STR Rental @ $356k Purchase / $56k Annual rental income - 90% LTV DSCR Options?

[Brian Bailey]

Property is off market purchase at $356k. Has cash flowed between $50k and $56k the last 3 years with upward trend. Same property manager staying involved (did $56k last 12 months). Credit 700+, bank statements available, good liquidity position (almost enough in cash to purchase the property - but obviously know that's idiotic). Looking for a high LTV DSCR option given this property should reasonably be priced nearer to or upwards of $425k given the cash flow its generating.

[Zach Edelman]

Unfortunately, STRs as single family homes are still considered residential assets. Thus, they are appraised as such - valued based off the sales comp approach - i.e how much have other similar single family homes sold for? Not how much can this property earn as an Any DSCR lender is going to go to lend off the income approach. One of the main reasons for this is let's say the lender were to lend off a value that is tethered to how much the property can earn as an STR, and they're at 80% LTV let's say. Ok, well now STRs are regulated in that city, and that same income approached value plummets since the home can only be rented as an LTR. The lender is now overexposed (perhaps at over 100% LTV) which is a position no lender wants to be in for obvious reasons. It's a tough part of STRs that some investors struggle to understand, but lending off residential assets based off how much the home can earn as an STR is far too risky.