Best Plan for Short Term Strategy

[Michael Lax]

Hello, 

Thanks for reading my post! I currently have a successful long term rental in Denver. My wife and I both work, but are ready to control our own fate. We want to build a portfolio of short term rentals and are ready to fire on our first property. All our equity is in our currently rented long term property. My wife wants to quit her office job so we're trying to determine our roadmap and timeline (and we're hoping to move quickly). Would anyone be able to recommend best path between these two: 1) sell the current long term rental, wife quits, and we finance the new purchase with a DSCL; or 2) sell the current long term rental and finance the new purchase as a second home (that will rely on both incomes)? I know interest rates are more favorable for #2 and we actually have ideas for additional revenue streams anchored by the rental portfolio, so ashame to have to sell the current long term to get started, but the time is now. I appreciate your time and advice! 

Mike

[Tanner Pile]

@Michael Lax

If you can do a refi on the LTR where it still cash flows I would do that first and then look to do a second home loan over a DSCR. DSCR you will need 25% on average and can have higher rates than a second home loan. Have your wife keep her job until you close on the STR and have it running smoothly. You may she has to keep her job for a bit longer to get more rentals as only a few rentals may not meet cash flow expectations.

I would NOT do a HELOC to buy another property. The numbers will likely not work because you will need to make enough in rental revenue to pay the mortgage and the HELOC. A HELOC is best to add value on a current property with the intention if paying it off very soon or doing a flip where you fix a property and then go to sell it to pay off the loan.

People have used HELOCs to buy STRs but this worked a lot better 4-5 years ago when rates were extremely low and rent revenue could cover both loans and cashflow. 

If you want to talk STRs in Colorado Springs or Teller County I'm happy to educate you on those areas.