All Forum Posts by: Sandra McEwan

Hi Levi, What if you want to purchase a quadplex that vacant b/c it was newly renovated and you need to get a DSCR loan? You want to use it possibly as mid-term rentals/short term down the road or start with one unit as MTR/STR and the others LTR. What do you tell the lender and how do estimate rental income? Would they want to change leverage b/c one might be STR? Would AirDNA information be available for a MF property like this that has not been a MTR/STR. Thank you.

Hey Alex! Thank you for your response. This is a completely vacant quadplex that has been renovated and will be vacant at purchase. Sorry, it's not a BRRRR for this one. How would one approach this with the lender? I would probably at the most try one unit with a MTR and LTR the other 3 units. A few lenders do not seem to care that it is vacant. I have heard and read on here though that they may want to change the leverage when STR/MTR is mentioned from 75% to 70%. It seems that MTR is sometimes lumped in with STR. Also, landlords I've talked to that do MTR's may STR in between to bridge any gaps. I'm not saying I would do that, I'm just trying to understand. Running DSCR as LTR does work in this case and satisfies the requirement. I don't want to open a can of worms if I don't need to but disclose if I should:) then, there's insurance that includes STR (which includes MTR) capability...if you have that at closing, then I've heard a lender would question it. or you can switch it later...? You've been amazing for putting up with my questions!

@Tyler Solomon

Based on the comments, it appears that many in this forum are also not very familiar with STR loans.

I deal with a lot of STRs all over the country.  When looking for a lender, there is an easy way and a hard way to find financing.

The hard way is where these lender who mostly do conventional or other non-Qm lender want to get into the STR market all of a sudden and the investors who back them have no real idea of what they are assessing or buying. Their default is requiring a certain amount of existing STR rental history to use as qualifying income for the DSCR calculation. Their alternative, which is even more ridiculous, is to base it from long term rental rates from the 1007, which almost never cash flows enough to qualify for a reasonable leveraged loan. Most these types of lenders will reduce your LTV by 5% or so simply because you said, "STR". Lol. Technically, you can get conventional financing for an STR, but you'd have to occupy it as a second, or vacation, home and "live" in it for at least a few weeks a year to qualify for 10% down and meet Fannie/Freddie DTI requirements. In this case, you cannot use any previous or projected rental income to help ease your DTI though.

Lenders who actually know what they are doing use AirDNA projections. If you are purchasing or refinancing and have a 12 month history, that's great too. However, the percentage of AirDNA projections is usually based on experience or FICO. For example, someone who has owned at least 2 STRs for at least 1 year of two may get 100% of the AirDNA projections used in their DSCR calculation, if not more. Some lenders go to 125% of what AirDNA projects. If you don't have a certain experience seasoning or a lower FICO, they may only allow 75% of the projection. For refis, expect to have 6 month seasoning before you can pull cash out though.

The AirDNA lenders aren't usually required for lower value properties. For example, a recent STR I did in Florida had no rental history. An experience STR owner purchased the property for $1.3MM. The fair market rent came back on the 1007 at $3,400/month. No way any DSCR would be high enough to qualify. Using AirDNA projections at 100%, we were able to use $11,250/month in STR income. We qualified to 75LTV purchase on this property. The remaining loan was done no differently than any other DSCR loan. In reality, the buyer is trending far above $11,250/month. But had we not used a proper lender that truly knows STR, we would have really had a hard time getting a loan with leverage that made sense for this borrower.

There is another alternative, using no ration DSCR loans. These do function well for STRs but the nature of No DSCR is usually an interest rate that is 2% or so higher than typically DSCR loans. Leverages still go up to 70-75 right now, but they used to go to 80LTV. I am seeing no ratio 30yr FRM around 10-11% right now. The lenders who use AirDNA are around 8.75-9.25% for a 30yr FRM. Standard DSCR is between 7.5-8.0% at this point in time. So, yes, there is a small premium in rate to finance STR, but rates will always change.

Love the property, date the rate.

Cheers!