BRRRR a Short Term Rental?

Question

Is it possible to BRRR a STR given there would be no long-term renter?  If so, have any of you had experience with a cash out refi lender that willing to do this? TIA.

Zachary Beach · Answer

@Tracy Franks yes it’s possible I have done it a multiple times. There are a few ways to do it. DSCR loans to 30 year fix is a good option rates and or points will be higher than a conventional loan also if you want to go over 70% LTV it’s normally a bit higher. They may want to see track record of 12 months rent but to get the best price.

The comment above me is very good with the Analysis it may be better to just buy will 10-15 percent down if that is a option. Unless it’s a smoker hot deal that you are adding over 15% of value of property being conservative ,appraisals often come in very low. I have had appraisals come in 20-30% below market value.

Honestly I think it’s a VERY risky strategy if you are using high interest short term Debt to do it. I am moving away from it as I am adjusting my risk levels down because not losing everything is more important than an extra X amount of return. I have done multiple successful brrrrbnb deals including all my cash out and will over 50% return on equity Cashflow. The risk is very high. If you estimate a big wrong the market softens 10% and you get a 10% lower appraisal now you are losing money.

Example of a deal I did brrrbnb I bought for about 200 30K rehab 10kish financing and then I got 80% of 300k ARV (partly from a private money lender second). Amazing deal cashflow Ed like crazy still does. Lets say I did the same deal but it was 50K rather than 30K because something came up financing was 15K because it took a bit longer and your refi had an extra point you didn’t except. They are only going to give you 70% ARV because it’s your first deal and you don’t have track record and your luck you got anything. You do get a second from a private money lender because you have no track record of success. You market drops 10% plus your appraisal is also 10% low remember I have had 30+% low appraisals and most are at least 5-10% low at least in my area. And no I’m not ￼exaggerating I had one that was appraised for 250k that I sold for 330K a week later with 6 offers of 325K or higher. Another that appraised for 420k should have been 550K that I sold a few months later for 585K.

So the outcome 10% drop in market  10% lower appraisal ARV is now 243k. 200 plus 50 + 15 youare in at 255k your loan is about 170K for refinance so you leave 85K in the property plus furnishing and a few months of lost revenue.

You put 15% down on 300K property 45K in no lost revenue and likely a lower interest rate.

It can make you money in my first ex it worked out I got all money out in less than a year. Ex two same amazing starting deal run a bit worse no where near worsts case and you ended up with a lot of work stress and less money.

Mike D'Arrigo · Answer

@Andrew Syrios is right. You need to furnish a STR and you can't finance that. Figure somewhere easily around $15K to furnish a 3Br home. That's going to eat in to how much cash you'll get back out.

Andrew Postell · Answer

@Tracy Franks you've got some good responses above but I wanted to provide some clarification if you don't mind.

Can you BRRRR a Short Term Rental (STR)?  - The short answer is yes. You can absolutely do this.  However, it will not be as effective as a standard 12 month leased property.  The reason for this is that when you find a lender that will actually lend on a STR with no rental history they will limit your LTV on your refinance to about 65% (after 12 months they will go higher to 75% or so).  On a Long Term Rental you can find lenders that will go up to 85% LTV.  That's a BIG difference.  AND you have to put more money into the property to furnish it.  Not to mention when you are performing rehab on the property there is risk to that rehab....things you might uncover, supply issues, going over budget, etc.

So if I am analyzing the numbers could I be more effective buying a "turn key" property with just the normal downpayment requirement?  You might be able to be just as effective that way on a STR rather than a BRRRR.  However, how do you know unless you try?  The important thing is to analyze each property that you come across from several perspectives - flipping, wholesaling, STR, owner financing, long term lease, etc.  That way you always leave the door open to do other things if you find a good deal.

I hope all of this makes sense.  Thanks!

Andrew Syrios · Answer

You can BRRRR a short term rental but there are two issues:

1) Banks don't generally like to lend on short term rentals. So you'll need to find one that will.

2) The second problem is that since you furnish short term rentals, it becomes all the harder to "BRRRR out" since the appraiser isn't going to give you much if anything for the furnishings on the appraisal.

So it's hard to BRRRR a STR even though they cash flow like crazy.

Eric Yu · Answer

Yeah, you can definitely BRRRR a short term rental.

A few options:

1) You can refinance into a DSCR loan based off of long term rental rates (there's also a few lenders who will underwrite with STR rates now, but those are more rare to come by & have higher down payment/rates).

2) You can refi into a conventional loan if you have the DTI to take on the new loan afterward.

Hope that helps!

BRRRR a Short Term Rental?

Most Popular Reply