BRRRR and Airbnb, do they mix?

Question

Does Airbnb fit into the BRRRR model? if not, why not? I'd like to know if it's feasible to calculate certain assumed vacancy rates for an airbnb to estimate monthly cash flow

Benjamin Vail · Answer

@Aaron Bihl yes I have been in discussions with Host Financial, and they are one of the exciting options I see emerging in the lending market. The other is RNC Capitol. The key I am finding here is that they will count the Airbnb revenue  (or projected revenue) as income towards Debt service, but the appraisal does not consider the STR revenue. So you can’t get a higher value based on the revenue you are making, but They did offer me a 75/25 loan at %5.9 (not great) for a purchase loan. Being self-employed (and a maxed out DTI) they were counting the Airbnb revenue (projected) towards the new debt service amount of the loan. If you can get a traditional 80/20 investment loan, that will likely still be a better option. But the Host Financial product seems like a great last resort.

- The Future of Airbnb investing has arrived! Cheers @Eric P.

Benjamin Vail · Answer

It does work. It has worked for me. I have done it three times, and I am in purchasing it to do it a fourth time now.  Yes, as most of you have stated, traditionally banks have issues with refinancing the house that does not have a lease and is only making revenue on Airbnb. However, this is 2019! I now have at least two banks that will work with Airbnb hosts, and will take Airbnb income towards the debt ratio!

Purchased a house for $45,000 cash. Put it on Airbnb, and put minor repairs ($5,000) in. Waited 8 months, re-financed, cashed out $38,000 and moved that capitol on to another project. That Airbnb house now makes about $1800/month (with a $340/month PITI payment, and $250 in utilities and cap ex.) which leaves about $1200 profit each month for my $12,000 I still have invested in that house. 100% ROI is good!

Andrea Cole · Answer

What @Greg Downey said is correct and I know because I'm currently in the refi stage of my BRRR on our Airbnb. Our local credit union has had no issues so far with it being a STR and we're getting a 70% LTV. Luckily our income is high enough to qualify for the refi since we don't have 2 yrs worth of tax returns--we just started hosting in January.  Finding a lender was not an issue for me. The only snag some will experience doing BRRRR on STR is having enough income to qualify for the cash-out refi since the STR income won't count for a while.

Benjamin Vail · Answer

They will do a loan in an LLC. These are 30 year fixed rates.

John Underwood · Answer

I don't see why you couldn't use the BRRRR method for STR as long as you can get financing for each property so that you can cash out. Typically banks want to see several years of income statements tax returns before they will finance/refinance a Vrbo/Airbnb property.

Eric P. · Answer

Excellent! Are these local banks or national lenders?

Greg Downey · Answer

@Bennett Pinkley, not so quick guys!!!! banks haven't and probably wont figure this out for the reasons very accurately stated above.  In fact, most private institutions haven't figured this out yet either but there is a very small subset of private institutional lenders that have what we call in our office "NO-DSCR" loan products. Essentially what they do is assume that the property is vacant and just underwrite the risk that way. They also will generally cap you at 70% LTV  So rates are a bit higher, but honestly very competitive especially if you have a decent FICO.  With the income that Air B&B properties throw off, the investors that we work with are more than happy to refi at 70% LTV and a slightly higher rate.

Greg Downey · Answer

@Andrea Cole, Thats good that you found a local credit union. You hopefully will be able to cross through the PERSONAL DTI issues that all lenders have who are lending depositor's monies. For a large portion of RE-investors, their personal income does not reflect well enough to qualify for bank/CU financing. The lenders that I was referencing don't underwrite personal income either. Actually none of the private institutions factor in personal income. These few lenders simply don't have ANY income requirements. They will look at the appraisal and creditworthiness. Seriously low key underwriting.

Eric P. · Answer

Do they lend to LLCs or are these personal loans? And are these long-term fixed rates?

Jon Crosby · Answer

@Bennett Pinkley  What @John Underwood metioned is the biggest issue I see with it as well.  Even if you crushed it on the buy and had plenty of equity after rehab, the conventional lender is going to require Schedule E/C history to qualify income on the refinance.  So, you might be stuck with hard money or bridge loan financing for well over a year which could get very expensive.

BRRRR and Airbnb, do they mix?

Most Popular Reply