All Forum Posts by: Adam Windham

Pre-Fab homes should not be any more difficult to finance than regular stick-built provided it meets the same requirements. This is not to be confused with "manufactured/mobile homes", those are a different animal. The thing you will need to look out for with pre-fab is the draw/payment schedule from your pre-fab company. Typically they require an initial deposit and then subsequent payments along the way, and most construction loans only disburse when the items are on-site/installed. So you could end up with a cash flow issue, where you need to advance funds to keep the pre-fab process going before you can submit a draw request to get reimbursed from the construction loan.

Proper Insurance and Steadily have always been solid options for short term rental insurance. But agree that the condition of the roof could be an issue for your lender and your potential insurance carrier.

@Joseph Taylor it is possible for Foreign Nationals to get financing in the US for Short Term Rentals - including DSCR loans which are underwritten using the projected short term rental income of the property (AirDNA, Rabbu, Etc). But you are correct, the loan terms will be much better if you have a US Citizen as a partner.

I think what is becoming more and more important is having a solid investment thesis and understanding of your target market and the value proposition you are offering to your customers through your properties. It's less about investing in certain states and more about finding properties that fit within that investment thesis framework.

@Evan Holly Not much to add here other than the DSCR loan is the way to go - make sure to vet your lender and ask them specifically how they are going to underwrite the debt coverage ratio and get you approved - are they going to use projections from AirDNA, Rabbu, or Others (if so, what if any % discount are they going to apply to the gross income), or are they going to rely on the rental rates on the appraisal 1007 form. If they are using the 1007 - are they going to request that is be completed on a STR or LTR basis? Will they apply any % discount to this income figure? Ideally you would get this underwritten using projections, assuming it debt covers, so you know up front that the DSCR wont be an issue and you won't get re-traded on the loan terms mid-process.

Not sure if its specifically mentioned, but DSCR loans that are underwritten using the actual/historical short term rental income or projected short term rental income (airDNA, Rabbu, etc) of the property are a great option for investors that either don't personally qualify for a conditional loan (DTI-based), or have reached the maximum allowable number of conventional loans.

If the DSCR is going to be a constraint I'd look into a bridge loan to acquire the portfolio and then work to push up rents so you're getting above a 1.00x DSCR and thus better terms when it comes time to refinance into a perm loan. Many bridge loan options will also allow for a seller second as well so you could potentially get a higher initial CLTV.

Origination is typically 1%-2%, max leverage for a purchase is between 75% - 80%, 70% - 75% for a refinance, really comes down to how the loan is qualified and underwritten - AirDNA projections, historical income via trailing 12 month income statement, appraisal 1007, etc - on what the final leverage determination would be. Other factors such as property type, FICO Score, loan size, etc will affect leverage as well. Concur that rates are in the mid-7s to mid-8s.

Hi Ryan, 

For a purchase or refinance of a short term rental, any STR lender is going to look at EITHER the gross income received in the last 12 months (trailing 12 month income statement) OR the AirDNA income projections.

In this scenario, it certainly seems like it would make sense to take the $40k/yr and double it since it was only used 50% of the time, but that is just not how any underwriter will look at it. STR's can be highly seasonal, and depending on when this property was primarily rented, it can drastically effect the projected out yearly income.

So my recommendation would be to check the DSCR based on the trailing 12 and the AirDNA separately. There is certainly a case to be made to underwriting to use AirDNA if it is higher than the tailing 12, given the limited availability of this STR based on owner use.