Refinancing a BRRRR on a STR?

Question

Working through numbers on a BRRRR with a property that we want to use as a STR. Anyone with experience in doing so? My thought is that when trying to refinance, the lender is going to want to see a monthly LTR number...however, this obviously is not possible in this case. Would we have to deal with hard money for a full year of STR in order to use that income to prove to the lender that it works? I do not want to do LTR on this property for the first year just to refinance. Thoughts on this? looking at 355K all in, and then ARV of 500k; less than 1 full block to the ocean. Keep in mind, LTR numbers are slightly less than 1/3 of annual revenue of projected STR annual revenue. Thanks in advance for thoughts/assistance!

David Bergmann · Answer

@Bret Gillespie I apologize, I wasn't as clear as I could have been.  I was not recommending that you change your long term investment strategy.  My recommendation was to provide a medium term furnished lease ONLY for the FIRST 10-13 weeks in order to have a lease that you can use with lenders as a basis for income.  Then after you have refinanced, you can switch immediately to STR.  I was being a little vague, just because you may not want to express this intent to the lenders, it might just become a better strategy after you've refinanced..ya know?

David Bergmann · Answer

I did a BRRR on a furnished rental and I didn't have any issues with the lender. My advice would be to experiment with furnished medium term stays (transitional housing, travel nurses, professors, military) who are looking for 2-3 month stays, prior to shorter term stays.  This will give you the advantage of having a traditional lease that lenders are using to seeing and you'll also get some good feedback from your tenants that you can incorporate prior to having your first STR stay.

John Underwood · Answer

So you have no confirmed rent same as a LTR. You would be in same situation where this is going to be a STR or a LTR. So I would imagine you will have to show you have existing income to cover the mortgage. I think if you can get a LTR lease before you refinance you can use part of this income to qualify for the loan. If you don't have enough income to qualify then you typically need 2 years of STR income to show to the bank.

So if you have enough income already it shouldn't be an issue.

Benjamin Vail · Answer

Hey Ya’ll we just closed a cash out on a BRRRR deal that is a short term rental in both units of a duplex. There is FINALLY a lender (Mortgage broker) that will work with STR income as income towards the Debt servicing side of the debt to income ratio. It was a 75/25 LTV, and a 6.25% rate. Send me a message if you are interested in their contact info!

Ruth Blue · Answer

My mom just did a BRRRR cash out refinance on a STR. She held the property for 6 months and they used bank statements. She said the lender was easy and no issues. I believe the rate was 6.25.  Agree with what @Bret Gillespie said "It's a matter of finding the best lender or loan option that allows us to do what we want to do. I'm not going to sacrifice revenue and change my investment strategy due to financing or getting a slightly better interest rate. The deal still works with portfolio lending options, I am just looking for the best lending strategy at this point; Not to change my entire game plan.

Bret Gillespie · Answer

Appreciate the feedback. This market is built for STR, it is a beach town. Also, we have been doing STR already and have systems in place. I am not worried about feedback from tenants at this point as we are currently having success with this type of investment. We were smart from the start with how we market to potential short term renters, as well as some good advice from some friends that are also successful in this market. It's a matter of finding the best lender or loan option that allows us to do what we want to do. I'm not going to sacrifice revenue and change my investment strategy due to financing or getting a slightly better interest rate. The deal still works with portfolio lending options, I am just looking for the best lending strategy at this point; Not to change my entire game plan.

Alex Bekeza · Answer

@Julie McCoy What lender and how short of seasoning?  I think the big problem is that nobody wants to do these loans without the subject property having it's own STR operating history established making BRRRR execution difficult at least on a fast pace, even commercial/non qm lenders.

Lots of lenders will use a DSCR based approach to use either market or actual STR rents but that's contingent on the above requirement. Otherwise, most banks see it as @John Underwood pointed out, a property with no confirmed rent. It's vacant.

Julie McCoy · Answer

Hey @Bret Gillespie!  What @John Underwood said.  Or, there are portfolio lenders who will lend on STR income, but you're not going to get same rates as a conventional loan - however, it's much better than hard money. I've worked with one who's been both easy and reasonable.

Rachel Hughes · Answer

This topic comes up semi-regularly on this forum.

The best commentary I have found is on this discussion thread (2 years old): https://www.biggerpockets.com/forums/530/topics/495067-brrrr-but-airbnb-instead-of-rentI am also very interested in this topic and would love to hear if any others have had success refinancing based on projected STR income.

Refinancing a BRRRR on a STR?

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