All Forum Posts by: Robert M.

Thank you, @Tarik Turner and @John Underwood.  I’m sometimes too risk averse with the “what if’s,” but it usually works out well.  Appreciate the insights from you both.

I have a short-term vacation rental (STVR) under construction now, and I will need to refinance out of a construction loan in about 6 months.  I know I could get an asset-based or commercial refinance if I were to do one today.  However, I do not have experience investing during an economic downturn, and I'm wondering: if the economy changes between now and the time I need to refinance, would you expect asset-based lending will still be a viable option for STVRs, or would it dry up?  What other options might be open under changing market conditions?

I ask mostly because I'm hoping to draw against a HELOC to buy another property between now and then, and I'm sure it has the potential to increase my credit utilization. That could drop my credit score (currently very high), which would decrease the max allowed DTI for residential lending. Just want to be sure I'd still have a plan B before I draw on the HELOC and buy another property.

This has been discussed previously on Bigger Pockets and online, but answers are unclear (the online blog entries conflict wildly, see below for a couple of examples). I'm trying to get a handle on how much a high utilization rate on a HELOC will impact a person's credit score. I need to be sure I don't mess up my ability to refinance out of a construction loan in a few months. Does anyone have firsthand experience? I'm assuming a large HELOC ($50K+ available credit line) isn't factored into credit utilization the same as a credit card, but it would be great to know if we're talking a 15-20 vs 100 point drop when the utilization rate is really near 100%.

Special thanks to anyone who has used a HELOC who is willing to share information. I'd love to know the limit on the HELOC, utilization rate/amount, and the amount of the credit score impact. General comments/experiences are certainly welcome too, of course. Thanks in advance.

https://www.debt.org/real-esta...

https://www.credit.com/blog/ho...

@Justin MacKenzie, I think Mashvisor may indeed help you with that.  They give a month-by-month look at top-performing properties in a town, and it’s pretty decent.  All the best in your hunt!

I use it as a tool (along with mashvisor), but I don’t consider it to be the gospel. It’s hit or miss depending on where you’re looking and can range from extremely accurate to extremely inaccurate.

The airdna system and finding your own comps can share some problems in common.  Airdna (and you) may read blocked days between guests (some owners do this for cleaning or maintenance), blocked days for owner use, or closure during certain seasons as “bookings.”  Obviously they’re not.  Also, variations in how well managed each property is or an owner allowing one night stays vs not allowing them may make a difference in how much you can earn.  Airdna also doesn’t appear to count cleaning or other fees.

Perhaps it goes without saying, but your best properties will be near an attraction or attractions that have appeal all year. For cash flow, look for the ones that offer something unique in your specific market (location/proximity to an attraction, style, decor, size, etc.). Finding a market that isn’t already saturated or something with a view or water access are bonuses.

My suggestion is to look for or use all of the above AND pre-determine which items you can realistically find in a property in your market AND contact local vacation rental management companies to inquire about rental data AND inquire for rental data on a property that's listed for sale in the MLS AND find a knowledgeable realtor who largely does short term rentals AND look into existing and possible future HOA or government regulations. It's true that you don't want to be paralyzed by analysis, but I wouldn't skip it. Some rentals (and markets) are more successful than others. Some markets are more saturated than others. Some markets command a higher price or occupancy than others. Those variables matter. So, collect as much data as you can, look at the totality of it, recognize that it's imperfect (but better than nothing), make the best decisions you can make, take the leap, and don't look back.

And perhaps the best advice I can give is that if you can find someone in your market who already owns multiple properties, then copy them!  They’re successful and have already done the analysis for you!

It’s not ideal, but it’s also not uncommon or a big issue. The shingles overlap and the nails are under another shingle. Regardless of the length, there is a puncture hole.  Personally, I wouldn’t sweat it.

Understood, but there was guidance issued by Fannie in 2019 that clarified that second homes can be put out for short-term rental bookings if they meet certain criteria (ours does).  In fact, Fannie specifically addressed the confusing statements you referenced above, noting that the “a second home must not be a rental” portion of the lending guidelines was intended to prohibit renting through a third-party exclusively as a full-time vacation rental.  It went on to say explicitly that individuals can rent out a second home on their own (without a management company—short-term only, not long-term).

I can’t find the memo from Fannie at the moment; I had to hunt for it when I found it previously (seems like someone linked it on the BP forums).  However, the guidance was discussed in the BP post below (and in the linked external article).

And, as I said, I’m pretty risk averse.  After studying the (very clear) 2019 guidance for myself (in addition to several other BP forum discussions by lenders on this topic), we consulted two local lenders.  All confirmed we were doing things above board, which is why your original statement threw me a bit.  I was aware of what you outlined and that there was guidance after it that clarified the interpretation, but I wanted to be sure nothing changed after 2019.

https://www.biggerpockets.com/... 

Hopefully others can still weigh in on the original thread topic about investor-friendly construction lenders for the sake of future readers, but I think I’m all set on my needs.  Thanks again, and all the best.

Thank you for taking time to reply, @Stephanie P. One of the things I value about bigger pockets is that it’s a great place to get lots of perspectives.

I’ll be honest that I’m a bit surprised to hear a suggestion of potential impropriety on the lending.  We spoke to several lenders about renting out a second home, read the guidance issued directly from Fannie and Freddie, and studied the many posts on BP before concluding that we would be fine to open our second home on for short-term rentals.  There is no question that we are compliant with the guidance issues from all of the above sources, particularly since we use the property for our own family’s vacations. If you know something we missed, I welcome it.

Even as someone who is analytical, risk averse, and cautious, there is no question that I will be jumping in with both feet to this.  With 50 five-star ratings from guests who have stayed already, I just don’t see as much that will differ in terms of “proof of concept” or experience in the coming month or year as a lender might, and since the lot is a key to my success, I’m not going to step back from it.  Since the time of my initial post, I have found some options for financing, but if anyone has additional suggestions, I welcome them.

Again, thanks for your comments; even if I don’t reach the same conclusions, I value the perspective.

I own a short-term vacation rental that is killing it better than anything I've seen (80-90% cash on cash).  I plan to use it as a prototype to build on the land next door, but I'm running into some financing roadblocks.  I'm nervous about tying up $50K by buying and holding the lot if I cannot build soon since it would mean delaying other strategic priorities.

I'm finding that most banks won't do individual construction loans for investors.  Commercial construction lenders are giving me a bit of a hassle (though I haven't totally ruled this out - still exploring) because I bought my first property six months ago and don't have a year of performance to show (though I have about $65K of gross bookings and $35K in net income in 7 months).  Private/HMLs are telling me that they are only interested in new construction if the projects are large and the borrower is really experienced with developing or new builds (I have a couple of flips, a STVR, and no new builds, but I plan to use a GC for this project anyway so it seems irrelevant).  I don't have a huge network of real estate investors yet, so private lending through that avenue is a limited option for me too.

I have to make a decision on the lot very soon (days, not weeks) and the fact that I'm hitting one roadblock after another on financing is concerning. With a decent LTV, I'd gladly pay well for the construction phase before refinancing, but haven't the way forward yet. I have stellar credit, a great W2 income, and a good DTI if a lender will consider the income on the rental above (most won't because I bought it as a second home).

Suggestions on how to approach financing and/or whether or not to pursue the lot?

Also, since new builds haven't hereto been my thing: What are the chances that a builder will let me sell/deed them the lot, build, and then I buy it back with a conventional mortgage (which I think may be the cleanest path forward if it would work)?

Thanks to all of you!  @Angelo forzano, I welcome the contacts!  Many thanks!