Financing houses to short term rental operators?

Question

Has anyone had any positive results from financing properties to people that own short term rentals? If I financed a property I would want more than the market rent rate or why would I lose my asset and future appreciation? My thoughts were if STR Operators are really tearing it up like they say they are maybe that would be a good fit for them and for me. If I’m dreaming please tell me so. Any thoughts or feedback would be appreciated! :-)

Robert Gilstrap · Answer

@Joe S.  Many STR operators are in fact "tearing it up like they say" but that doesn't make them stupid. If you are selling money (and as a lender that is your product) then you need to be like any other competitor in the marketplace and be able to compete for that business. Have better terms, lower interest rate, easier to business with, faster funding, lower fees, etc.

You have to differentiate just like we all do. There are a million places to borrow money from right now and all at low interest rates. If you want to make money lending then figure out your niche. what can you do better, cheaper, faster than the other guy.

Once you figure it out give me a call and I'll borrow from you (maybe).

John Underwood · Answer

I do ageee that most people doing this can get a regular loan.

However I do their could be people who would jump at this that might not have perfect credit and are younger and more inexperienced.

That would be why you could charge a higher interest rate because this would be a higher risk to you.

If you vet the person and vet the property than I could see a market for this. Like any higher risk investment you have to be prepared to take the property back through foreclosure.

One group of people that might be interested would be anyone left doing arbitrage.

Paul Sandhu · Answer

They will get lower cost financing.  Perhaps you can do something like Shark Tank.  Guy says "I will lend you XXX amount of money but I want YYY cut of rent until the loan is paid for"

Robert Gilstrap · Answer

I just refinanced 6 properties in th elast 2 months and I can tell you I had a 100 places I could have gone to for funding. If you mean new purchases , OK I get that and you see 20-25% but remember that of LTV. I can get a loan all day long with zero out of pocket depending on the deal I find.

Not trying to dissuade you, just saying its much easier than you think unless you are only going after complete newbies who will agree to anything and pay anything.

Joe S. · Answer

If it is as easy to get a loan as you and the other posters have pointed out then I really do not see a market for what I was thinking of. I did not realize people could put down as little as 10% on investment loans and get that kind of interest rate.

Thanks for commenting on my post.

Account Closed · Answer

This is not something I would do (pay more for owner financing).  You still have the right to foreclose if they don't make mortgage payments.  They are taking the all the risk with property improvements as well as the risk of depreciation.  So the real question is why would anyone agree to pay more if they are able to get traditional financing?

Luke Carl · Answer

@Joe S.

I just signed 10% down at 2.75% yesterday there is no say you can beat that.

What kind of properties are you looking to sell exactly? I find it hard to believe that anyone has properties laying around that they’d rather owner finance to an STR operator than do whatever the property was already doing.

Am I not understanding something or does this thread make no sense?

Joe S. · Answer

Fair enough. Congratulations for being in such an amazing stage of your career that you can finance whatever you want. That is an amazing accomplishment. :-)

Joe S. · Answer

Have you personally received funding lately from a traditional lender of any kind? Have you looked to see what kind of down payments they are requiring? I understand that what I suggested it’s not for everybody, but I do believe that it is harder for people to get loans being self-employed than people think. The down payments alone has kept some people from being able to Qualify. Thanks again for the insight.

Financing houses to short term rental operators?

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