MTR Income Loan Qualification

[Jerome Morelos]

Hello BP, what are the lender requirements for Mid-Term Rental income? I started my MTR in Sept 2023 and some lenders I've spoken to are saying different things such as 1 year tax returns, 2 years tax returns.. Can't I provide Airbnb/VRBO Income reports to prove this? This is the only thing holding me back from getting pre-qualified for another property. 

[Robin Simon]

Quote from @Jerome Morelos:

Hello BP, what are the lender requirements for Mid-Term Rental income? I started my MTR in Sept 2023 and some lenders I've spoken to are saying different things such as 1 year tax returns, 2 years tax returns.. Can't I provide Airbnb/VRBO Income reports to prove this? This is the only thing holding me back from getting pre-qualified for another property. 

 Hi Jerome - MTR is certainly one of the areas of lending that is still new and lenders are still adapting - probably going to run into trouble with more traditional and conventional lenders - which generally take a long time (years) to adapt to new trends like this

I wrote about this late last year as one of the developments to watch for 2024 - particularly how DSCR Lenders are approaching, which is likely the best bet for this investment type currently (but note not all DSCR Lenders are the same - so will need to vet and pick one that is MTR friendly and generally forward-thinking)

What’s Next For DSCR Loans? Updates For 2024 and Beyond

https://www.biggerpockets.com/blog/what-is-coming-in-2024-fo...

Now, we will go over what’s next in DSCR loans—an overview of what innovations or additions to the DSCR loan product lineup may come in 2024, as well as the next evolution of this revolutionary loan product.

Medium-Term Rentals

One of the biggest developments in real estate investing in 2023 has been the rise of medium-term rentals. The medium-term rental (sometimes referred to as mid-term rental) is an investing strategy that combines elements of short-term rentals and long-term rentals.

Investing in medium-term rentals, which are typically defined as tenants renting properties for more than 30 days but less than a year, has become a preferred strategy of many investors. The seminal book on the strategy, 30-Day Stay, published here on BiggerPockets and written by MTR pioneering investors Sarah Weaver and Zeona McIntyre, has helped popularize the method.

Real estate investors are attracted to medium-term rentals to gain the benefits of extra cash flow versus long-term rentals while avoiding regulatory risks, high turnover, and intensive management of short-term rentals.

While many investors are now turning to medium-term rentals to build their portfolios, the lending world has unfortunately been a little slow to keep up. Over the last couple of years, many DSCR lenders have embraced and adapted to financing short-term rentals, including using data-driven tools like AirDNA to qualify rents on short-term rental properties, but there is yet to be a similar tool for medium-term rentals.

Many investors use a general rule of thumb for midterm rentals that they should earn about 50% more in rents than an equivalent long-term rental (whereas short-term rentals should earn double or 100% more than if the property was utilized as a long-term rental).

However, for DSCR lenders, change can be slow and challenging, and many lenders prefer and require more precise qualification measures than rules of thumb. Thus, the next challenge and frontier for many DSCR lenders seeking to serve the growing number of real estate investors pursuing this strategy is to cement a qualification and underwriting methodology to properly qualify MTRs and accurately project their revenues.

Potential next steps would be for a data provider to emerge similar to AirDNA for medium-term rentals to take on this growing opportunity. Until then, DSCR lenders will have to be creative and flexible to tap this growing market.