Ways to Finance First Short Term Rental near Gatlinburg, TN

[Ethan Cole]

I am wanting to get into STR's near Gatlinburg. I have experience with LTR's, but this seems to be a different ballgame. The market I'm in has a significantly lower cost of entry, consequently it brings lower returns than a market like Gatlinburg. My biggest hurdle for moving quickly is the amount the down payment would need to buy to buy in this market. What are some creative ways you have used to come up with large sums of money quickly?

[John Underwood]

Quote from @Ethan Cole:

I am wanting to get into STR's near Gatlinburg. I have experience with LTR's, but this seems to be a different ballgame. The market I'm in has a significantly lower cost of entry, consequently it brings lower returns than a market like Gatlinburg. My biggest hurdle for moving quickly is the amount the down payment would need to buy to buy in this market. What are some creative ways you have used to come up with large sums of money quickly?

 Use an equity line or portfolio loan against your existing LTR's.

It is tough buying in PF right now with the exorbitant prices. This makes it difficult to find properties that cashflow well. You may have to search places other than Zillow or MLS to find property that makes sense and cents.

[Ethan Cole]

Any recommendations on where else to check for deals?

[Luke Carl]

When I started I did everything. Including saving Pennies for 3 years. If you don’t have Pennies you’ll need a partner! 

[Luke Carl]

Quote from @Ethan Cole:

Any recommendations on where else to check for deals?

 Short term shop 

[Reid Chauvin]

@Ethan Cole - if you meet the criteria, second home loan is only 10% down. Perhaps you can get a partner to go in with you on the purchase, split the upfront cost. This could help with qualifying for the loan from an income perspective as well. 

[River Sava]

Hi Ethan, 

I lend on STRs in Gatlinburg all the time. Would love to discuss more! Sen you a friend request.

[John Underwood]

Quote from @Ethan Cole:

Any recommendations on where else to check for deals?

 Facebook Market Place, Craig's List, for sale by owner sites. Direct mail. Send people an inquiry on Vrbo and Airbnb to see if they are interested in selling, probate, code enforcementists, people who owe back taxes etc.

[Juan V Lopez]

Hey Ethan, I just wrapped up a STR in Big Bear with an investment loan (10% down). All together, I was about $40K at down payment. I renovated the property with funds from a previous refinance I did, and then refinanced out.

If you have equity in a property, a LOC would be a great source to get funds from. A lot of people are backing away from refi's right now because of increasing rates, but I'm always in the opinion that if the money you would be making is greater than the difference in your interest rate, you're better off pulling the trigger (and refinancing again later when rates come back down.

Wish you the best.

[Elle S.]

Anyone who recommends a HELOC on an investment property you already have clearly hasn't scoured the market like I have looking for one of those. Banks and credit unions have pretty much stopped offering these since rates shot up. I'd love to be wrong but I called all over the country and just couldn't find that as a product

That being said, taking out a loan against a 401k or brokerage account is a great low interest option. Low risk for the bank, lower rates than any other loan you can secure, and a little liquidity if you need it for down payment. I have no advice on how to find a good deal in the Smokies though, sorry. Good luck!

[Christian Ehlers]

@Ethan Cole You could do the 10% down vacation home loan as mentioned, or perhaps you find a private money lender and attempt the BRRRR strategy to build/re-use capital? Or perhaps bring in a 50-50 equity partner who funds the deals?

You could also try winning the lottery, not a useful strategy for me but I still have hope.

[John Underwood]

Quote from @Reid Chauvin:

@Ethan Cole - if you meet the criteria, second home loan is only 10% down. Perhaps you can get a partner to go in with you on the purchase, split the upfront cost. This could help with qualifying for the loan from an income perspective as well. 

Difficult to bring a partner in on a 2nd home. A 2nd home is for the person buying it not for a commercial investment. That is an immediate red flag.

[Nick Belsky]

@Ethan Cole

Finding a lender that specializes in STR financing is key. There are lots and lots of them that offer products but aren't really great with them. There are a few who are truly great at STR lending and don't charge you and arm and a leg to get them financed. You can use your LTR experience to help with terms. Great STR lenders will use AirDNA to determine projected rents, sometimes in conjunction with an appraiser who actually knows who to appraise an STR rental rate. Being with no STR experience, you can expect the lender use 75% of the AirDNA projections in the DSCR calculation. These lenders don't penalize your terms, rate, or LTV due to being an STR. That is simply silly. The AirDNA helps boost the DSCR to qualify for higher value properties. I've seen up to 80LTV on STR purchases recently and they cash flowed enough to easily pass DSCR.

Another approach for less money down, is ground up construction or fix and flip properties. I am working with several other investor in Sevier County that are buying lots and building new, then refinancing to perm. The GUC and FnF loans aren't anything special in terms of STR, but the perm financing is. We are getting no seasoning and full LTV cash outs after being built with the new appraised values. What a great way to recover your costs and get more in your pocket than when you started. Seeing GUC and FnF LTCs as high at 90%, so 10% down.

Keep searching for a strategy that fits you.  There are plenty of options out there.

Cheers!

[Ethan Cole]

@John Underwood Those are great ideas! I'll check into those.

@Juan V Lopez We are always refinancing our LTR properties in order to buy more, and we should hopefully close on another in a month or so. I hadn't thought about using a LOC against our current properties though. That could be a good option. Do you know what type of terms a lender would likely use in giving us a LOC?

Several members have suggested a DSCR loan, which is something I was unfamiliar with until I made this post, and it's something that I will be researching as well. At face value, it seems similar to a LOC against our total portfolio. Am I off base here?