All Forum Posts by: Tanner Lewis

The bed/bath count is more important if qualifying with AirDNA projections since the market comps are based on similar bed/bath STRs in the area. I'm not sure if they compare square footage in this process, but the last I used it I was not able to manipulate sqft, only bed/bath and max number of occupants. 

Hi Scott,

1) I think a DSCR is a great option. Many lenders have pretty strict underwriting guidelines when it comes to short-term rentals that drastically inhibit short-term rental acquisitions, but some can allow you to use AirDNA Projections to underwrite your deal. I suggest looking on the BiggerPockets "Find a lender" page to find a good DSCR lender who can finance with AirDNA.

2) Typically I look for something with dwelling coverage equal to the replacement cost of the property and 6-month loss of rent coverage, but honestly the best coverage is whatever makes you sleep the best at night knowing your asset is safe. Insurance is always the first line of defense when it comes to asset protection. 

3) I would suggest purchasing the property in an entity. I suggest getting a Texas LLC and nesting it under a Wyoming or Delaware LLC. An entity in the state of the property is always the first line of defense when it comes to lawsuits, etc., but having it nested in a state with good anonymity provision is a great way to keep you from getting a lawsuit to begin with (because they don't know who to file against). I know DSCR lenders can lend to entities whereas conventional lenders cannot.

4) I would make sure to have something with that "wow" factor on your property. Anyone can toss up their house on Airbnb, but the pros manage to charge above-market rent because their rental has that extra "wow" factor that makes the property feel more like a resort than just someone's house. 

Hi Matt, I can help you out with a 85% LTC and 70% LTV (based off ARV value).

I'm not sure how many lenders are going above 70% LTV, but I'm sure there are some out there.

Normally Zillow and Redfin do not have many multifamily properties listed. I suggest talking to a realtor in the area to find some comps or using third-party software to pull comps from the MLS. Either way, I would try to get access to the MLS in some capacity since they typically show more than listed on websites like Zillow.

Normally by doing a cash-out refi, most lenders require the property to be "turn-key" with tenants in place and no rehab. I see your options as the following: 

1) go ahead and use cash (or maybe hard money) to rehab the basement, which adds a unit, increasing the ARV and will give you more cash flow in the future. Then do a DSCR cash-out refi and you should be able to pull out more (since it appraises for higher).

2) do a DSCR cash-out refi on the existing property (if it meets the turn key requirements) and use that money on a new property. With this option, you cannot rehab the basement with the cash-out proceeds and you cannot use the income from the basement unit toward your DSCR ratio.

In my opinion, I would go ahead and rehab the basement if the comps suggest that adding the additional unit will justify the rehab cost. You should be able to pull out at least your cost basis, and you will have extra cash flow on top of that. 

For most lenders 100% financing is a LOT of risk. For my company, our limit is 85% LTC and 70% LTV. LTC, Loan to Cost, is the loan value to your cost basis (purchase price and renovations) and the LTV is normally based off the ARV, after repair value. I think what you are looking for is a hard money lender that offers a high loan-to-cost ratio, so that you can cover as much of the renovation budget as possible with financing.

Depending on what lender you use the seasoning requirements may be different. I suggest using a "hard money" private lender and, depending on your credit score, you could do a DSCR loan based on the appraised value of the property.

Additionally, I would not limit yourself to only Texas lenders, many are able to loan nationally. 

I would consider writing the lease agreement with a lease escalation clause that increases yearly with the projected market rent growth. It is a great way to keep increasing the rates while retaining a high-quality tenant. 

Quote from @Zachary Ware:

The best market to invest in 2-4 units is the market you live in. Doing a househack with FHA is a great entry point and in my opinion one of the safest options you have. You are there at the property and know what is going on with the neighborhood. The second best is a city with a growing population and diversity on the economic side as well such as having multiple big employers who are in different industries. I think the southeast is still a great area to focus on.

Adding onto what Zachary said, I would look into the FHA option because in many areas, you can qualify for a quadplex for over a million (~1.1 for where I am in Austin, Texas) with only 3.5% down plus PMI (I believe 1.75% plus monthly increased interest to 20% equity). It is a great option for using high leverage to decrease your housing expenses while you save to invest in more real estate. That is why it is typically a great option for beginners. 

If you go this route, I highly suggest that you look into the FHA requirements in your area and speak with a professional. 

Quote from @Casey Martin:

Quote from @Tanner Lewis:

As a private lender, I would do the following:

1. Transfer your mother's house into an LLC and rent out (likely as an LTR)

2. Take a DSCR cash-out refinance on your mother's house with a hard money/private lender. They will not use your DTI to qualify you, only the DSCR (essentially monthly effective gross income minus insurance, taxes, and HOA fees), LTV, and your FICO credit score.

3. With the cash-out proceeds, you cannot pay off current debt, but you can invest in more real estate offering a higher rate of return than the debt (ex. 15% return on a house vs 11% rate on debt, the investment has less opportunity cost. I would use your household income of $200k to address the debt.

3a. I would use the cash-out proceeds to put down payments on up to 3 additional rentals with a private lender DSCR product.

4. Use a conventional owner-occupied home loan to purchase your personal home. I would look at an FHA-type loan with 3.5% down plus PMI or a 5% down owner-occupied option. This will give you the most leverage and you will allow you to add even more properties to your portfolio, increasing return and decreasing the risk.

 I greatly appreciate your detailed reply, thank you. 

1. Sounds like a excellent idea, I will check into that.

3. I did not know that was not possible and I hadn't thought of using it to purchase more property but that seems to make sense too. 

4. Our current house has a 5% conventional mortgage currently if that is what you are referring too for our personal home it just now has about 100+ plus is equity.

Casey, 
I misread your original post, in this case, I would do a low down payment owner-occupied loan with your mother consigning (I would consult with a lawyer first) in addition to the first 3 steps I listed above.