Acquiring Equity Loan from Property Value without Income?

Question

Hello! I own a beautiful piece of land in Carson, WA with much potential for short term rentals.  The land consists of 9 acres,  1100 feet of creek and two waterfalls, many great trails and even a pedestrian bridge we built ourselves (permitted).  On it currently, sits a 4 bd/4bath house (1900 sq ft) that we built in 2018-19. There is $259k left on that mortgage (originally $280k).

Zillow is valuing the property at $745k (I think that is low based on the older and smaller neighboring homes on single lots). Even if that is accurate, it seems there is plenty of equity to be had, but we are having trouble securing a loan for a STR.

My mom lives on the ground floor of the house and Airbnbs the 2nd floor (with it’s own entrance). I own the land and have added my mom to the deed, so we are both on that, but she is the only one on the mortgage. She makes about $35k/year, but after inquires to multiple banks, they are saying her income is not high enough to pull out sufficient equity.  I quit an unhealthy corporate job last year, and while I’ve been thoroughly enjoying my respite (I’m currently in Colombia teaching yoga at a hotel in the jungle!), it’s not ideal for getting funding. I can and will eventually work again (I'm an architect and psychologist), but would first like to explore my options that would allow me to develop this investment full-time.

Calculations say I can add a 1bd/1bath, 400 sq. ft. cabin with hot tub for $125k all inclusive.

To the loan officers, between my mother and myself, what are our options to acquire funding based off the equity of the land without having high income?

I’m open to any advice you may think we need in our scenario.

Thank you!

Becky

David Ross · Answer

Hey Becky,

First, WOW, I love that place!

Beyond that, I am a Mortgage Branch Manager and my team specializes in working with investors. Ideally, we can connect next week and my team and I can provide a free consultation on what may work best for you and your Mom with a few more details, but if I were to take the situation at face value and try and brainstorm an idea.  Perhaps a Reverse Mortgage could work.  I am not sure how old your mother is, but if she has substantial equity like you are saying, she can pull it out, pay off the original loan, and even eliminate her payment.  Now, it seems like the goal would be to keep that property in the long run, so you would want to Refi that in a few years when rates come down and you again can qualify for a more traditional mortgage, but there could be a path to getting around $100k and taking the next few years to focus on banking cash flow and possibly expanding.

I know, it's a bit out of the box, but if we were just blue sky talking about a solution, it's possible.  Another one would be the DSCR option, as others mentioned above, but I think you would have to buy the home from her, and build the income valuation based on her being a renter in the future.  Actually, that may be the better bet for getting more cash out now and we offer an Interest-only program on DSCR if you were trying to max out re-investment in the short to mid term.

Overall, there are a lot of nuances and a few questions we would have to confirm to be sure we were setting you up with the best program for you.  We welcome the opportunity to connect and provide a free consultation, if that interests you.

If so, please schedule a time with me below and we can connect.

https://bit.ly/Meet--David

Sincerely,

David Ross

Adam Davis · Answer

Most likely not depending on zoning. In order to subdivide, zoning has to allow for smaller lots and residential improvements. In rural areas, zoning is usually either forest, agriculture, or recreation, and often has minimum requirements of 5-10 acres per single family house. In cities where zoning is residential, there's more flexibility, especially in places like Oregon where legislation was passed a couple years ago to allow "middle housing" in all residential zones regardless of primary zoning.

Julie Clifton · Answer

Can you subdivide the property? I'm not a lender nor am I a seasoned investor. So forgive me if I missed something obvious to everyone else.

Adam Davis · Answer

David is talking about what I'm describing. Worst case: While interest may be somewhat elevated, think of it as a high price for a short time rather than something you're locked into forever. Most likely scenario is that you're able to add the improvements you're looking for and will be able to refinance into a whole-property mortgage in under a year, depending on the improvements. That means you'll only be paying that higher price for a limited time, and it may not necessarily be on the whole value. Might be a good idea to see if you can get equity financing on a small portion rather than the whole thing, to keep payments as minimal as possible.

Becky Fromm · Answer

@David Ross Excellent, I've just scheduled for Wed, both my mom and I will attend.  Thanks David!

Becky Fromm · Answer

To add a short term rental on the property (hopefully the first of many).

Chris Seveney · Answer

whats the purpose / use of funds for pulling the equity?

Becky Fromm · Answer

Thanks , @Chris Seveney, I am hoping to avoid those double digit interests, but good to know it could be an option if necessary.  Also to @Adam Davis, thanks for your creative thinking! I'd entirely be down to try something like you suggested, a workaround. Looks like Jay isn't too optimistic about that idea specifically. As you'd also mentioned, curious if others lenders have a slight shift in such an idea that that could work.  Thanks again.

Jay Hurst · Answer

Mom owns the LLC. Mom still lives on property. Still a ATR loan. An LLC does not change the fact that mom is still living in the property.

Acquiring Equity Loan from Property Value without Income?

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