Owner/Seller Financing for STR

[Nandy B.]

Has anyone used owner financing to build STR portfolio?

I m wondering if the return s for the STR revenue make up for the higher cost of an owner financed property.

If the numbers works, is it a smart idea?

The monthly payments for owner financing deals are higher but so are the margins for STR.

[Mike F.]

Hi @Nandy B.

I'm actually doing it right now to close on my fourth property. Purchase price is 20% below market value. I'm putting 20% down. Rate is 5% / 30 year with a five year balloon (our first milestone to renegotiate). I'm funding this through equity in another BRRR / STR.

It's new construction, 3/1 SFH with 1/1 ADU.

Deal is win-win for both the seller and me when you consider tax implications.  He's a retired builder turned surfer / beach bum.  He retired out after 2008 crash, and this was his last piece of the portfolio.  He bought the land for $1200 back in the 1970's and he just wanted to finish the project.

I will list it as three separate listings, and the numbers are very healthy for my market (university town).

When I run my personal proforma, I don't look at the AirBnb numbers. Rather, I run it as regular rental income or student rental income. This is the best advice I can give for stress-testing AirBnb's outside of normal stress test for LTV, DSCR and cash reserves.

Count AirBnb as a bonus- not your only way to make the deal work.

-Mike