ISO STR Investor: Where To Go?

Question

Hi all, I found this forum by way of another site, searching for private lending.

I have been looking into putting the condo that I bought 2 years ago with VA loan on Airbnb, but I found short term rentals are expressly forbidden in the covenants for my community. I have excellent credit, but I need 2 years of tax returns as an (newly) independent contractor to buy more property... in that time I could be building my AirBnB business. I am looking for someone to help finance the property in the Colorado Springs area to be repaid once I can front the loan myself (~ 2024).

As I'm new to real estate (prior USAF officer and engineer after that), I would really appreciate any tips or guidance! I have been told to go to country clubs, but the thought of socializing for the express purpose of finding investors seems somehow... dirty? And inefficient. I am hoping for a more direct and mutually beneficial way to find people who would benefit from this type of deal.

Alex Breshears · Answer

I'm going to chime in an STR owner and a private lender. Tread cautiously right now. Many markets are hitting a saturation point and leisure travel demand is waning as disposable income disappears for may households. In addition, just purchasing the property is the VERY beginning of the equation. There are considerable costs involved in furniture, decor and technology.  We have about $3,000 worth of just technology in place to remote monitor the home and safeguard it.  And that's just the technology for us as owners, that doesn't include electronic technology like flat screen smart TV's, wifi, cable internet, etc.  There is a process you could consider called rental arbitrage.  You would lease something from a landlord willing to let you do an airbnb with the property. This will likely be problematic as the nationwide housing shortage is causing a shortage of homes, especially SFH which I would personally find ideal for STR's,but that's my business model.  Realistically, I underwrite about 10k per bedroom of the property for just the inside furniture, decor, kitchen items, technology, etc. So a 3/2 would be about $30k for example. If you want to be successful in this market with STR's you need to have nice looking homes, picking up the flea market floral couch that's been passed through 3 generations isn't going to cut it anymore in most places. These have becoming sophisticated businesses, and you will need to research your competition to see what amenities they offer, what are they pointing out about the area (proximity to X, Y, Z, fire pits, swimming pools, lake access, free ski lift tickets etc).  Buying is not even the beginning, the analysis and figuring out your business model is, and THEN you go look for properties that fit that model, capital, and time commitment you have available.

Luke Carl · Answer

So you’re trying to “Airbnb” in a condo building that doesn’t allow it and Colorado springs where regulations are as heavy as the price tags which means you don’t know what you’re doing and you want other people to give you money.

I’d recommend listening to at least 300 BP podcasts before you do anything else including sleep 😍

James Carlson · Answer

@Luke Carl I always appreciate your "delicate" touch with responses. Too much BS on here, not enough straight-forward advice.

That said... @Jessica Hoffman, I'm not sure you need to listen to 300 BP podcasts before you make a decision. That seems like a lot of equity lost waiting to be perfectly educated when a lot of the education comes from actually doing something. Also, Luke's kind of right, but not totally right, about the Colorado Springs Airbnb regulations.

In Colorado Springs, you can operate a non-owner occupied STR if it is multi-unit zoning (think, R2, R3, R5, etc.) AND also 500' away from another non-owner occupied STR. I have searches set up for the zonig and a contact in the city to check the buffer zone, and I find a handful of STR-eligible properties every month. I've had several clients buy these STRs in the last year, and they're all doing really well. As good as you can do in a true vacation rental market? Probably not, but you also get the benefit of running it yourself from the same city.

The bigger issue is money ... what about a DSCR loan? They don't care about your tax returns. They care about whether the underlying asset (the house) can generate revenue to cover the cost of the asset (the mortgage). I've got a client under contract right now on a mountain home/vacation rental outside of Colorado Springs that he's using a DSCR loan for.

Whatever road you go down, I wish you luck.

Stephen Karagosian · Answer

@Jessica Hoffman I am an Active Duty Army Officer and also located in Colorado Springs. I would recommend looking into Trophy Point Investing. They are former active duty army guys who now fund other Active/Retired Army officer's deals.

I have done 3 hard money loans with them and then ultimately refinanced to conventional mortgages. They also offer DSCR loans so if you're interested in going down that route, they are a one-stop shop.

Dan H. · Answer

There have been a few posts about obtaining further education. Not to beat a dead horse but I agree with those opinions.

Now to other items:  I do not know about going the country club route, but in San Diego we have Meetups that are designed to match those looking to lend money with those looking to borrow money.  One local one here is run by a friend and has the type of Meetup name that you will be in search of; her Meetup is called Private Lending Masters.  Some such meetups will have investment in the name.  There may be similar meetups in your market.  You will need to find the right property as investors want safe investments or they want to be well compensated for risk.

Now for renting your condo...   In my market 30+ day rental is not considered short term.  Your condo may allow 30+ day furnished rentals.  The cash flow will not be as high as for an STR, but neither will the workload (You may be able to self-manage a 30+ day rental).  It is also likely that your cash flow on a 30+ day furnished rental will exceed the LTR cash flow.  The same friend that has the Private Lending Masters Meetup is rent arbitrage a furnished 30+ day rental (due to condo association rules) and so far has been doing great (better than I expected).  The unit owner is aware it is being subleased as a 30+ day rental.  My friend furnished it, markets it (she uses various sites), and maintains it.

Good luck

Rhonda Cohen · Answer

I have done 2 dscr loans with visio lending who specialize in str investors.  We used short term revenue estimates both times  I also researched long term rental rates to reinforce the projections. The issue with dscr loans is the interest rate is higher and you need to show cash reserves for 6 months expenses. There is also a 5 year prepayment penalty fee.  As in any investment the numbers have to work.

Jane S. · Answer

hi Jessica,

Glad to see a fellow COS resident. me too i love it here.

I looked on when everyone got so het up about ST renting and knew i would never want to clean toilets!

If you are allowed to rent your condo, advertise it and interview EVERY person who calls for their personal information! That way you will get to know the types of people out there, many of them looking to screw naive landlords.

Im not naive and I GOT SO SCREWED! Not by a bnb but a 12-month lessee.

ST renting is a cousin of real estate investing, it's more closely related to the hospitality industry. Have you ever dreamed of owning a cheap highway-fronting motel? I doubt it, but that's who you will find cruising the STR space.

Meet them at a public place after you put them through a thorough phone interview. NEVER let them in to your private space. Make a list of questions you wouldnt want to answer yourself, about your finances, salary, rent history, family, and ask each caller. You're not invading their privacy, remember THEY called YOU. The more callers hang up on you or don't want to share, the more you will understand this marketplace.

You might be tempted to accept someone as a tenant for your condo but you MUST NOT until you get more sophisticated. The scumbags are so manipulative. I had one who tried to hide the fact she has 5 kids not 3! she also is the proud owner of $126,000 in debt!

Do several test runs and either record the calls and take lots of notes. You don't need permission to ask someone how much they make per month. Many don't even know! Red flag ... also you should role play this with a friend. back & forth. I'm not kidding. Best of luck!

Oh also read the social media group "rent prep for landlords" for some horror stories!

jane shafrin

James Carlson · Answer

Nice suggestion, @Stephen Karagosian. The only thing I'd say, @Jessica Hoffman, is that if you want to do a DSCR loan -- as a way of getting funding without 2 years of tax returns -- and you want to do an STR investment in Colorado Springs (or anywhere in Colorado), most DSCR lenders will only use long-term rental estimates as opposed to short-term rental or Airbnb revenue estimates. Most LTR revenue numbers won't cover the mortgage, so a lot of DSCR lenders run into trouble.

There are a few DSCR lenders that specialize in STRs. Maybe Trophy Point Investing's DSCR program looks at STR revenue as well. Just be sure to ask any DSCR lender how they generate the revenue estimate they use to justify the loan.

Robin Simon · Answer

Aside from the STR issues, you don’t need two years of tax returns to get started / get financing.  Plenty of private lenders (non-qm) will likely finance and qualify you in alternative ways, especially if you have great credit

ISO STR Investor: Where To Go?

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