All Forum Posts by: Chris Mason

These are best execution: Great credit, DSCR>1.25, not a first time landlord, some will include a requirement that you establish a banking relationship with the lender. Ballpark 1-2 pts in most cases. Lots of 25 year amortization options, but 30 is often doable in our network.

There isn't a hard/fast rule on this, it need to "make sense." 

Real life example of where I've seen it make sense. Firefighter flies in from out of state for his 3 days back-to-back on duty, sleeping in the firehouse. All documented from his employer as A-OK. This is a slam dunk, absolutely made sense. 

Where it wouldn't make sense. Mon, Wed, Fri in the office, flying in from the other side of the country. That's not plausible. Any normal human will fly in Monday and stay for the week, making a place near the office your primary residence based on 4 nights per 7 day week. This is not a slam dunk, this is a non-starter. 

Let's say it was Monday through Wed in the office and your mother lives nearby which is where you would be staying on Monday and Tues nights. That was doable with some lenders, and it did indeed close escrow.

I wouldn't run this as a "DSCR loan." That's where a residential mortgage bank, who will hire a residential appraiser, dips their toes into pseudo-commercial financing, but will not look at a T-12. To them, "DSCR based on short term rents" will just be a rate hit. Between all of this, I suspect you will be looking at something just a tad shy of hard money.

Call a commercial mortgage broker. "STR" at this point is it's own "special category," the terms will be substantially better now that you're using the right tool for the job. You probably want someone local, but I'd be happy to take a look if you don't mind the time zone difference.

 Good question.

When you get a primary residence mortgage, the promise you make at the closing table is to personally owner occupy for one year. There are tax advantages for 2 years, but the mortgage obligation is one year. 

After that, you've fulfilled your promise. You can buy another primary residence, and get the primary residence interest rate and low down payment options, as you see fit.

There will be a BS test, since occupancy fraud is the most common type of mortgage fraud. "It's going to be my primary residence! <proceeds to immediately rent it out, never having even moved in>" = occupancy fraud in the mortgage context. 

Going from a 3/1 and 1.5 hour commute to a 4/2 with a 45m commute? Absolutely makes sense, no one will even question it.

Inverse? You're trading out a 4/2 and 45 minutes for a 3/1 and 1.5 hours? Fails the BS test, smells like occupancy fraud. There needs to be a really good reason, or this loan may very well be denied, even if DTI and everything else lines up.

Going from a 4/2 1.5 hour commute, to a 3/1 45 minute commute? Expect to be asked to write a letter attesting to the fact that you value a short commute over the extra bedroom, maybe WFH is over and you have to start going to the office again, the 4th bedroom was your home office, but you no longer need it... that certainly makes sense and would also go through with any lender that ever wanted to get my brokered business again. 

Does the BS test, make sense? 

Lots of other great commentary in here, one thing I've found is that loopnet is a lot more useful if you set up a custom search for "newly listed within the last week." The percentage of potentially good deals shoots way TF up because you're automatically filtering out all the stale ones that everyone else has already looked at and passed on. If you are done analyzing all of those and still have energy to analyze, by all means open it up. But if you have finite energy/time, then you need to focus on where you're more likely to find good prospects and play the probability game. 

It's interesting how on the residential side, my advice is essentially opposite, advising folks to look ONLY at the old/stale ones. 

No. A shed in the back yard of a house, with chipped/peeling paint, would be a no-go for a VA loan, and here you've got an entire HOUSE that's beat up?

Sorry mi amigo, you're wasting your time. 

The irony that the minimum property standards for the VA loan are vastly higher than the minimum barracks standards for those actually still in the military is not lost on me, but it is what it is.

Active duty = black mold infestation, mice, you name it, totally ok!

Veteran trying to buy a house with their earned VA benefit: "Oh, what's this, there's a small shed in the yard, not even on a foundation, that could be torn down in an afternoon, that's got chipped paint?! **VA appraiser clutching her pearls** Heaven's no!"

I work with a bunch of different lenders, so I try to give advice that has the broadest possible application, since we don't always know who the lender will be on the N+1 deal two years from now.

So my suggestion to you, to have your cake and eat it too, for that SFR that you want to rent by the room to maximize rent: have one lease, one tenant.... and that one tenant is allowed to sublet. You get to charge the one tenant above-market rent (in exchange for them being allowed to sublet), the lender gets the one single lease that they know how to understand, everyone wins.

It's a great strategy. The one aspect that I haven't seen mentioned so far is that you can keep doing 5% down over and over again, too. Re: the DTI issues, now that 5% down will go for 2-4 unit, that's a game changer there too.

And btw this is a DTI issue, not a DSCR issue. They are obviously similar metrics, but calling it "DSCR" implies that the pay raise at work will not help you out, and it will. Often the folks doing this strategy are ambitious, and not just in terms of real estate, but otherwise too. Solid income, and pay increases, often offset "stupid mortgage rules," like the 75% thing that everyone knows is too conservative, or letting departing residence rental income offset that mortgage payment but only that mortgage payment (you can't "use" the "change" anywhere else).

Yes, that's a problem, since the 95% 2-4 unit is for a primary residence only. You don't have to be a FTHB, but it does need to be your primary residence.

You can look at small/regional banks, specifically the availability of HELOCs on SFR rentals, for a litmus test on two things.

1) Anticipated cost of funds for the next 6-12 months. Rates are trending down, so that makes sense. 

2) General outlook on real estate and the economy. Apparently it's looking up, from their perspective. 

When some combination of those isn't looking so good, you start to see the regionals get really restrictive, and first on the chopping block is investment property HELOCs.