince the seller to do something creative. It's unlikely, but not impossible.
If it were me, I'd find a friend or family member with some cash, convince them that it is a good investment and say that you will manage it for them at market rate of 15-25% depending on your market. It increases your income and protects you from the risk. The other benefit is that if it goes sideways, you are just a vendor, not a partner that they are married to. They can fire you and find a new manager. It's not an earth shattering idea, but it increases your income and protects you from yourself (wanting to scale too quickly, making compromises, and introduces extra risk).
I'd suggest taking a breath and getting a sample size of more than 1 month of bookings before buying the next one, but I get it.
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Quote from @Justin Melton:Do you know they are carrying a mortgage? You can ask and see what happens.
Quote from @John Underwood:How can the owner finance it if they have a mortgage and owe a lot on it?
Owner financing, buying subject to, Owner carrying back a 2nd for just the downpayment part.
Otherwise you need to come up with the 50k or whatever is required to move forward.
Maybe you could see if your lender would bundle the 2 places together in a package? You might have to put up more cash but it could work.
Quote from @Michael Baum:I am 95% sure they have a mortgage. Could I buy it on contract from them or would a mortgage prevent me from doing that (I assume it would). Thanks for the feedback as always!
Quote from @Justin Melton:Do you know they are carrying a mortgage? You can ask and see what happens.
Quote from @John Underwood:How can the owner finance it if they have a mortgage and owe a lot on it?
Owner financing, buying subject to, Owner carrying back a 2nd for just the downpayment part.
Otherwise you need to come up with the 50k or whatever is required to move forward.
Maybe you could see if your lender would bundle the 2 places together in a package? You might have to put up more cash but it could work.
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It is possible @Justin Melton. Maybe you could work with the owners and their lender to take over the mortgage. It isn't very common but it could be done. Some mortgages have assumable clauses.
Quote from @Michael Baum:Thanks Michael! It’s probably a long shot because it’s now owner occupied and we wouldn’t be occupying but all they can say is no!
It is possible @Justin Melton. Maybe you could work with the owners and their lender to take over the mortgage. It isn't very common but it could be done. Some mortgages have assumable clauses.
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You are able to finance it via a DSCR loan . Lets connect and discuss some options
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Quote from @Travis Timmons:
There's no easy answer. You have to find the money somewhere if you want it that badly. If you don't have it, you have to find a lender (bank, mortgage broker, private money, etc.) or convince the seller to do something creative. It's unlikely, but not impossible.
If it were me, I'd find a friend or family member with some cash, convince them that it is a good investment and say that you will manage it for them at market rate of 15-25% depending on your market. It increases your income and protects you from the risk. The other benefit is that if it goes sideways, you are just a vendor, not a partner that they are married to. They can fire you and find a new manager. It's not an earth shattering idea, but it increases your income and protects you from yourself (wanting to scale too quickly, making compromises, and introduces extra risk).
I'd suggest taking a breath and getting a sample size of more than 1 month of bookings before buying the next one, but I get it.
Agreed with this answer. If there's no equity/margin for the seller, then it's not going to be easy to have him/her move much on his/her price.
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Quote from @Justin Melton:Then you buy "subject to"
Quote from @John Underwood:How can the owner finance it if they have a mortgage and owe a lot on it?
Owner financing, buying subject to, Owner carrying back a 2nd for just the downpayment part.
@Justin Melton why don't you have any reviews yet? Income is only part of the STR game, you need reviews to up your status.
For purchasing the second one, you’ll need to get creative. Do you have a 401k you can borrow the down payment from and have the seller carry the rest?
I Would reach out to Brenna Carles with The Mortgage Shop and talk to her about DSCR.
Do you have any equity in your personal residence? you could pull a HELOC for the down payment and use the cash flow to pay the HELOC
Quote from @Jeremy Jareckyj:Yes we do. We have about 200k equity in our home. I’m just not sure about qualifying income wise since we just bought this other property.
Do you have any equity in your personal residence? you could pull a HELOC for the down payment and use the cash flow to pay the HELOC
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If you can show strong numbers, consider an equity partner. They put up the cash, you operate and figure and equitable split.
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Quote from @Jacob Sherman:Can you do a DSCR without first having some income history?
You are able to finance it via a DSCR loan . Lets connect and discuss some options
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#3 Rehabbing & House Flipping Contributor
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Yes absolutely . Its a no income no doc product . What is the scenario looking like ? Lets connect and discuss
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#1 Starting Out Contributor
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I'd approach it with a DSCR loan. You could qualify off AirDNA projections with 20% down, which is $36,600 down given the $183k sale price
#1 Starting Out Contributor
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Quote from @Jon Martin:
Quote from @Jacob Sherman:Can you do a DSCR without first having some income history?
You are able to finance it via a DSCR loan . Lets connect and discuss some options
No DSCR loans do not look at your DTI at all. This means DSCR lenders would not look at your W2 income or the income of other properties in your portfolio.
Quote from @Tanner Lewis:
No DSCR loans do not look at your DTI at all. This means DSCR lenders would not look at your W2 income or the income of other properties in your portfolio.
Sorry I meant property income . . .Don't they want to see at least a year if not 2?
#1 Starting Out Contributor
- Lender
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Quote from @Jon Martin:
Quote from @Tanner Lewis:
No DSCR loans do not look at your DTI at all. This means DSCR lenders would not look at your W2 income or the income of other properties in your portfolio.
Sorry I meant property income . . .Don't they want to see at least a year if not 2?
No, we would not need to see property income. The deal can be underwritten using either in-place rent or the 1007 market rent (from the appraisal). For refinances (cash out or rate term), the property would need to be leased out prior to closing, and we would take that into account with the underwriting.
So many options here!! Either go creative or try to get a DSCR loan, although you'll probably need 20-25% down for that. Another option is to raise private money loans for the downpayment and set-up costs of a STR.
Above all I would make sure the neighborhood can support two STR. Your first property could be doing well to start because of the boost Airbnb is giving the listing, and there is a need for a STR. But after the first few weeks the listing is going to drop since it won't be "new" anymore and bookings may also drop. Plus your two properties well compete against each other! So be very sure you have a strong STR market that can support two properties so close and give you a decent profit!
