All Forum Posts by: Shane Zilinskas

TLDR: You're unicorn hunting. 

Longer version: 

DSCR or conventional, and assuming we're not talking about HML or loan sharks charging 10%+ and 3+ points, there's always multiple criteria in place.

DSCR (for the aptly named "DSCR" type loans) or DTI (Fannie type loans) is one common criteria, LTV is another. The most restrictive of all the various criteria is what applies. Not the most liberal (millionaires don't get to take out $2m mortgages on $300k homes, for example). 

In the case of residential real estate, especially single unit (condo or SFR), the appraisal is still a residential appraisal. Comparable sales determine value for residential appraisals, not cashflow.

So, for these STR cashflow monsters, it winds up being LTV that is the constraint. Just like that millionaire can't take out a $2m mortgage on a $300k home, the person killing it with a STR can't finance more than the LTV restriction would allow for the loan program in question, and it's not 2007 any more so no one is doing 100% or 120% LTV cash out refis (yup, >100% LTV cash out refis was a thing towards the end of the 2004 to 2008 era, and we saw what that did to the global economy...).

 Friends, family, relatives, credit cards, hard money, there are a lot of options for you do use for zero down strategies. It sounds like you have the 20% down and it is possible if you use the right strategies.

For example I bought a deal off market for $200k, I put 20% down, got a loan $160k. I filled it with tenants, showed leases of up to $3,600/month and got it reappraised at $270k and then refinanced a month later. I got 2nd position line of credit on it for 55k and advanced on it to get my cash out (20% down or $40k) and then some (an extra $15k).

 Correct me if I am wrong, but you have not owned it 3 years? You said acquire it and immediately refinance for 100% of purchase price. They are giving you a loan at 100% of value. If you had to sell the property tomorrow, after sales expenses you are looking at 92% cash back out. That is very risky for a bank to know an asset will net less on sale than is owed.

I am not trying to argue with you, just explaining how risk assessment works for banks. Banks are not entrepreneurs. You see puppies and rainbows, they see risk of default. If they take risk, they expect higher payout.

@Shane Zilinskas I think what you mean is better than 80% LTV (20% down payment). The reason banks require 20-25% down payments is to mitigate loan risk. They are concerned about your ability to pay, but equally concerned that they can get their money back if you stop paying.

Short term rentals are an actively managed business. What happens if you get in a car crash tomorrow and can't manage your guests? Income could drop to nothing quickly and the bank wants to be able to foreclose, resell the asset and walk away without loosing money. 

You may find a lender willing to take more risk, but usually that comes with higher interest rate or loan costs. If you do improvements to the property or hold it longer, it will be easier to get cash back out. 

Most lenders will not go any better than 80-20% on LTV. You may find a community bank or credit union willing to do 85% but buying with 20% down only to refinance and pay all of the same fees again for 5% value isn't worth it in my mind. (assuming that it appraises out again) Why wouldn't you just start with 15% down assuming you can find it?

I would recommend asking the sellers to carry 20% and you finance 80%, essentially putting you at 0 down as that is what it sounds like you are trying to achieve.