June 12, 2024 • 26 mins
In this episode of "Loan Officer Training," we unpack the complexities of structuring short-term rental investor loans. As the popularity of vacation rentals and platforms like Airbnb and VRBO continues to rise, understanding how to finance these unique investment properties is essential for any loan officer.
We'll walk you through the specific requirements, from assessing property income potential to navigating different loan options tailored for short-term rentals. Discover key strategies for evaluating borrower qualifications, managing risks, and ensuring compliance with lending guidelines.
Whether you’re working with seasoned investors or first-time buyers, this episode provides valuable insights to help you craft optimal loan structures and support your clients in capitalizing on the lucrative short-term rental market. Tune in and enhance your expertise in this growing sector of real estate finance!
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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Base
Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join
The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as thousands of Non-QM mortgage loan program variations using alternative income documentation!
Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!
Our team of licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgage
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Restream recording Jun 12, (00:00):
So, welcome everyone.
(00:04):
My name
is Kyle Hiersche.
I am the
COO of the Mortgage Calculator
joined here by our PresidentNick Hiersche and our Sales
Manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening on the show at
7 PM Eastern is go through a newloan officer training topic and
do an in depth training on it.
And tonight we're talking aboutone of our favorite topics,
(00:27):
which is how to structure shortterm rental loans.
So Jose.
I'll let you go ahead and takeit out.
Are you frozen?
How's that?
Oh, no, I'm just having a littletrouble hearing you.
(00:50):
I don't know if it's my audio oryour audio coming in a little
lower.
We can hear you okay.
You're good.
Okay.
Um, so today, uh, we're going togo over how to structure short
term investor loans.
Uh, the key component here is,um, to understand exactly what
(01:10):
is a short term rental and thenwhat would be the acceptable
income streams for the property.
Now this is a little bitdifferent than when you're
looking at your long term rentalproperty and where the
differences can really affectyou is in refis when you're
(01:32):
refinancing the property whenthe property's use is already
established.
When you're purchasing theproperty as an investment
property it's basically aninvestment property and it's not
really so much of an issue.
Uh, what the current use of theproperty is.
You're going to use it as aninvestment property.
(01:52):
And then at that point, theconsideration to make is does
the long term rent qualify, ordo you have to use alternative
methods to qualify?
So let's get right into how tostructure short term rental
investor loans.
(02:14):
So like I was mentioning, firstthing we have to note is what is
a short term rental property?
A short term rental property isa property that can be legally
rented.
by the day, week, month, or anyother period less than six
months and one day.
Please note that the short termrental periods may be affected
(02:37):
by local ordinances, so it maynot necessarily be possible to
rent for one day.
But, uh, that is what a shortterm rental property is because
a short term rent is any rentalperiod that is less than 6
months and 1 day.
That's how most of the, uh,local ordinances, uh, how they,
(03:00):
um, uh, uh, Breakdown short termrentals.
Now, please note that a shortterm rental property is not to
be confused with a condo hotel.
Condo hotels are deed restrictedproperties, may have certain
restrictions like preventingowner use of the property for
(03:22):
certain periods of time, uh, mayalso restrict independent
property management, just toname a couple of, uh,
Differences between a condohotel and a property that is a
short term rental.
The only similarities, uh,between the two is that condo
hotels are going to, uh, allowshort term rental periods.
(03:47):
But they're not necessarily whatwe're considering short term
rental properties, short termrental properties have a higher
return on investment than longterm rent, right?
The short term rent is going tobe higher income than the long
term rental income, which is whyit's so popular.
(04:07):
Uh, with investors, and as Inoted, the short term rental
property has to comply withlocal and state licensing
ordinances.
Uh, you're going to find that inmany short term rental property
guidelines when you are usingshort term rental income to
qualify, they'll usually havesome type of a notation there.
(04:28):
Where you have to provide sometype of evidence that the
property is complying with localand state licensing ordinances.
Usually a short term rentallicense will satisfy this
requirement.
Please also know, um, that shortterm rental properties, uh,
usually, uh, Have no leases.
That's why it may be an issuewith a refinance transaction
(04:54):
where a lease may be arequirement.
That's one of the issues that wefind with regular financing
options using long term rentother than a DSCR loan is that
they're usually going to requiresome type of a lease.
And long term rent use only.
(05:19):
So what are our eligibleborrowers and properties?
Well, here, it's prettystandard.
Our 1 to 4 unit residentialproperties are going to fall
under these guidelines.
However, please note that most.
Guidelines in this case, we'retalking about non QM loans will
not allow short term rentalincome to qualify for five plus
(05:45):
unit property.
So our five to eight unit, um,loan option, which is a very
popular option will not allowshort term rental income to be
used to qualify the borrower.
And then as far as the borrowersthemselves, we're talking about
us citizens, U.
(06:05):
S.
permanent resident aliens, nonpermanent resident aliens, which
is a non U.
S.
citizen and a non permanentresident alien, uh, but they
have U.
S.
status to be able to legallywork here and to be residing
here legally in the U.
S.
because of, could be a work visaor.
(06:27):
Some other type of arrangementthat has allowed the borrower to
work here.
So those borrowers can qualifyfor any type of financing,
usually that a U.
S.
permanent resident or a U.
S.
citizen can qualify for.
And lastly, foreign nationalscan also qualify using short
term rental Guidelines for manyof the DSCR loan options that we
(06:52):
offer at the MortgageCalculator.
Excuse me.
So what are some of thepotential issues, uh, that you
can encounter When structuringyour short term rental loans.
Well, one of the ones that's,uh, can always come and bite you
is that the property may beconsidered a vacant property,
(07:16):
and then this may result in LTV.
Restrictions, right?
They may reduce the LTV by 5percent or they may say maximum
LTV at all using short termrental is 60 percent or 70%.
So there, there may be some typeof an LTV reduction.
So this is usually why our DSEAloans are the best options for
(07:37):
the short term rental property.
Uh, when we have the option thatdoes not.
Uh, have this LTV reduction.
That doesn't mean that everyDSCR loan option does not have
an LTV reduction.
I'm just saying that DSCR loansare the guidelines where we find
options without an LTVreduction.
(07:59):
And again, this vacant propertyissue is really only going to be
an issue on refis rather thanpurchase.
Because as I mentioned a littlebit ago, when it's a purchase,
Whatever the current use of theproperty is not an issue to the
borrower and if it's aninvestment property and it
(08:19):
qualifies with long term rent,then no need to go any further
than using the long term toqualify because there is no
stated use yet for the propertyother than it's going to be an
investment property, right?
It's not stating like, Oh, we'regoing to do short term rentals
here, or we're only going to dolong term rent here.
(08:40):
It's only.
It's an investment property.
It's going to be rented and thelong term rent for the 1007
qualify.
That's as far as it needs to go.
So, uh, some of the issues thatyou may have is that the
property may have a high costcompared to the projected long
(09:02):
term rental income.
When you are doing this, does itqualify with long term rental
income analysis?
And this is, uh, an issue you'regoing to have with your trophy
properties, for example, thatwaterfront property, very
exclusive location, but, um, itdoesn't qualify with the long
(09:26):
term rent because, uh, you'rethe borrowers paying more for
the property because of thelocation because they know
they're going to make money onit as a short term rent.
So.
Then obviously we would be usingour short term rental options to
qualify other than long termrents as I'm going to be
breaking down in one of theslides to come.
(09:48):
Another issue that we may havewhen we're structuring our loan
where there's going to be shortterm rental use of the property
is scarcity of short term rentalcomps in general.
There may not be a lot of shortterm rental activity in the
area, right?
So this is going to limit youall the way around because,
(10:08):
first of all, if you're usingAirDNA to qualify for a
purchase.
on a short term rental or for ashort term rental property refi
where the property was justrecently put into service as a
short term rental you'reobviously going to be affected
and not going to be able to useair dna if there's no short term
rental activity in the areabecause using air dna like
(10:29):
anything else the comps aregoing to have to have proximity
close proximity to the subjectYou can't have them being 10
miles away just because therewere no short term rental comps
nearby.
This scarcity of short termrental comps is also going to
limit the appraiser being ableto complete a thorough, uh, 1007
(10:49):
using short term rentals aswell.
Another potential issue you mayface when structuring your loan,
and here's where you really haveto review.
All of the different guidelineconsiderations for all of your
options is that in some cases,limited or no short term rental
(11:09):
experience by the investor isgoing to be an issue.
Now, again, this is not withevery single, um, non QM
guideline across the board, justbringing up, uh, some issues you
could face and this I found tobe present in some guidelines.
and not present in others.
(11:30):
So make sure whatever option youselect doesn't have this issue.
And another, um, potential issuethat we find, and this is part
of the structure of, I guess,just making sure you select the
correct AMC for the loan,because not all appraisers and
not all appraisal managementcompanies, um, uh, have access
(11:53):
to air DNA, nor other sourcesfor short term rental comps.
And this is an issue.
Could be a big issue, uh, whichmay result in, uh, paying a trip
fee for an appraiser who goesout and then tries to give you
an appraisal with longterm rent.
You ask for it with short termrent.
(12:13):
Now you're reaching back out tothe AMC and they'll probably
say, sure, we can send it toanother appraiser, but.
We have to pay this appraiserfor their trip fee.
So just make sure that when youare structuring your loan, you
do take into consideration thatmaking sure that you reach out
to the AMC before putting theorder through and making sure
(12:36):
that they can handle yourspecial requests for, uh, short
term rental comps.
In the 1007 in whichever mannerit may be because sometimes
those comps are an actual in the1007.
Other times it's just going tobe a narrative for short term
rent.
Other times it's going to be airDNA for short term rent.
(12:59):
So depending what is the optionthat's going to be required,
make sure that that's clearlyspecified up front to the AMC so
that you do not have a delay Inyour deal, because now you have
to reach out to a second, theAMC has to reach out to a second
appraiser, uh, to try to getyour appraisal order completed.
(13:23):
So how do we resolve thesepotential issues that we
discussed?
Well, I've alluded to it acouple of times already through
throughout the presentation, andthe first option.
The, you know, the most, thesimplest option, which is why,
uh, we really love the DSCRloans, uh, as DSCR loans don't
(13:47):
necessarily require a long termrent lease, depending on the
guidelines, right, because the,um, DSCR loans are going to have
their guidelines and now theybreak it down into long term
rent option and short term rentoption.
So our first option is qualifythe short term rental properties
(14:09):
with the DSCR loan using longterm rents.
Now, when, when you do thisoption again, make sure that
you're going to have.
A multiple choices, depending onwhat your debt service coverage
ratio is.
And this is why.
It's so important upfront toreach out to the realtor
(14:31):
partners in the transaction,have the realtor partners
provide rental comps as soon aspossible in the transaction so
you can confirm what's reallygoing to be possible here
because obviously 1.
0 or above DSCR is the preferredoption.
That's where you're going to getthe maximum, uh, LTV, uh,
(14:54):
especially, uh, You know, ifyou're going for the higher LTV
options, uh, because the 1.
0, the options for less than 1.
0 are not going to have 80percent LTV, for example.
So you want to make sure youdon't estimate a rent that's
higher than it actually is, andthen the rent comes at long term
(15:15):
rent comes in lower.
And now you are at 75 percentLTV because you're at a lower.
than 1.
0 LTV.
And that's the big point becauseyour options are basically 1.
0 or above DSER or our low ratioDSER option, which is 0.
75 to 0.
99 or our no ratio DSER option,which is less than 0.
(15:38):
75.
And the low and no ratiotypically are the ones that are
going to solve the problem forthe trophy property that does
not have short term rentalcomps.
The long term rent doesn't getyou above 1.
0, but it does get you to 75percent LTV using the less than
(15:58):
1.
0 DSCR options.
This is also for thoseproperties that, you know,
AirDNA options are not, um,AirDNA is not an option because
you don't have, uh, any AirDNAcomps within, Uh, close
proximity and also where the, ifit's a purchase, the seller is
currently not operating theproperty as a short term rental.
(16:21):
So it's not able to provideshort term rental revenue
reports.
And, uh, you know, it's a refiand, uh, you don't have short
term rental revenue reportseither because once it's a refi,
the current use of the propertydoes, does come into play.
(16:42):
And then option, excuse me, wenta little bit too quick there.
So then in our final slide here,option two is qualifying the
borrower using short term rentalincome.
Now, this is really where we getto Excel.
At the mortgage calculator asnon consultants because of all
the different program optionsthat we have.
(17:03):
That's the key here, right?
Uh, this is not a cookie cuttertype of a situation.
So you are going to have toscour all of the available
guidelines and see which is thebest one.
Now, air DNA is the preferredoption.
Uh, for this, uh, short termrental income, it's, it can be
(17:24):
the one to provide the highest,uh, ROI, projected ROI, uh, but
what you have to be aware isproximity, right?
Uh, now, AirDNA may have, uh, arestriction, an LTV restriction,
depending on the guidelines, ifyou're using AirDNA.
(17:45):
I can say, for example, uh, whenusing AirDNA, There may require
a higher DSCR, like minimum 1.
5 or above DSCR to be able touse AirDNA or the LTV
restriction or reduction of 5percent or both.
(18:05):
Again, it's really going todepend on the guidelines.
It may state that you may need a50 percent or a 60 percent
occupancy, uh, showing on thatAirDNA report.
Also, and keep in mind, AirDNAis for purchases only or, uh,
recent, uh, uh, or propertieswhere it was recently brought
(18:30):
into service as a short termrental because it may have just
been renovated or something likethat, where the borrower can
show that it was just recentlyput.
Into service as a short termrental, then you can use your
DNA.
Now that is limited.
Uh, there's only a fewguidelines that allow that
because.
(18:50):
Almost all the guidelinesrequire, uh, that air DNA be
used for purchases only.
But at the mortgage calculator,we do have the ability to use
air DNA for refis as well, sothat that would be the preferred
and the easiest option becauseit doesn't require option number
(19:12):
two, which is producing 12months worth of short term
rental revenue reports.
From the platforms.
And what we're talking aboutfrom the platforms would be, uh,
like Airbnb home away via RBOand booking.
com for example, or for thepopular platforms where the
(19:33):
property hosts, that's what theycall the borrower in those
platforms.
They are the host usually, um,uh, Publish the properties, and
then that's where individuals goto rent the properties or book
the properties.
Now, with the 12 months shortterm rental revenue reports, you
(19:54):
are, if you do not have 12months, it's still possible.
But then that means you usuallyhave to have a certain minimum
number of months.
I believe in most of the timesit could be nine months and then
you average out over 12 months,right?
So it's not like you're going toget nine months just because
you've had it for nine monthsand you're going to average only
(20:16):
by nine months, you're going toget your nine months worth of
rent.
Uh, per the remedy reportsdivided by 12.
And that would be your monthlyaverage.
Now, uh, you can also, insteadof using the short term remedy
reports, uh, can provide, uh,proof of bank deposits.
Uh, then obviously you'd have tobe providing bank statements, 12
(20:38):
months worth of bank statements.
If this is a purchase whereyou're obtaining the revenue
reports from the seller, if theseller doesn't have revenue
reports but has bank statementsand is willing to share those
bank statements to prove theincome, then that would be an
acceptable way of doing it aswell.
(20:59):
Keep in mind for any, uh, eitheroption number one using your DNA
or option number two, usingrevenue reports or bank
statements that there is, orthat exists, there exists the
possibility of an adjustment forexpenses.
We like to call that a haircut.
No, that's not in everyguideline, but that's in most of
(21:19):
the guideline.
They're going to give you ahaircut of anywhere from 20 to
30 percent of the gross amountof the revenue that's stated.
And in option number three, theappraiser can find actual short
term, uh, rental comps.
(21:40):
And add them to the 1007.
So you're going to have a 1007where they're going to list the
comps and this each one is goingto have the source of the comp
proximity and all that kind ofgood stuff.
Just like a 1007 report has, andthen there's going to be a
reconciliation of the rent, andthen there's going to be an
average, which is going to bethe rental income, uh, that, uh,
(22:04):
projection for that property.
So, and again, when using shortterm rental.
Actual short term rental 1007there.
This also may be subject to anadjustment of anywhere from 20
to 30 percent.
And that adjustment is for theman is expenses, but it's mainly
for the management fee becauseit's common knowledge that the
(22:29):
property management fee on ashort term rental property is
higher than on a long termrental property because of the
extra.
Work involved, uh, you know,you, you have properties getting
turned over, could be weekly orcould be every 2, 3 days where
the property manager has to bebasically working all each time
(22:52):
that the property turns over.
Hence.
The higher fee.
So again, you can see we'rehere.
Uh, we have all these differentoptions that are available
because we have outside the boxoptions at the mortgage
calculator where we're notsaddled by just the, um, agency
guidelines that look at, uh,long term rents only that if
(23:15):
it's a refi, you have to have alease.
Uh, you know, it can't be ashort-term rental, which is an,
you know, an unleased propertyunless you have a property
management agreement.
Then, uh, you know, like sometype of a master lease, uh, with
the property manager is the onlytime you may have a lease for a
short-term rental.
But other than that, it's gonnabe an unleaded property, which
(23:38):
in many guideline cases, uh, maybe considered a vacant property
and then may be rejected.
Uh, you know, where they'regoing to deny it because it's
considered a vacant property oryou may have other issues
involved.
So, definitely, we can assistyou here at the Mortgage
Calculator with your short termrental property loans.
(24:00):
We've assisted a lot ofinvestors with the short term
rental property loans, uh, usingall of our innovative, uh,
programs.
Right.
Thank you, Jose.
So let's see if we have anyquestions here.
Let's see question five plusunits considered is five plus
(24:32):
units considered to becommercial?
Well, I mean, yeah, the fiveplus unit could be considered
commercial, small commercial,but that's, but they, they, we
do have DSER financing for them.
So the issue Here is now that wedon't have DSCR financing is
(24:52):
that the specific DSCRguidelines for the 5 to 10
units.
And again, remember, this is not1 guideline for all 5 to 10 unit
properties, but just in general,the ones that we've seen come
up, uh, for 5 to 5 plus.
It's usually it's either five toeight or five to 10 do not allow
(25:13):
short term rental income to beused to qualify the borrower.
So it has nothing to do with itbeing a commercial type
property.
And due to that, not being.
a DSCR loan.
Yes, we have plenty of DSCR loanoptions available for the five
plus units.
You just cannot use the shortterm rental income component to
(25:35):
qualify the borrower.
Let's go ahead and wrap it.
I think we can go ahead and wrapit up.
So remember we do this at 7 p.
m.
Eastern every Tuesday,Wednesday, and Thursday evening.
So we will be back tomorrow witha new topic.
(25:55):
We appreciate everybody tuningin.
We'll see you tomorrow at 7 p.
m.
Eastern for the next episode ofthe Loan Officer Training Series
with the Mortgage Company.
So, welcome everyone.
(00:04):
My name
is Kyle Hiersche.
I am the
COO of the Mortgage Calculator
joined here by our PresidentNick Hiersche and our Sales
Manager Jose Gonzalez.
We are a lender that specializesin non QM loans and what we do
every Tuesday, Wednesday andThursday evening on the show at
7 PM Eastern is go through a newloan officer training topic and
do an in depth training on it.
And tonight we're talking aboutone of our favorite topics,
(00:27):
which is how to structure shortterm rental loans.
So Jose.
I'll let you go ahead and takeit out.
Are you frozen?
How's that?
Oh, no, I'm just having a littletrouble hearing you.
(00:50):
I don't know if it's my audio oryour audio coming in a little
lower.
We can hear you okay.
You're good.
Okay.
Um, so today, uh, we're going togo over how to structure short
term investor loans.
Uh, the key component here is,um, to understand exactly what
(01:10):
is a short term rental and thenwhat would be the acceptable
income streams for the property.
Now this is a little bitdifferent than when you're
looking at your long term rentalproperty and where the
differences can really affectyou is in refis when you're
(01:32):
refinancing the property whenthe property's use is already
established.
When you're purchasing theproperty as an investment
property it's basically aninvestment property and it's not
really so much of an issue.
Uh, what the current use of theproperty is.
You're going to use it as aninvestment property.
(01:52):
And then at that point, theconsideration to make is does
the long term rent qualify, ordo you have to use alternative
methods to qualify?
So let's get right into how tostructure short term rental
investor loans.
(02:14):
So like I was mentioning, firstthing we have to note is what is
a short term rental property?
A short term rental property isa property that can be legally
rented.
by the day, week, month, or anyother period less than six
months and one day.
Please note that the short termrental periods may be affected
(02:37):
by local ordinances, so it maynot necessarily be possible to
rent for one day.
But, uh, that is what a shortterm rental property is because
a short term rent is any rentalperiod that is less than 6
months and 1 day.
That's how most of the, uh,local ordinances, uh, how they,
(03:00):
um, uh, uh, Breakdown short termrentals.
Now, please note that a shortterm rental property is not to
be confused with a condo hotel.
Condo hotels are deed restrictedproperties, may have certain
restrictions like preventingowner use of the property for
(03:22):
certain periods of time, uh, mayalso restrict independent
property management, just toname a couple of, uh,
Differences between a condohotel and a property that is a
short term rental.
The only similarities, uh,between the two is that condo
hotels are going to, uh, allowshort term rental periods.
(03:47):
But they're not necessarily whatwe're considering short term
rental properties, short termrental properties have a higher
return on investment than longterm rent, right?
The short term rent is going tobe higher income than the long
term rental income, which is whyit's so popular.
(04:07):
Uh, with investors, and as Inoted, the short term rental
property has to comply withlocal and state licensing
ordinances.
Uh, you're going to find that inmany short term rental property
guidelines when you are usingshort term rental income to
qualify, they'll usually havesome type of a notation there.
(04:28):
Where you have to provide sometype of evidence that the
property is complying with localand state licensing ordinances.
Usually a short term rentallicense will satisfy this
requirement.
Please also know, um, that shortterm rental properties, uh,
usually, uh, Have no leases.
That's why it may be an issuewith a refinance transaction
(04:54):
where a lease may be arequirement.
That's one of the issues that wefind with regular financing
options using long term rentother than a DSCR loan is that
they're usually going to requiresome type of a lease.
And long term rent use only.
(05:19):
So what are our eligibleborrowers and properties?
Well, here, it's prettystandard.
Our 1 to 4 unit residentialproperties are going to fall
under these guidelines.
However, please note that most.
Guidelines in this case, we'retalking about non QM loans will
not allow short term rentalincome to qualify for five plus
(05:45):
unit property.
So our five to eight unit, um,loan option, which is a very
popular option will not allowshort term rental income to be
used to qualify the borrower.
And then as far as the borrowersthemselves, we're talking about
us citizens, U.
(06:05):
S.
permanent resident aliens, nonpermanent resident aliens, which
is a non U.
S.
citizen and a non permanentresident alien, uh, but they
have U.
S.
status to be able to legallywork here and to be residing
here legally in the U.
S.
because of, could be a work visaor.
(06:27):
Some other type of arrangementthat has allowed the borrower to
work here.
So those borrowers can qualifyfor any type of financing,
usually that a U.
S.
permanent resident or a U.
S.
citizen can qualify for.
And lastly, foreign nationalscan also qualify using short
term rental Guidelines for manyof the DSCR loan options that we
(06:52):
offer at the MortgageCalculator.
Excuse me.
So what are some of thepotential issues, uh, that you
can encounter When structuringyour short term rental loans.
Well, one of the ones that's,uh, can always come and bite you
is that the property may beconsidered a vacant property,
(07:16):
and then this may result in LTV.
Restrictions, right?
They may reduce the LTV by 5percent or they may say maximum
LTV at all using short termrental is 60 percent or 70%.
So there, there may be some typeof an LTV reduction.
So this is usually why our DSEAloans are the best options for
(07:37):
the short term rental property.
Uh, when we have the option thatdoes not.
Uh, have this LTV reduction.
That doesn't mean that everyDSCR loan option does not have
an LTV reduction.
I'm just saying that DSCR loansare the guidelines where we find
options without an LTVreduction.
(07:59):
And again, this vacant propertyissue is really only going to be
an issue on refis rather thanpurchase.
Because as I mentioned a littlebit ago, when it's a purchase,
Whatever the current use of theproperty is not an issue to the
borrower and if it's aninvestment property and it
(08:19):
qualifies with long term rent,then no need to go any further
than using the long term toqualify because there is no
stated use yet for the propertyother than it's going to be an
investment property, right?
It's not stating like, Oh, we'regoing to do short term rentals
here, or we're only going to dolong term rent here.
(08:40):
It's only.
It's an investment property.
It's going to be rented and thelong term rent for the 1007
qualify.
That's as far as it needs to go.
So, uh, some of the issues thatyou may have is that the
property may have a high costcompared to the projected long
(09:02):
term rental income.
When you are doing this, does itqualify with long term rental
income analysis?
And this is, uh, an issue you'regoing to have with your trophy
properties, for example, thatwaterfront property, very
exclusive location, but, um, itdoesn't qualify with the long
(09:26):
term rent because, uh, you'rethe borrowers paying more for
the property because of thelocation because they know
they're going to make money onit as a short term rent.
So.
Then obviously we would be usingour short term rental options to
qualify other than long termrents as I'm going to be
breaking down in one of theslides to come.
(09:48):
Another issue that we may havewhen we're structuring our loan
where there's going to be shortterm rental use of the property
is scarcity of short term rentalcomps in general.
There may not be a lot of shortterm rental activity in the
area, right?
So this is going to limit youall the way around because,
(10:08):
first of all, if you're usingAirDNA to qualify for a
purchase.
on a short term rental or for ashort term rental property refi
where the property was justrecently put into service as a
short term rental you'reobviously going to be affected
and not going to be able to useair dna if there's no short term
rental activity in the areabecause using air dna like
(10:29):
anything else the comps aregoing to have to have proximity
close proximity to the subjectYou can't have them being 10
miles away just because therewere no short term rental comps
nearby.
This scarcity of short termrental comps is also going to
limit the appraiser being ableto complete a thorough, uh, 1007
(10:49):
using short term rentals aswell.
Another potential issue you mayface when structuring your loan,
and here's where you really haveto review.
All of the different guidelineconsiderations for all of your
options is that in some cases,limited or no short term rental
(11:09):
experience by the investor isgoing to be an issue.
Now, again, this is not withevery single, um, non QM
guideline across the board, justbringing up, uh, some issues you
could face and this I found tobe present in some guidelines.
and not present in others.
(11:30):
So make sure whatever option youselect doesn't have this issue.
And another, um, potential issuethat we find, and this is part
of the structure of, I guess,just making sure you select the
correct AMC for the loan,because not all appraisers and
not all appraisal managementcompanies, um, uh, have access
(11:53):
to air DNA, nor other sourcesfor short term rental comps.
And this is an issue.
Could be a big issue, uh, whichmay result in, uh, paying a trip
fee for an appraiser who goesout and then tries to give you
an appraisal with longterm rent.
You ask for it with short termrent.
(12:13):
Now you're reaching back out tothe AMC and they'll probably
say, sure, we can send it toanother appraiser, but.
We have to pay this appraiserfor their trip fee.
So just make sure that when youare structuring your loan, you
do take into consideration thatmaking sure that you reach out
to the AMC before putting theorder through and making sure
(12:36):
that they can handle yourspecial requests for, uh, short
term rental comps.
In the 1007 in whichever mannerit may be because sometimes
those comps are an actual in the1007.
Other times it's just going tobe a narrative for short term
rent.
Other times it's going to be airDNA for short term rent.
(12:59):
So depending what is the optionthat's going to be required,
make sure that that's clearlyspecified up front to the AMC so
that you do not have a delay Inyour deal, because now you have
to reach out to a second, theAMC has to reach out to a second
appraiser, uh, to try to getyour appraisal order completed.
(13:23):
So how do we resolve thesepotential issues that we
discussed?
Well, I've alluded to it acouple of times already through
throughout the presentation, andthe first option.
The, you know, the most, thesimplest option, which is why,
uh, we really love the DSCRloans, uh, as DSCR loans don't
(13:47):
necessarily require a long termrent lease, depending on the
guidelines, right, because the,um, DSCR loans are going to have
their guidelines and now theybreak it down into long term
rent option and short term rentoption.
So our first option is qualifythe short term rental properties
(14:09):
with the DSCR loan using longterm rents.
Now, when, when you do thisoption again, make sure that
you're going to have.
A multiple choices, depending onwhat your debt service coverage
ratio is.
And this is why.
It's so important upfront toreach out to the realtor
(14:31):
partners in the transaction,have the realtor partners
provide rental comps as soon aspossible in the transaction so
you can confirm what's reallygoing to be possible here
because obviously 1.
0 or above DSCR is the preferredoption.
That's where you're going to getthe maximum, uh, LTV, uh,
(14:54):
especially, uh, You know, ifyou're going for the higher LTV
options, uh, because the 1.
0, the options for less than 1.
0 are not going to have 80percent LTV, for example.
So you want to make sure youdon't estimate a rent that's
higher than it actually is, andthen the rent comes at long term
(15:15):
rent comes in lower.
And now you are at 75 percentLTV because you're at a lower.
than 1.
0 LTV.
And that's the big point becauseyour options are basically 1.
0 or above DSER or our low ratioDSER option, which is 0.
75 to 0.
99 or our no ratio DSER option,which is less than 0.
(15:38):
75.
And the low and no ratiotypically are the ones that are
going to solve the problem forthe trophy property that does
not have short term rentalcomps.
The long term rent doesn't getyou above 1.
0, but it does get you to 75percent LTV using the less than
(15:58):
1.
0 DSCR options.
This is also for thoseproperties that, you know,
AirDNA options are not, um,AirDNA is not an option because
you don't have, uh, any AirDNAcomps within, Uh, close
proximity and also where the, ifit's a purchase, the seller is
currently not operating theproperty as a short term rental.
(16:21):
So it's not able to provideshort term rental revenue
reports.
And, uh, you know, it's a refiand, uh, you don't have short
term rental revenue reportseither because once it's a refi,
the current use of the propertydoes, does come into play.
(16:42):
And then option, excuse me, wenta little bit too quick there.
So then in our final slide here,option two is qualifying the
borrower using short term rentalincome.
Now, this is really where we getto Excel.
At the mortgage calculator asnon consultants because of all
the different program optionsthat we have.
(17:03):
That's the key here, right?
Uh, this is not a cookie cuttertype of a situation.
So you are going to have toscour all of the available
guidelines and see which is thebest one.
Now, air DNA is the preferredoption.
Uh, for this, uh, short termrental income, it's, it can be
(17:24):
the one to provide the highest,uh, ROI, projected ROI, uh, but
what you have to be aware isproximity, right?
Uh, now, AirDNA may have, uh, arestriction, an LTV restriction,
depending on the guidelines, ifyou're using AirDNA.
(17:45):
I can say, for example, uh, whenusing AirDNA, There may require
a higher DSCR, like minimum 1.
5 or above DSCR to be able touse AirDNA or the LTV
restriction or reduction of 5percent or both.
(18:05):
Again, it's really going todepend on the guidelines.
It may state that you may need a50 percent or a 60 percent
occupancy, uh, showing on thatAirDNA report.
Also, and keep in mind, AirDNAis for purchases only or, uh,
recent, uh, uh, or propertieswhere it was recently brought
(18:30):
into service as a short termrental because it may have just
been renovated or something likethat, where the borrower can
show that it was just recentlyput.
Into service as a short termrental, then you can use your
DNA.
Now that is limited.
Uh, there's only a fewguidelines that allow that
because.
(18:50):
Almost all the guidelinesrequire, uh, that air DNA be
used for purchases only.
But at the mortgage calculator,we do have the ability to use
air DNA for refis as well, sothat that would be the preferred
and the easiest option becauseit doesn't require option number
(19:12):
two, which is producing 12months worth of short term
rental revenue reports.
From the platforms.
And what we're talking aboutfrom the platforms would be, uh,
like Airbnb home away via RBOand booking.
com for example, or for thepopular platforms where the
(19:33):
property hosts, that's what theycall the borrower in those
platforms.
They are the host usually, um,uh, Publish the properties, and
then that's where individuals goto rent the properties or book
the properties.
Now, with the 12 months shortterm rental revenue reports, you
(19:54):
are, if you do not have 12months, it's still possible.
But then that means you usuallyhave to have a certain minimum
number of months.
I believe in most of the timesit could be nine months and then
you average out over 12 months,right?
So it's not like you're going toget nine months just because
you've had it for nine monthsand you're going to average only
(20:16):
by nine months, you're going toget your nine months worth of
rent.
Uh, per the remedy reportsdivided by 12.
And that would be your monthlyaverage.
Now, uh, you can also, insteadof using the short term remedy
reports, uh, can provide, uh,proof of bank deposits.
Uh, then obviously you'd have tobe providing bank statements, 12
(20:38):
months worth of bank statements.
If this is a purchase whereyou're obtaining the revenue
reports from the seller, if theseller doesn't have revenue
reports but has bank statementsand is willing to share those
bank statements to prove theincome, then that would be an
acceptable way of doing it aswell.
(20:59):
Keep in mind for any, uh, eitheroption number one using your DNA
or option number two, usingrevenue reports or bank
statements that there is, orthat exists, there exists the
possibility of an adjustment forexpenses.
We like to call that a haircut.
No, that's not in everyguideline, but that's in most of
(21:19):
the guideline.
They're going to give you ahaircut of anywhere from 20 to
30 percent of the gross amountof the revenue that's stated.
And in option number three, theappraiser can find actual short
term, uh, rental comps.
(21:40):
And add them to the 1007.
So you're going to have a 1007where they're going to list the
comps and this each one is goingto have the source of the comp
proximity and all that kind ofgood stuff.
Just like a 1007 report has, andthen there's going to be a
reconciliation of the rent, andthen there's going to be an
average, which is going to bethe rental income, uh, that, uh,
(22:04):
projection for that property.
So, and again, when using shortterm rental.
Actual short term rental 1007there.
This also may be subject to anadjustment of anywhere from 20
to 30 percent.
And that adjustment is for theman is expenses, but it's mainly
for the management fee becauseit's common knowledge that the
(22:29):
property management fee on ashort term rental property is
higher than on a long termrental property because of the
extra.
Work involved, uh, you know,you, you have properties getting
turned over, could be weekly orcould be every 2, 3 days where
the property manager has to bebasically working all each time
(22:52):
that the property turns over.
Hence.
The higher fee.
So again, you can see we'rehere.
Uh, we have all these differentoptions that are available
because we have outside the boxoptions at the mortgage
calculator where we're notsaddled by just the, um, agency
guidelines that look at, uh,long term rents only that if
(23:15):
it's a refi, you have to have alease.
Uh, you know, it can't be ashort-term rental, which is an,
you know, an unleased propertyunless you have a property
management agreement.
Then, uh, you know, like sometype of a master lease, uh, with
the property manager is the onlytime you may have a lease for a
short-term rental.
But other than that, it's gonnabe an unleaded property, which
(23:38):
in many guideline cases, uh, maybe considered a vacant property
and then may be rejected.
Uh, you know, where they'regoing to deny it because it's
considered a vacant property oryou may have other issues
involved.
So, definitely, we can assistyou here at the Mortgage
Calculator with your short termrental property loans.
(24:00):
We've assisted a lot ofinvestors with the short term
rental property loans, uh, usingall of our innovative, uh,
programs.
Right.
Thank you, Jose.
So let's see if we have anyquestions here.
Let's see question five plusunits considered is five plus
(24:32):
units considered to becommercial?
Well, I mean, yeah, the fiveplus unit could be considered
commercial, small commercial,but that's, but they, they, we
do have DSER financing for them.
So the issue Here is now that wedon't have DSCR financing is
(24:52):
that the specific DSCRguidelines for the 5 to 10
units.
And again, remember, this is not1 guideline for all 5 to 10 unit
properties, but just in general,the ones that we've seen come
up, uh, for 5 to 5 plus.
It's usually it's either five toeight or five to 10 do not allow
(25:13):
short term rental income to beused to qualify the borrower.
So it has nothing to do with itbeing a commercial type
property.
And due to that, not being.
a DSCR loan.
Yes, we have plenty of DSCR loanoptions available for the five
plus units.
You just cannot use the shortterm rental income component to
(25:35):
qualify the borrower.
Let's go ahead and wrap it.
I think we can go ahead and wrapit up.
So remember we do this at 7 p.
m.
Eastern every Tuesday,Wednesday, and Thursday evening.
So we will be back tomorrow witha new topic.
(25:55):
We appreciate everybody tuningin.
We'll see you tomorrow at 7 p.
m.
Eastern for the next episode ofthe Loan Officer Training Series
with the Mortgage Company.
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