2nd STR Purchase Lender?

Question

Hi all,

I live in FL (primary home), and we have a STR property (that our family uses a lot as well) in Banner Elk, NC. We bought this property last September.

I'm looking at purchasing an additional STR property, also in the same general area (returns have been so great, we would like to stick to the area). This will also be a combo investment / personal use home.

I have around ~10 - 15% of the estimated purchase price of the 2nd STR property available in liquid funds (towards a down payment) and a HELOC on Primary home which could cover the balance of down payment up to 20 or even 30 or 40% if necessary. It should cash flow positive with a cap rate around ~9% (conservative estimates, could be as high as 13 / 14%, not including principal paydown).

Anyway. I'm trying to figure out financing for this 2nd property. I've called a few lenders and have hit a few walls. Some are tight on DTI because they won't count income from our 1st STR until we have had it for 2 years (even though I have 5 years of rental income history from previous owner). Other lenders are saying that investment property products are only 15 year loans (which affect cash flow, so not preferable). I think this may be because I've been going through and looking at conventional loans and I need someone who specializes in commercial loans. Any tips? I've only ever gotten standard / conventional mortgages previously.

Andrew Postell · Answer

@Nick Reuter yes, you can 100% include rental income with Fannie/Freddie types of loans.  On a purchase, you can use rental income even if the property is vacant.  On a refinance with Fannie/Freddie you would need a 12 month lease but on a purchase you don't have that requirement.

And the "due on sale clause"....I thought I had written an entire post on this but I guess not....maybe I'll do this a bit later...so I'll try to sum up a few things here:

The due on sale clause is not a mandatory thing.  A lender has the choice TO call the note due or to NOT call the note due.  To call a note due costs the lender money, it affects their own credit rating, and it can be a HUGE public relations issue as well.  Could you imagine the outcry if a lender was calling notes due on people who were paying on time?  Yikes!  So just pay that loan on time and you will be fine.

However, let's say your lender DID lose their mind and still called the note due.  The language in your note states that they must provide, AT MINIMUM, 30 days for you to change it back.  So you still have an out.

But trust me, no lender is calling the note due if you are paying on time.  They make TONS of money on these things.  They ain't jeopardizing profits for something like this.

Hope all of that makes sense.  Thanks!

Andrew Postell · Answer

@Nick Reuter you are running into 2 separate issues here.  But to answer your question directly - a conventional (Fannie/Freddie) loan will allow 15% down, and count the rental income from your new purchase towards your "debt-to-income" ratio.  This is because on the new purchase, you will get the benefit of the doubt on the 12 month rental income, even if the property is vacant.  Now you still have to qualify otherwise for the loan, but assuming you would, then that's the easiest route to take.

Now, to provide some context, generally speaking there are 2 main types of loans for investors:  “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names).  These loans are all 30 year fixed rate loans.  They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending.  Fannie/Freddie money = Fannie/Freddie rules.  NOT the bank's own money.  This loan type will NOT count the STR income towards helping you qualify.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money.  Sometimes referred to as "commercial" loans.  These loans are a lot more flexible than "conventional" loans.  Bank's money = Bank's rules.  If they like you, then maybe they will lend to you.  But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term.  The most common portfolio style loan in Texas is a 20 year adjustable rate loan.  These loans are easier to get but the terms are different. There are 30 year, fixed rate lenders in this world that will count the income from STR to help you qualify.  You just have to find them.

This might be a lot of info so feel free to ask anything else if you need.  Thanks!

Luke Carl · Answer

Do a 15% down investment loan with projected rent income on the new property. No big deal.

But be advised banks want STR on tax returns because there is no lease. Which just means you’ll need to wait till January for #3

James Fraundorf · Answer

@Dustin Lauer, do you do DSCR loans for short term airbnb rentals?  I need someone!  Thanks much!

Todd Mason · Answer

@Luke Carl wow ok sweet thanks for the help! I’ll get to work!

Luke Carl · Answer

It’s your job to know other people’s jobs better than they do. Fannie and Freddie are 15% min on investments and have been for quite some time.  Regular old conventional loans.

If you’re talking to lenders that say “20-25” your next question should be “how many investment loans have you done in the past month” and I’m sure you can guess their answer.

Truth is most lenders just turn and burn primaries all day and don’t want to work with people who aren’t living in it because it’s outside of their box.

Todd Mason · Answer

@Luke Carl which lender can you recommend that does the 15% down investment property loan? I’ve only been told of the 20-25% down option

Andy Whitcomb · Answer

If DTI is the issue you’ll need a lender who will qualify the property based on the projected Str income alone (plus your personal credit score).

In my research talking to STVR experts that I know, Visio Lending is the best (although I’ve recently heard Host Financial is decent too). While I haven’t personally used them yet, I am planning to test out Visio on a refi soon.

Keep in mind, you’ll pay higher closing costs and higher interest with these type of loans, but you can’t have everything!

Also,if you use Visio make sure you go to them directly, rather than through a broker. Otherwise you’re just getting the same loan at a higher price.

Other than that you’ll need to just call around to local banks (you’re looking for a portfolio lenders) to see if anyone has an appetite to lend on STVR properties.

Dustin Lauer · Answer

@Nick Reuter

There are options for full 30 year terms without personal DTI considered.   Look into lenders with DSCR loans and make sure they can actually finance short term rentals.

2nd STR Purchase Lender?

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