Lending on Short Term Rentals. What I discovered and confirmed.

[Michael Baum]

Hey everyone. There has been a few posts about lending on STRs. Some have said that a working Short Term Rental is worth more than a similar comp in the same area based on that revenue.

I have said for years, along with many others, that a STR is worth what every other similar house in the same area is worth. It isn't worth more because it did 50k in revenue.

A few folks were pretty adamant that I was wrong so I said in the threads that I would call a bunch of lenders and find out. Here is the results of 4 hours of work.

National Bank #1 - They were difficult to get a firm confirmation but they told me their posted processes. LTV is based on comps and appraisals only. 43% DTI on conventional, 50% FHA.

National Bank #2 - Much more information with an enthusiastic loan officer about the info. Essentially it is the lesser of 3 things. Purchase Price, Appraisal Value, Finished Value (new construction). They do not take into account revenue when it comes to value. They do when it comes to DTI/Debt service. They want 2+ years of Schedule E revenue shown.

Local Credit Union #1 - Comps and appraisal's only. They don't take into account revenue. They do use it for DTI based on at least 2 years revenue.

Local Credit Union #2 - Comps and appraisals only. Same as LCU 1

National Mortgage Lender #1 - Comps and appraisals only. Great info from them as they mentioned DSCR loans. They still only use comps and appraisal values for DSCR loans and they us the revenue for improved DTI.

National Mortgage Lender #2 - Comps and appraisals only. Same as mortgage lender 1

National Investor Mortgage Lender - This was a lender who only does investment loans. No home mortgages for primary etc. They only use comps and appraisals just like everyone else. They have more flexible terms when it comes to DTI. That revenue stream can make it easier to qualify like others but they use other criteria. Only needing a year of revenue on LTR. They do not use AirDNA for estimates.

Local Portfolio Lender #1 - This is a local lender but they lend in most of the western states. They use comps and appraisals only. They do use revenue to help with DTI but that is about it.

Local Portfolio Lender #2 - This is also a local lender who lends in all western states and some mid west including Texas. They use comps and appraisals only. Same DTI benefits to working rentals.

National Mortgage Brokerage - Finally I called one of the largest mortgage brokerages in the US. They have many offices in every state. They have no offerings that take into account the revenue of an existing rental when it comes to value.

So the bottom line is what many of us have been saying. No STR is worth more because it is a STR. It is worth what other comps in the area are worth. Every lender I contacted said they exact same thing. No exceptions. They lend on the value not the possible revenue.

I was upfront about why I was looking for answers to these questions. I told them I was posting this on a large real estate investor forum. I am not listing the names of the various lenders, nor will I tell anyone who I called. I told each person that I would use the preceding terms and they were fine with that.

This is not a comprehensive list of lenders or their practices. There might very well be a lender out there who does take that revenue into account. There might be a hard money lender who would. You never know.

I did ask about commercial lending, but none of them were able to comment as that was not their department. I wasn't going to spend another 4 hours running down practices regarding a hypothetical 12 unit apartment complex, but I am betting that when it comes to value, comps and appraisals rule the roost.

So hopefully this will help dispel any ideas that a STR is worth because it is a STR.