Want to buy a property for short term rental but dont have the income for 2 mortgages

[Joel Ladzinski]

I want to buy a property for a short term rental.  I have roughly $100k in cash but essentially do not have the income to get another loan.  As an example, there is a property I wanted to buy for $280k.  I'd have enough to place a 20% down payment and cover many months of the mortgage but my income is essentially maxed for any loans. The property would cost ~$1800/month, the current owners say it generates $4000/month in revenue.  Even if that is untrue, there would still be plenty of room for us to make money on this place.  

Is it possible for me to get a mortgage in this type of situation?  Any other options?  

[Lauren Robins]

If you have $100K in cash, you can certainly use it for the down payment and to cover some months of mortgage payments. However, if you don’t have the income to support a mortgage based on traditional loan qualifications, it might be more difficult to secure a standard mortgage in your name alone.

One option to explore is Non-QM (Non-Qualified Mortgage) lenders. Non-QM loans are a type of mortgage that doesn't follow the typical guidelines set by Fannie Mae or Freddie Mac. These loans often focus on factors like the property's rental income instead of your personal income. Specifically, DSCR (Debt Service Coverage Ratio) loans are one form of Non-QM loan that looks at the rental income generated by the property to determine whether you can afford the mortgage. If the property generates enough rental income to cover the mortgage (and then some), it could make it easier to qualify.

If you're open to bringing in a co-borrower or partner, that could also improve your chances of securing financing. A partner with the income or creditworthiness to qualify for a loan could help you move forward with the purchase. Since you’re planning to operate the property as a short-term rental, this might also make sense from a business perspective.

Another option to consider is owner financing, where the seller acts as the lender. If the seller is motivated to sell, they may offer terms that are more flexible than those of a traditional lender. With owner financing, you wouldn’t need to meet the same income qualifications, and the loan terms could be tailored to fit your needs. This could be a great way to secure a property if you’re unable to qualify for a mortgage through a bank.

For a more short-term solution, hard money loans could be an option. These are typically higher-interest, short-term loans backed by the property itself rather than your personal income. Although they come with higher costs, they can be a good option if you want to quickly acquire a property and are confident in the future rental income. Once the property generates consistent revenue, you could refinance into a traditional mortgage later.

Similarly, a bridge loan might be a viable choice. This is a short-term loan that can cover the purchase while you figure out longer-term financing. If the rental income from the property is strong, you might be able to refinance into a conventional loan after you’ve established the property’s income history.

Lastly, there are short-term rental-specific loans (STR loans), which some lenders are now offering. These loans are designed for properties that will be used as short-term rentals and take into account the rental income potential, rather than focusing solely on your personal income. These loans are relatively new but could be a great fit for your situation.

Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.