DSCR Refi with a less than ideal LTR rate, but perfect STR rate?

Question

I will be soon finishing up two builds on STRentals, under my LLC, in the Smokey mountains I used a hard money loan for. The appraised value after the build will be about double what I will owe the hard money lender. I want to cash-out refi with a DSCR loan. Conventional will not work.
I need to cash-out 75% LTV to have $ for future projects and furniture. My two issues are,

will a DSCR Cash-Out Refi lender take the projected LTR rate or can we do comps for the STR rate?  The LTR rate is much too low, but I am in Gatlinburg, so it's a common thing to build assuming STR.

also, will the lender need any seasoning period? I need to get the money as quickly as possible to furnish the rentals and don't want to loose any time as I already have land picked out for the next projects.

Answers/suggestions or recommendations to DSCR lenders/brokers than can help me are greatly appreciated.

Kevin Martini · Answer

The non-QM market is constantly changing, and DSCR loans are a part of this non-QM category. A few months back, some (but not all) of my investors eliminated the cash-out seasoning requirements for DSCR. Those without seasoning for cash-out are utilizing LTR, and at 65%, no ratio is mandated. I understand this doesn't reach the 75% mark, but it's worth noting that this product is newly available and gaining traction. I anticipate that the no-seasoning DSCR will soon accommodate STR. However, I'm concerned that this change might not be timely enough for your immediate needs.

Quinton Booth · Answer

Hey Luther,

Some options allow up to 80-85% of Market short-term rental income to be justified to back DSCR. Like others have said, you may run into some issues getting max 75% cash-out if the property is considered rural.

Seasoning should not be a concern as you have owned the property for more than 6 months, but this is worth considering since many products do have a strict 6-month requirement.

Melissa Nash · Answer

You need to use a lender like Visio that will use STR numbers. I did 3 cashout refi's with them on STR's and they literally use AirDNA, so use that for your numbers.

They will give you all the info you need.... based on the rental rates and ARV they will give you options for rates, points and % down.

For example they might require 30% to make the math work, the lowest they have gone for me is 25%.

I highly recommend them.

Erik Estrada · Answer

Hey Luther,

The seasoning period starts when you purchased the land, NOT when you complete the construction. That being said you should easily qualify for a cash out refi at 75% LTV.

AJ Exner · Answer

Luther,

The hang-up is usually in underwriting the income. There are a few that utilize things such as AirDNA to assist with that, but generally seeing that proof is a good way to overcome that as the lenders that do that will usually do an 80-90% cut on what AirDNA says.

I have some clients that will do a 12 month stabilized bridge at 70-75% of the new value to get out of the 'Construction' or rehab bridge and still get some cash out while they are making money on the STR income.

Luther Epperhart · Answer

Charlie,    Yup lots of STR experience.  If you read through all the posts in this thread, you will see I was in error on the seasoning period.  I have owned the land for over 6 months, so I don't think that will be an issue. Not to be rude, but since this thread, I have about 5 or 6 DSCR lenders that have reached out and want to compete on numbers when I get closer to pulling the trigger.  I am happy to add you to the mix, but you will need to get in touch with me.  You can send me a PM for my number.  A phone call would work much better in about a month from now.

Charlie Gonzalez · Answer

Hi Luther, this is very good knowing you have STR experience. Helps out a lot in the eyes of lenders. I work for a nationwide Non-QM lender and we have a niche in STR's. We can go DSCR and qualify off the appraisal with the STR rent schedule (make sure to request from the appraiser). We require at least 3 months seasoning to cash out. Most lenders require 6 months though. That is the standard. Please feel free to connect with me and I can give you more information.

Melissa Nash · Answer

I was working with Robert over there- but he just left.  Jay Anderson is the contact I have over there now. Best of luck!!

Luther Epperhart · Answer

Thanks Melissa.  I have worked with Visio in the past on a refi and a purchase, but new on a refi for a new build.  Tbh it was kind of a nightmare, but it was during the pandemic and all businesses connected to the loan were twice as slow as usual.  Maybe those issues have been resolved since then.  They did up to 75% for me on the refi, but I had existing STR history on that property.  Since posting this question, I have about 5 lenders that want to compete for the two refis, so I will probably throw Visio into the mix.  Did you work with a broker on your Visio loan?

Luther Epperhart · Answer

Quinton,     Thanks for the info.  Yes, as another commenter posted, I was in error on the seasoning period. I think I will be fine on that.  This is in Gatlinburg, TN.  In the county (not the city) so this may be considered rural, but I think most lenders will understand this is the largest STR market in the US, so it will have no problem cash-flowing even with conservative numbers.

DSCR Refi with a less than ideal LTR rate, but perfect STR rate?

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