1031 Exchange Funding Vacation Rental

[Tim Bodnar]

I am under contract to sell one of my rentals which I need to 1031 exchange into a property for over 700K. The problem I am having is that most my properties are vacation rentals and despite the fact that they all generate at least double of what a normal rental does for me traditional lenders will not give me a loan.  The standard Fannie and Freddie guidelines won't count many of my rentals because most have less than 2 years of income and some have less than 1 and none have leases because they are less than 30 days. This brings my debt to income ratio to about 45%. So despite showing good income in the past and having bookings for months I can't get a loan by traditional methods and most hard money loans want to charge me over 10% and lock it in. Does anyone know of a possible solution? 

[Dave Foster]

@Tim Bodnar, the DTI will might be too much for you but 2nd home or vacation home financing are not automatically precluded by a 1031. there's generally some noise from the lender that funds from a 1031 cannot be used but we've argued successfully for clients. In general, the requirements for 2nd home financing are that it be x number of miles from your primary and you agree to spend x number of weeks living there. As long as those two criteria can be met and you can generate rental income in such a way as to make a substantial match with the safe harbor in 2008-16 there is no reason why you can't enjoy the favorable financing of 2nd home along with a 1031 - that is if the dti can be achieved.