Multi Family STR Financing

[Colin Newton]

Hey BP,

We own a 7 unit zoned multi family that we run as a boutique hotel/STR property. We purchased it 9 months ago with hard money, rehabbed all units, have been operating for about 6 months and are looking to cash out refinance into long term debt.

We are looking to see if anyone has experience with a property like this and what type of financing options they have seen knowing it is somewhat of a unique property being a multi family/STR mix. Any term specific insights such as LTV, rates, length, length of shown revenue needed, specific lenders that have a product for this and most importantly how they valued the property.

Obviously we do not have LT leases in place to show guaranteed revenue for the year but will have a T12 to show proof of concept at a high NOI. Using other multi familys in the area based on their LT rent revenue would under value the property dramatically. We have heard some lenders say they would go this route to calculate our LTV value & we have been told that some apprisers would use our NOI & a slightly higher Cap rate then the LT multi family cap in the area to evaluate.

If anyone has any experience or thoughts on this type of property in general & more specifically the financing side that would be greatly appreciated!

Thank you,
Colin

[Adam Windham]

Hi Collin, 

You can use a DSCR loan and underwrite using the short term rental income of each unit - actual or projected depending on how many months of operating history each unit has. Typical minimum DSCR on a multi-unit is a 1.10 or 1.15x DSCR - best rates and terms with be at a 1.25x and above.

As far as value goes, most, if not all, commercial apprisers are going to value the property based on the long term rents and long term rental cap rates. Increasing the underlying value of the property just because it's operating as a short term rental is still not generally accepted by most lenders or appraisers. Hopefully that is something that changes as short term rentals become a more established asset class.