All Forum Posts by: Kiah McBride

Quote from @Alex Breshears:

Hi Kiah!

You are correct in that there will be some explaining to do for an underwriter to understand the risk profile of you as a borrower and of the properties themselves. Many lenders are going to want to see sustainable income coming in from another property, especially if your DTI is going to be too high to qualify for another mortgage without that income. STR income is not considered "steady" income, and there are some rather large costs with furnishing an STR that will be profitable. In many places STR's in general are being banned or severely limited, plus since it is a variable income stream it is hard for underwriters to assess what the actual income may be. Some lenders will use about 70% of the income shown on a platform like AirDNA. There just isn't a lot of appetite in the lending market for these properties right now as the business model as a whole is under attack, leisure travel is being squeezed thanks to inflation concerns on household budgets, and affordable housing concerns by local governments. Being well capitalized with an STR property is required because of the substantial start up costs to be competitive. It's not going to go well with grandma's old floral couch and hand me down bed sheets. The nightly rate will be low, the quality of guest you get will be hard on the property, and it will end up costing you more in the long run than doing it right the first time. If that time isn't right now, there's nothing wrong with that. Don't have a scarcity mindset that this is the ONLY deal out there like this.

Thank you so much for that feedback! I'll definitely keep all of the above in mind as well. I will say based on what I'm seeing in my area, I think my ADU and renting out my main home would do pretty well as an STR. Both have a more modern look, and since I'm the one designing the ADU it has more of a luxe/industrial feel to it as opposed to just throwing something together just to get it on the market. I'm very much into interior design and I'm a project manager and marketer by profession, so I've put a lot of thought into how this could best be marketed. 

That being said, I also don't intend on solely depending on sites like Airbnb for my STR. I live in an area where they shoot a lot of films and tv shows, so I will also be renting my home out for those purposes, among many other opportunities that exist beyond overnight accommodations. Also, my area doesn't have limitations on STRs at this time as they want to get as much revenue as possible flowing to the city. 

I do think until I at least have a good year's worth of income under my belt that it would be hard to present that case to potential lenders though. So I'm trying to figure out the best solution in the meantime.

Hi All,

I'm a newbie investor and thus, I'm still learning and wrapping my head around how mortgages and various financing options work. 

I apologize in advance for this post being long, but I want to be thorough so that I can get the best advice for my situation. 

I purchased a primary residence in an up-and-coming area 6 months ago, with the intention of staying in it for at least a year. I initially wanted a townhome or condo because I'm a single woman and for safety reasons, I felt more comfortable with that type of home. However, given my investment goals and realizing it would be hard to rent out a townhome or condo with HOA restrictions in the time frame that I desired, I shifted my focus to looking for a SFH where I would essentially have the freedom to rent the home as I pleased (I was hoping to find a duplex to house hack, however, those are few and far in between in my area and were at a higher price point than I could afford at the time. I also wasn't comfortable house hacking a room in my home while I'm living in it).

That being said, I found a detached SFH that I liked, primarily because it had an unfinished detached garage that's about 590 sq ft. that I knew I could convert into a 1 bedroom STR. I estimated that the income from that back unit alone would cover my mortgage, and thus I was okay with moving forward with the purchase.

However, I'm finding that I'm just not super comfortable living in the SFH, and that I'd still prefer that my primary residence be a townhome or condo. I spoke with a couple of lenders, and one said while normally they don't encourage getting a new primary residence in such a short time frame, that they could justify my purchase with the fact that I'm not comfortable for safety reasons. But of course, part of that requirement is that I'd have to put a long-term renter into my home. I personally don't want to do that, as I feel like I could make more money doing a STR on both my main home and ADU. I'm also not in the financial position to do an investment property that would require a 20% down payment, as all of my liquid funds went into the purchase of my first home, and I haven't had a chance to build up my savings towards a new purchase.

An added note: My ADU conversion is almost done, and once it's finished I want to get it re-appraised and do either a HELOC or cash-out refi to hopefully pull back out the money that I put into it (I didn't know about the BRRRR method prior to starting this project so I know I did it a little backward). I cannot guarantee it would be enough cash to cover a 20% down payment though. 

So my questions are:

1. Besides doing a conventional loan for another primary residence where I'd have to secure a long-term renter, what other loan options are available for me?

2. I recently got my LLC for a real estate company, would refinancing the home and putting it into the LLC open up my loan options? If so, how would that work? I did confirm with my mortgage lender that I only had a 6 month seasoning period for refinancing the home.

3. Are there any other creative options that I can consider?

Thank you for your time and feedback!