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Updated 10 days ago, 11/14/2024
DSCR for acquisition of existing PadSplit
I am interested in talking to someone about the process of funding via DSCR the acquisition of a property currently being run as a PadSplit. The plan is to keep operating the property as a PadSplit post-acquisition. What kind of seasoning is generally required as it relates to the rents/revenue as it relates to servicing the note, etc...
I currently own one PadSplit (acquired via Subject-to) that has been up just over a month. And the plan is to convert an existing Airbnb I own (and have run as an Airbnb since 2019) to PadSplit. This conversion will begin at the end of the month.
I am just sharing the above to give context to my level of experience with this type of investment.
I look forward to hearing from you all.
#4 Mortgage Brokers & Lenders Contributor
- Lender
There are a very small pool of lenders okay with a PadSplit. They will base their DSCR calculation on the market rent 1007. If the market rents do not cover the mortgage, you may do a no ratio DSCR for a higher rate/reduced LTV
- Erik Estrada
- [email protected]
- 818-269-7983
Bob,
I join you in looking forward to an experienced Poster's answer since I'm getting more calls for DSCR loans. I just started researching when I saw you post. DSCR in not currently in our toolbox, but I'm recommending to my partners that we should embrace this product.
Mike
Quote from @Erik Estrada:
There are a very small pool of lenders okay with a PadSplit. They will base their DSCR calculation on the market rent 1007. If the market rents do not cover the mortgage, you may do a no ratio DSCR for a higher rate/reduced LTV
Which most likely the 1007 will be nowhere near the revenue generated by a PadSplit operation. The specific property I am looking at right now is netting from PadSplit to the current owner between $5k-$6k per month. I am guessing the 1007 would be around $2k/month for the specific property. So it makes me think this may not be the way to go. I guess my question would be, if that small pool of lenders is okay with PadSplit, why would they use 1007? That's comparing apples to oranges. I imagine the argument would be, well if PadSplit disappears we need to base it off this less, more conservative number...
@Bob Willis PadSplit is a little tricky. Unless I'm mistaken, the contract between owner/landlord and PadSplit doesn't have a defined monthly rent but a target/goal of monthly income (so it's hard to use that as lease). Also, many PadSplit properties have bedrooms that are created via flex walls that wouldn't meet the definition of a bedroom in an appraisal, so many PadSplit owners may think their property is worth a certain a mount based on a bed count that's not valid.
Nonetheless, you can base the DSCR calculation on PadSplit rent (if there's a history of PadSplit income being produced) or short-mid-term market rent (an analysis done at the same time of appraisal). Not a lot of our competitors offer this but it's something we can consider (but for us, it can't be in a rural area, the loan amount must exceed $150k, if we're using PadSplit income (or STR/MTR income) the max LTV is 75% and the down payment must come from your own funds).
- George Despotopoulos
#4 Mortgage Brokers & Lenders Contributor
- Lender
Quote from @Bob Willis:
Quote from @Erik Estrada:
There are a very small pool of lenders okay with a PadSplit. They will base their DSCR calculation on the market rent 1007. If the market rents do not cover the mortgage, you may do a no ratio DSCR for a higher rate/reduced LTV
Which most likely the 1007 will be nowhere near the revenue generated by a PadSplit operation. The specific property I am looking at right now is netting from PadSplit to the current owner between $5k-$6k per month. I am guessing the 1007 would be around $2k/month for the specific property. So it makes me think this may not be the way to go. I guess my question would be, if that small pool of lenders is okay with PadSplit, why would they use 1007? That's comparing apples to oranges. I imagine the argument would be, well if PadSplit disappears we need to base it off this less, more conservative number...
Maybe eventually they will allow the income just like short term rentals. You can also opt for a no ratio loan, however the rate will be much higher.
- Erik Estrada
- [email protected]
- 818-269-7983
@Bob Willis Familiar with the underwriting for this & happy to help on this. Send a message.
@Mike Grudzien Happy to help on an DSCR and we also help train brokers in this program so they can speak on & guide better on it, Great product to have.
- Alex Hunt
- [email protected]
- (919) 321-1156
Bob - I have five occupied padsplits under contract right now with Fernando Corona and have closed several with him this year.
Normal DSCR brokers have issues getting this through underwriting - it's important to work with a broker / lender that fully understands how to get these to CTC.
I'll PM you
Quote from @Josh Bowser:
Bob - I have five occupied padsplits under contract right now with Fernando Corona and have closed several with him this year.
Normal DSCR brokers have issues getting this through underwriting - it's important to work with a broker / lender that fully understands how to get these to CTC.
I'll PM you
I have spoken to Fernando a few times and he seems great although I haven't done a loan with him yet.
I purchased an existing Padsplit with a DSCR loan. Since some of the rooms did not have closets technically they are not bedrooms. The appraisal stated one was an office, another was a den and the 3rd was I think called a daylight room. At any rate it is possible, but depending on your appraisal it could be a gamble. :)
Quote from @Jarrod Ochsenbein:
I purchased an existing Padsplit with a DSCR loan. Since some of the rooms did not have closets technically they are not bedrooms. The appraisal stated one was an office, another was a den and the 3rd was I think called a daylight room. At any rate it is possible, but depending on your appraisal it could be a gamble. :)
Yeah - I have an appraisal in hand for the property, that was completed just a couple of weeks ago, that is substantially higher than the asking price.
Based on the responses, it looks like you're in good hands Bob! I would highly recommend talking to Jeff Weller at Coast 2 Coast and Fernando Corona both are also PadSplit hosts but we're some of the first expert lenders . Here's a link to both of their PadSplit stories:
Fernando: https://www.padsplit.com/stories/hosts/fernando-and-amaris-c...
Quote from @Bob Willis:
I am interested in talking to someone about the process of funding via DSCR the acquisition of a property currently being run as a PadSplit. The plan is to keep operating the property as a PadSplit post-acquisition. What kind of seasoning is generally required as it relates to the rents/revenue as it relates to servicing the note, etc...
I currently own one PadSplit (acquired via Subject-to) that has been up just over a month. And the plan is to convert an existing Airbnb I own (and have run as an Airbnb since 2019) to PadSplit. This conversion will begin at the end of the month.
I am just sharing the above to give context to my level of experience with this type of investment.
I look forward to hearing from you all.
Gang - I love the back in forth on this thread and looks like this post keeps getting responses!
If anyone has an end lender that has successfully closed a handful occupied padsplit loans and can underwrite based off actual padsplit rents I would really appreciate an intro. I'm familiar with Jeff and the C2C team (i've heard great things) and work primarily with Fernandos team who I love.
Right now - all of the padsplit loans I am working on for my clients are underwritten based off long term rental rates. Getting a DSCR of 1 in some of the higher tax counties of Georgia is tight, but we've been able to get through them. Finding another end lender that can underwrite based off actuals would add a lot of liquidity to the space.
Quote from @Jean Brune:
Based on the responses, it looks like you're in good hands Bob! I would highly recommend talking to Jeff Weller at Coast 2 Coast and Fernando Corona both are also PadSplit hosts but we're some of the first expert lenders . Here's a link to both of their PadSplit stories:
Fernando: https://www.padsplit.com/stories/hosts/fernando-and-amaris-c...
Quote from @Bob Willis:
I am interested in talking to someone about the process of funding via DSCR the acquisition of a property currently being run as a PadSplit. The plan is to keep operating the property as a PadSplit post-acquisition. What kind of seasoning is generally required as it relates to the rents/revenue as it relates to servicing the note, etc...
I currently own one PadSplit (acquired via Subject-to) that has been up just over a month. And the plan is to convert an existing Airbnb I own (and have run as an Airbnb since 2019) to PadSplit. This conversion will begin at the end of the month.
I am just sharing the above to give context to my level of experience with this type of investment.
I look forward to hearing from you all.