All Forum Posts by: Brenden M.

Thanks for the reply, Alex. I have been considering DSCR loans as well. However, I assume I'll be able to get a lower interest rate with a conventional loan assuming I can get past the DTI hurdle? I received some quotes in the last 10-14 days from DSCR lenders in the 6.925%-7.25% with 80% LTV. But the DSCR lenders I've been speaking with have 5-year pre-payment penalties, which I am not entirely thrilled about. I just want the flexibility of prepayment - not that I intend at this point to prepay the loan. I'd be happier with a 3-year PPP, but maybe I need to find some different lenders to speak with.

Thank you, Lucas. I do have estimates from my appraisal report when I purchased the property 9 months ago, so it sounds like I have what I need. I have been weighing the pros and cons of the DSCR approach as well.

Hi BP members. As the title states, I've been operating two STRs for about 8 months now. I am interested in buying another property, but I want to make sure I am understanding any limitations I may run into as a result of my current DTI situation. My understanding is that I will not be able to use the STR income for those units until they've been on my tax returns for 2 years? If that's the case, would I be able to substitute their market long-term rents as part of my income when the lender checks my DTI?

My appraisal report lists the appraiser's opinion of each unit's market rent -- would a lender use those without issue? Or, since I believe the rents were significantly undervalued 9 months ago, and may be even more so in today's market, would they consider an in-house/updated estimate of market rents. Thank you. 

This is definitely legal. I did the same thing about 6 months ago - purchased a triplex with an FHA loan with 3.5% down, and I live in one unit while using the other two as short-term rentals. The two major roadblocks I'd think about (which it sounds like you already are) are 1) financing and 2) validating short-term and long-term rates for the area.

1) Financing - FHA loans on multi-family properties can sometimes cause some headaches that you need to be aware of. For example, FHA requires that each of the units must have separate electric meters. Additionally, although you don't technically need separate water meters, the water lines must at minimum have separate shut-offs for each unit (i.e. it cannot be one water line with only one shut-off). These are two specific issues that I ran into, but generally speaking, FHA loans are maybe a bit more strict/nuanced than some other loan products, so you'll want to do your homework on the property ahead of time to ensure it will meet FHA requirements - or at least have the ability to be remedied to meet the FHA's requirements prior to closing.

2) STR vs. LTR Rates - as mentioned above, as part of evaluating the validity of an investment like this, you'll want to "underwrite" the deal. This includes mapping out everything from income, expenses, vacancies, etc. to understand every single dollar that "comes in" and "goes out" of the investment. Keep in mind the additional costs typically associated with short-term rentals - cleaning fees, supplies, furnishings, utilities, any short-term license fees in your local market, etc. You want to do this to ensure that the time and money investments of operating a short-term rental outweigh that of a long-term rental. If you figure out through your underwriting that operating an STR only nets you $100 more per month compared to an LTR, but you're spending 20 extra hours a month to do so, does it make more sense to simply do an LTR? Make sure the juice is worth the squeeze...

Another factor to consider when weighing LTR vs. STR: most lenders will not qualify STR income until you have two years of tax returns showing that STR income, whereas an LTR can qualify either 1) rent in place if occupied or 2) the market rent. So if you're trying to scale your investment portfolio rapidly within the next two years, do not plan on being able to use your STR income to do so for your debt-to-income qualification purposes.

Understood - thank you, Caroline. To provide more context, yes the buildings are all inhabitable and used as STRs right now. The second problem here that I've encountered with lenders that are willing to underwrite multiple parcels as separate to loans - two of the buildings are studio/small 1br cabins with footprints of ~500sqft. Lenders have mentioned that they have minimums for each loan's underlying asset - either a sqft minimum (750sqft) or an appraisal value ($150k), or both - neither of which those parcels meet on an individual basis. 

One of the three additional parcels is a private pond, which I would have to believe has some value. But the other two units are in fact raw land. 

I suppose I could approach the seller regarding the possibility of seller financing, as I can't imagine I would be the only potential buyer that is going to run into this issue. 

Hi everyone. Currently looking at a property for a STR investment in North Carolina. The subject property is 4 standalone buildings spread across 6 different parcels of land (3 parcels contain the 4 buildings, and the other 3 parcels contain surrounding land). I have spoken with multiple lenders offering DSCR/cash flow loans, only to be told that they cannot help me as soon as I mention it is technically the sale of 6 different parcels - their reason primarily being either that they can't bundle the underwriting of multiple parcels into one loan.

Any ideas for what could be my best approach to finance this? Would finding a hard-money lender to get into the deal and then refinancing out to a DSCR product (maybe some type of portfolio loan) be a viable solution? Or am I likely to run into that same issue when trying to refinance into a new loan? I am targeting something that will get me to 80% LTV min, but I will not be able to qualify using DTI, so looking for something I can qualify for with the asset alone.

Thanks for any ideas. 

Very helpful, thank you. Yes, the hope is that IF there are any other issues, the loan will be approved conditionally upon their repair without needing an additional site visit/re-appraisal. But I will certainly have some conversations with the appraisal company regarding the situation. At the very least, I need to do it to educate myself on what this process should/should not look like so I know when a red flag pops up in the future. 

Yes, the lender was the source of this appraiser. And that is a good point, and I will certainly be speaking with someone from the appraisal company - was just hoping to get this appraisal across the finish line before ruffling any feathers.  

I am currently working on purchasing a triplex with an FHA loan. Last week, the appraiser was scheduled to perform the appraisal, but, according to the listing agent, the appraiser immediately walked off-site after discovering that the property was on one water line without proper shut-off valve/separation between the units. This is my first time purchasing, and I was ignorant of what is needed for an FHA loan. I had separate water lines and meters installed this week to comply, and I was able to get back on the appraiser's schedule for this week - which is a two week delay from the original appraisal date. So, I have become nervous that the appraiser will find something else wrong with the property this week that could deem it ineligible.

I hate the thought of being at the mercy of an appraiser's schedule if they're planning to raise one issue at a time. I began doing some research on what this process should look like, and below is the language from HUD regarding the property appraisal and eligibility verification process:

Am I understanding correctly that the appraiser should have not walked away and should have detailed any other items that could potentially come up during this week's appraisal? Closing has been delayed two weeks from the first issue (after already being delayed three weeks for other issues), so I am just trying to ensure there are no more delays. 

 Thanks for the reply. I actually just heard back from another lender who is quoting 2.875%, which will save me almost $200 per month compared to the 3.625% quote.