Commercial Loan Question

[Nathan Cornett]

Good morning wherever you are!! 

When using a commercial loan for a short term rental, how is the loan determined? I have 8 long term rental properties and 1 short term rental in Florida. I have used traditional Freddy/Fanny as well as commercial Loans for all of them. 

My one short term rental was purchased in my name using a traditional loan. 

I'm looking to buy another STR in FL, but I believe I have reached my DTI limit and I'm considering a commercial loan (also purchasing in our LLC), but will a commercial Lender consider short term rental income?

Thanks! 

[Marty Johnston]

@Nathan Cornett Most commercial lenders who will allow for STR income will typically use 90% of the market rents per the appraisal's 1007 Rent Schedule. This is if the property is already vacant or already being used as a STR. If the property is already leased, then they have to use the 90% of 1007 Rent Schedule OR the actual lease in place, whichever is lower. There are more and more lenders allowing for STR's on 30-yr products, and the space is becoming more competitive, which is great for investors!

As @Tarik Turner referenced, the other way that some lenders allow for STR properties is by simply diverting all STR-use properties into their "No DSCR" Programs. Basically, they don't calculate a DSCR ratio but in turn, put a premium on the interest rate (usually around 1.0% increase to the rate). In theory, you could cash-flow negatively on these loans and still be okay, so long as you have the credit score, assets, and a pulse.

Hope this helps!