Want a better rental property loan? You’ve probably tried talking to banks, brokers, and residential lenders about growing your real estate portfolio, only for them to hit back with W2, income, and credit score requirements. Is there a loan that gets around these conditions for those that are hard to fund? What if you have a rock-solid real estate deal but no nine-to-five income to show to a bank? Well, there’s one type of funding you’ve probably never heard of, and real estate investors nationwide are starting to take advantage of it.
We’re back with another Rookie Reply as Ashley and Tony embark on an emotional journey down eviction lane, discussing what to do when bad tenants stay in your property and how to ensure it never happens again. But that’s not all; Ashley and Tony bring their tenant red flags that ANY landlord should know about when interviewing potential renters. They’ll also touch on subject to, seller financing, and other creative ways to fund your real estate deal, plus why you should (or shouldn’t) buy a historic home. Finally, you’ll hear about the investor-only loan so many people are using to grow their portfolios even faster!
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Ashley Kehr:
This is Real Estate Rookie, episode 288.
Tony Robinson:
Ash, outside of credit score, what other factors do you typically look at when screening for long-term tenants?
Ashley Kehr:
Yeah. Let me give this disclaimer first is that make sure you know what you can and cannot screen for with your state laws. I mean, every state has different rules on this as to what you can screen for. So screening also cost money, so you have to pay if you’re doing a background check to make sure no violent crimes have been committed. If you have a multi-family unit, your tenants are not going to be wanting to live next to someone who is convicted of murder and just out of jail. My name is Ashley Kehr, and I am here with my co-host, Tony Robinson.
Tony Robinson:
Welcome to the Real Estate Rookie podcast where every week, twice a week, we bring you the inspiration, motivation, and stories you need to hear to kickstart your investing journey. We’re back with another Rookie Reply episode. We’ve got some great questions today. We’re going to talk about why Ashley’s first eviction had her in tears and what you can learn from that process to make sure you don’t end up the same way. We’re going to answer the questions, “Do evictions and bad credit scores always lead to bad tenants, or is there a silver lining in there somewhere?” Last, we’re going to talk about what a DSCR loan product is and how you can use to fuel your funding for your real estate business.
Ashley Kehr:
You forgot to add in the part where a tenant leaves a note as to why she’s leaving the unit that also leaves you in tears.
Tony Robinson:
Yeah, but those are good tears. Those are good tears.
Ashley Kehr:
I know, I know.
Tony Robinson:
Yeah.
Ashley Kehr:
Yeah. So, today’s episode, we go through these questions. As always, Rookie Reply is your chance as our listener to send in your questions for us to answer. You can send your questions to the Real Estate Rookie Facebook group. You can send a DM to Tony or I, or you can leave some questions onto our YouTube videos. Just search “Real Estate Rookie” and make sure you are subscribed. Okay. So our first question today is from Dan Rodriguez. I took a look at this question, and I said, “Oh, great. Another opportunity for me to talk about how I cried on the podcast.” So today’s question is, “For those of you that have gone through the eviction process, did you go to loan in small claims court, or did you hire a lawyer? Local court has advised me of the steps needed. I’m just wondering if I should spend the extra money despite already being at a loss with a problem tenant. The guy already has a bench warrant for repeated failure to show for driving with suspended license, so I’m pretty sure judgment is paper value, and I’ll never recover nothing from it.”
Tony Robinson:
I just want to ask before you answer that, Ashley, because I wonder if Dan’s question… It seems like he’s just more so worried about trying to recover maybe lost rental revenue and not necessarily evicting him because… I mean, he said, “Wondering if I should spend the extra money despite already being at a loss with a problem tenant.” But if that tenant is still in the house, then you should definitely spend the money. I don’t know. How are you reading that question?
Ashley Kehr:
So you could go… and this probably varies from state. So I’ve done New York evictions, so I’ll speak on terms of that, but it has been a while since I’ve actually done one myself. So I think right here are two different questions that he’s asking or two different scenarios. So the first one is the eviction process, and then the second one is filing a judgment against someone. So these can be done simultaneously, or they can be done separately. So let’s take the scenario that the person is still living in the house, and they want to do the eviction plus file a judgment against the person, or you could just file the eviction and not even go with the judgment. But with the eviction process, you can do it yourself, but you just have to be so diligent.
I did two evictions. My first ever that I did, the investor I was working for said, “We don’t need to hire an attorney. You learn everything. You can learn how to do this process.” So, at court, judge made me cry because I didn’t file at the timeline, said I messed up the… or like when you serve the person, it has to be a third-party. You have to have them sign an affidavit. Then, you have this much time before you can file the next one, but the next thing to them has to be filed within three days or whatever. It’s a very time-stricken process, and if you don’t know what those time periods are that you need to hit, the judge can throw the case out of court.
Luckily, it was in a very small town. There was nobody else in the courtroom, except for me and the tenant. For the next case, she excused the first tenant and was like, “Please go ahead and go. She’ll have redo the eviction or whatever.” So she tells the bailiff or whoever is the only other person in the room is like, “Don’t bring the next person in yet,” and she says to me, “I’m just going to dismiss this for you. I’m not going to say the reasons why so you don’t have to go through the embarrassment a second time.” Something along those lines. I don’t remember the exact words. Basically, that, but… Yeah. So, I was like, “Please let me hire an attorney to the investor.” So, since then, I haven’t done any evictions myself, and always hire an attorney to do it because they know the process, and they can do it so much faster than you can.
There’s also certain language that has to be appropriate in the documents that are filed. So, for example, in New York, you have to give a 10-day notice for them to pay rent or to vacate the premise that they do not do either of those. Then, that’s when you can file the petition for eviction. You send it to the court, they give you a court date, and then you have to serve it to the tenant by a third-party, get the affidavit of service, all these things. Then, once you actually go to court, it can vary vastly as to how your court experience is. So I’ve gone with my attorney to different evictions, and sometimes I just sit there. I don’t have to say anything. Other times, the judge wants to ask me a million questions. Sometimes the tenant doesn’t even show up, and they make you wait 45 minutes to see if they are going to show up. So I think having an attorney is definitely a huge advantage. Plus, they can file the judgment for you.
The judgment is a lot easier to take care of than it is the eviction. You can go to small claims court. Well, you go to the court clerk, go to their office, and you will ask for the small claims form. You can fill out the form right there, and then they’ll give you a court date, and then they’ll have the marshal serve the person, and then you have your court date to do the judgment against the person. I’ve only done one judgment myself personally against someone because in the same scenario, it’s not going to really recoup anything, but one of the first tenets of my own that I had to evict, I did a judgment. It’s probably been seven years now, and I think it was a 10-year judgment. So, in 10 years, that judgment will expire. I’ve never seen a penny from it, and maybe someday I’ll get a check in the mail. Yay. But until then, it’s just a waiting game.
I think if you’re going to do the judgment, it’s fairly easy process, at least in New York, to do the that through small claims court. But as far as the eviction process, if you don’t know what that process is, then I would definitely hire an attorney, and for an eviction that goes smoothly, I would say on average, I’ve paid $1,000 to have that eviction done. But if that means that tenant is out quicker and I’m not losing two more months of rent because I messed up or I did something wrong, that is $1,000 well spent. Then, another option is you can do cash for keys. Offer the tenant like, “Hey, I’m going to give you $400 if you’re out by next Friday. I will come here, you have everything out, I’ll give you $400. That’s enough to help you towards a new security deposit,” or whatever that amount may be that would be cheaper than going another month or two waiting for the eviction to process, hiring an attorney, things like that.
Tony Robinson:
Yeah. One of the benefits, obviously, of investing in a short-term rentals is that you don’t have to worry about evictions. I can’t speak to all states, and this is not legal advice. So if this information is incorrect, please don’t come back, and try, and hold me liable, but I’ve been told that in California, as long as the stay is less than seven days, they never obtain tenant rights. The majority of our properties in California, they turn about every two days or so, so we never have to really worry about someone potentially needing to be evicted.
Honestly, we had one situation where we had to call the local sheriffs, and they were more than happy to show up at the property to help escort that guest off of the property. So it’s super easy with the short-term rental to get a tenant out if you need to, but obviously, every state is going to vary, and make sure you understand the laws in your local state as well. I actually looked it up, and it says that not only is it seven nights, but if a guest stays 14 days within a six-month period, then they also get tenant rights. So if someone booked two or three six-day stays, or something, whatever, whatever the math adds up to in a six-month period, then they get tenant rights, and I actually didn’t know that, so that’s good to know as well. If we see the same name popping up, that could be a cause for concern as well.
Ashley Kehr:
Okay. Let’s move on to our next question. This is from Tam Vo. “When tenant screening, I know credit score isn’t the only thing that matters and pulling credit helps to see their payment history. What credit score range would you accept for B neighborhood, C neighborhood? What else do you look for?” So I think a big consideration on this, and I think you’re definitely on the right track, Tam, is knowing what kind of class neighborhood you are in. If you are renting an apartment in a C neighborhood and you’re requiring a 700 credit score, you’re most likely not going to get that.
Where if you’re doing high-end luxury units, you’re more able to get the tenant that has that high credit score that is choosing to rent instead of purchasing a property because a majority, and not all renters, of course, are renting because they can’t afford or don’t have the credit to actually purchase a property. So that is a part of your tenant pool that you don’t want to, I guess or say, leave out because you’re setting your standard so high as for the tenant that you’re going to let occupy the property. So as far as the range to accept for a B and C neighborhood, I really don’t have a good answer. I will say that a lot of the units I have are in B neighborhoods, and we accept a 600 or above credit score for those areas.
Tony Robinson:
Yeah. Ash, outside of credit score, what other factors do you typically look at when screening for long-term tenants?
Ashley Kehr:
Yeah. Let me give this disclaimer first is that make sure you know what you can and cannot screen for with your state laws. So, in New York state, I think it was June 2019, they passed a law that you cannot deny someone because of their eviction history. So you can find out if they were evicted, but you cannot deny them for that reason.
Tony Robinson:
I did not know that.
Ashley Kehr:
Ridiculous. Yeah. I mean, every state has different rules on this as to what you can screen for. So screening also cost money, so you have to pay if you’re doing a background check to make sure no violent crimes have been committed. If you have a multi-family unit, your tenants are not going to be wanting to live next to someone who is convicted of murder and just out of jail. So there are things that you can screen for. The biggest thing is make sure you are consistent with your screening. Build out what your criteria is. What do you require of every single tenant so you don’t get yourself in trouble with fair housing laws?
Another thing. So doing the credit check, the background check, that is a big thing. Some states, doing the eviction check. Having references. So with references, it’s very easy for somebody to put their friend on the application and say, “Yes, they were my previous landlord.” So that’s where, as real estate investors, it can come in handy that we have access to finding who owns certain properties. So if you really want to go the extra mile and screening your tenant, wherever they put their previous address, go on PropStream, the GIS mapping, and see who actually owns that property that they’re saying was their landlord, or if they have a… Ask for the property management company that managed it and get that number directly, or you can Google it to verify that is the number if they give you a property management company.
Tony Robinson:
I guess, Ashley, have you ever had an experience where on paper, a tenant was probably someone that you shouldn’t have rented to, but maybe they had… Not a sob story, but they had a story for you as to why they were deserving and how their past isn’t indicative of their future, and you end up renting to that person, and it ends up being a nightmare. Has that happened to you before?
Ashley Kehr:
I’ve actually had it go both ways. So I had one tenant. It was the first property I ever bought on my own without a partner, and this was the first… I had just closed on it. It was rent-ready, ready to go, and I didn’t have a ton of people that came to showings. Instead of waiting to find the right tenant, I became desperate, and I rented to a young girl and her boyfriend, and her boyfriend didn’t pass the screening requirements, so she had somebody else co-sign for her. It went great until COVID hit, and so since March 2020 until they were just evicted, October of 2022, they did not pay rent at all. They would get… It’s called ERAP. It’s a government assistance program that started during COVID where you could apply for rent payments.
Well, this would only… You would apply for it, but then it would take up to four months for it to get approved. So then, they would be behind again another four months. When they were finally evicted, the place was trashed. It looked like… They had had a child since they had first moved in. Definitely looked like signs of domestic dispute like whole punches in doors like somebody had went in and locked the door, and somebody punching trying to get through, and just trashed the place. I had to spend $10 grand to remodel it after they moved out. So that right there was… I still think back to showing them that unit even though that was in 2017. So they paid from 2017 to 2020, and then after that, it just went downhill.
I had another scenario where it was a mom, and then her two teenage kids, and she really didn’t have… She met the credit requirements, her income was just barely at the level, but she asked for her kids’ income to be included saying they would be pitching into rent. So that was how we got around approving her was that she was including her teenage kids who had jobs, that they would be pitching in for rent. So we did that, and she had told me that she was leaving her boyfriend that was not nice to her and things like that, and she really gave me a sob story.
That time, I learned that’s sometimes a red flag is when they immediately are telling you, “Here’s why I am moving in and reasons I might not pay rent because I’m starting all over. Blah, blah, blah.” She paid late a couple times. She lived there two years, and then she put in her notice. It was the nicest notice, “I’m leaving your apartment,” I’ve ever received. Just the biggest thank you for giving them a chance. She had saved enough money. She had started this first-time home buyer program, and she actually had put a down payment on her first house that she was going to own on her own. That right there was like… That was a success story. That was one time where giving someone a chance really did work out, and I’ll never forget that tenant because of that thank-you note that she wrote me when she was moving out.
Tony Robinson:
As real estate investors, we get so much heat on social for destroying communities and just being awful, terrible people, but we need to share more stories like that where you gave someone a second chance, and they were able to use that to pretty much restart their life. We do some good as real estate investors as well, so kudos to you, Ash, for that one. Cool. So, before we jump off of this question, I just want to read another review that came in. This is a five-star review on Apple Podcasts by someone by the username of McNeil2712, and McNeil says, “My brother and I have talked about getting into real estate for years. After struggling financially for years, I recently paid off all of my debt, credit cards, loans, everything, except my car loan. So now that I see that it’s soon possible to take this seriously and my brother told me about BiggerPockets last week, I’ve listened to two episodes a day every single day. You guys are awesome.” McNeil, we appreciate that. For all of our rookies that are listening, if you haven’t yet left us a five-star review or an honest review whatever platform it is you’re listening to, please do. The more reviews we get, the more folks we can reach. The more folks who can reach, the more folks we can help.
Ashley Kehr:
Okay. So let’s go on to our next question from Zane Clark. “Hello. Has anyone structured a deal with seller financing in which you take over the mortgage for the seller? How does the seller benefit or recoup any of the equity they’ve already put into the house? Thank you for your time.” Are they asking about seller financing or subject to?
Tony Robinson:
Yeah. I mean, he said seller finance, but maybe just trade financing in general is what Zane is referring to.
Ashley Kehr:
Okay. Yeah, because he says, “Take over the mortgage for the seller.” So, in the sense that you’re taking over the mortgage for the seller, it’s not really considered seller financing. Seller financing is when you are actually paying your monthly mortgage payment or however you’re paying to the seller. They’re actually holding the mortgage on it instead of the bank. But in this case, if you’re taking over the seller’s mortgage, then you are still paying a bank a mortgage, and it’s not technically seller financing. So, in this scenario, the second part of the question was, “How does the seller benefit or recoup any of the equity?” Tony, have you ever done a subject to deal before?
Tony Robinson:
I have not. We’ve had a couple under contract, but they didn’t quite work out. But if you are doing a seller finance deal or maybe more so a subject to, you can still have the… between you and the seller, negotiate a down payment. So if the seller says, “Hey, I want 20% down,” then that’s them tapping into some of that equity that they have. So, yeah. There are ways to structure it, but if you guys want a full breakdown, I actually still have the book right here, Wealth Without Cash, one of the newer BiggerPockets books by our buddy Pace Morby. He was on episode 280 recently of the Real Estate Rookie Show and talked about all things subject to and seller finance, and really just gave a world-class breakdown of what that looks like. Then, if you guys go to biggerpockets.com/bookstore, you can pick up a copy of Pace’s book, Wealth Without Cash, as well.
Ashley Kehr:
Yeah, and I guess to give a quick answer to Zane’s question is how do they… the equity, maybe they don’t have any equity, and that is also part of the advantage to them is the reason they can’t sell it is because nobody is willing to pay that price for it, that market price, or they just don’t think that it would sell for that or they… For whatever reason, they don’t have any equity in the property, and maybe they listed it with a real estate agent. Pace talks about how he really goes after expired listings. So people tried to sell it, it didn’t sell, and now you are the one coming in and solving their problem by retaking over their mortgage, you’re purchasing the property from them, they can get out of the house, and they can move on and do their next thing. So that’s the benefit is that maybe they got a new job somewhere else, and they have to move, so it’s better than them having to pay money to pay their mortgage off.
So if you went, and say, their property for easy math is… They have a mortgage for $100,000. They try to sell it on MLS for $120,000. They get offers at $80,000. So that would mean they would have to come up with $20,000 to pay their mortgage, and then the proceeds from the sale, the $80,000 would go to pay off the other $80,000. But what you can do with subject to is you can go and offer to pay that $100,000. You may be thinking, “But wait, why would I pay $20,000 more than someone else is paying?” Because right now, interest rates have increased. So somebody else who’s buying that same property, their mortgage might be 6%. But if that person bought the property, say, in 2020, 2021, and their interest rate is only 3.5%, your payment is going to be a lot lower and more affordable than that person who can pay the $80,000. So that’s one huge advantage that Pace talks about too in his episode. So that’s just a couple of the reasons why someone might sell it, why you might be able to purchase the property at that purchase price of what their mortgage is.
Tony Robinson:
Yeah. The levers you can pull are your down payment, right? A lot of people can get into subject to or create a finance with zero money out of pocket. It’s the term of the deal. Maybe it’s a shorter note where it’s like five years. Maybe it’s long-term debt where it’s 30 years. Right? It all depends on what that person wants. Interest rate, like Ashley talked about, is another lever you can pull. Then, the overall purchase price. For a lot of sellers, they’re going to have different motivations or not motivations per se, but each one of those is going to be important or more important to one person than the other. So it’s up to you to figure out what’s really driving that person, and then leveraging that to create the best deal. I mean, yeah, we know people that are crushing it with creative finance and subject to, so it’s about understanding that seller’s problems, and then presenting some solutions that make it a win-win for everybody.
Ashley Kehr:
Yeah. Another example I give is I’ve done one subject to deal, and it was to purchase a farm. They had back taxes that they couldn’t afford to pay, and they were also starting to fall behind on their mortgage payment. So the property was going to be foreclosed on if they didn’t come up with the cash to pay off the back taxes. So what we did was we worked out an arrangement with them where we took over their mortgage payments, we caught their mortgage payments up, so they were no longer in risk of foreclosure, but now they still had the back taxes where they’re at risk of the county coming in and taking the property. We paid off the back taxes. Paying off the back taxes, catching them up on their mortgage, that was less money than we would’ve needed as a down payment. Plus, this was this person’s primary residence. So their mortgage terms were a lot better. The payment was a lot lower than what we would’ve had to pay if we went and got our own financing.
The benefit to the seller was they weren’t going to lose the property to a foreclosure where that would be on their record. Also, we let them front the house. So they live in the house and pay rent to us, so we didn’t have to go find a tenant. They live there. They pay rent. So they got to stay in their house even, and we just use the farmland, and then there’s two other rental properties on there too that are rented out. So there’s always different ways that you can make it a win-win scenario for each buyer and seller. Okay. Next up, we have a question from Jared Sutherland. “What are the advantages/disadvantages of getting a buy-and-hold in a historic district? Thanks.”
Tony Robinson:
Have you ever bought in historic districts?
Ashley Kehr:
No, I haven’t. There is this church that bought the movie theater in a small town near me, and they bought two buildings adjacent to it. They were going to tear the one building down to make a larger parking lot for the movie… Actually, a parking lot. There is only street parking from the movie theater now, and they got stopped by the historic district and said, “No, you can’t tear this building down.” I had toured that building probably five years ago when it was first up for sale. There was a three-unit. In one of the units there, it was a two-bedroom unit, and there was eight people living in it. Mattresses on the floor in the living room. The other two units were vacant. One just needed a lot of repairs. The other unit had… In the bathroom above the bathtub were pieces of plywood with chains and hooks so that you could fold the plywood down like bunk beds. This was all through the house, graffiti, needles, and had been a drug house basically where people would go in, and do drugs, and stay over on one of the plywood bunk beds.
Yeah. So it was definitely in need of a ton of repair and just like… The building just sits there now. It hasn’t been demolished. It hasn’t been fixed up or anything. To me, it’s very controversial as to how do they decide what’s historic, how do they decide… So I honestly don’t know a lot about purchasing in a historic district or the board members, so my advice would be to look at if there are any tax advantages, if there are any grants or funds that the historic board will help you get because there are tons of funding out there and grants that you can get for all types of things, but you have to, most likely, to be really successful at getting them, and hire a grant writer, which can cost a lot of money. I used to be on the board for a Boys and Girls Club for about 10 years, and we would always go do these grants. Finally, we just got a grant writer to join our board because we weren’t having any luck. But once we had a grant writer, and we’re investing in that to come and make it, we are getting a lot more grants coming in. So that, I could see, is one advantage of doing up iron hold in a historic district.
Tony Robinson:
Yeah. It’s a great call-out, and I haven’t purchased anything in a historic district either, but a friend of mine, her name is Katie Neason, K-A-T-I-E Neason. You guys should follow her on Instagram. She’s @KatieDevelops. She lives in Bryan, Texas, and she’s basically on this mission to restore downtown Bryan, Texas. She’s buying old beat-up buildings and repurposing them into mixed-use commercial facilities, and she’s doing a really great job. So I know she knows a lot about buying in historic districts and what the benefits are. But like you said, Ashley, when I was investing in Shreveport, their local government was also encouraging people to buy homes in downtown and renovate them as well. Like you said, they were giving tax incentives to people who were buying and renovating properties in that downtown area, assuming that you were using it for whatever purposes that they had approved it for. So there’s a lot of potential benefits of doing that, and it’s cool.
I think my short-term rental hat, putting that on, if you’re able to buy whatever, like a historic bed and breakfast, or like you said, Ash, like an old movie theater, who would’ve thought that you could buy a movie theater? But being able to buy some of these properties in these historic parts of town, there’s a marketability to that. So if you bought that old thing and turned it into this really cool Airbnb, now you’ve got someone that’s going to stand out in that neighborhood. So I’ve talked about Katie Neason. If you guys want to hear more from Katie, she was on episode 538 of the BiggerPockets Real Estate Podcast. Like I said, she’s a really amazing person, funny as heck, and she does redevelopment in Bryan, Texas, all in the downtown historic area. So episode 538 if you want to hear more from Katie.
Ashley Kehr:
Okay, and our last question today is from Brandy Joe Krum, a BRRRR refinance question, “Have you recently refinanced based on the asset itself and the rental income, and what kind of rates and discount points are you paying? Is this a portfolio loan, or are you refinancing where they take into account all your personal income and debt, and qualify based on that?” So, Tony, I don’t know if we talked about this in this episode or the last episode, but you haven’t done any refinances lately. When was the last time that you did one?
Tony Robinson:
Yeah. It was a while ago, but I’m actually working on one right now. I think it plays in perfectly to this question because I’m working with two lenders, and one is called an investor loan. Even though it’s called an investor loan, it’s still in my personal name, and they are looking at DTI, and my tax returns and all these other stuff to make sure that I can qualify. Then, I’m working with a second lender that’s using a DSCR product. So it’s called the debt Service Coverage Ratio product. Obviously, I told both lenders that I’m working with both of them. Then, I’m just going to go with whoever gives me the best deal here, but you can go either route branding, which is the beauty of investing in real estate.
So your first question is, “Can you do it based on the asset itself and the rental income?” So, yes, you can totally do that. That’s what the DSCR loan product is, and a lot of lenders will underwrite that property and say, “How much rental income do we think this property will generate, and does the rental income meet or exceed the debt obligations or the mortgage payment of that property?” If it does, then the chances of you getting approved for that DSCR product, it’s better. Right? You have a better chance of getting approved.
Now, typically, their interest rates are higher. So on the DSCR product, right now, I’m getting quoted like a nine. On the investor product, I’m getting quoted like a seven. So you are going to pay more for the product. But again, if your ability to get approved for a traditional loan, just looking at your DTI, your income and all that stuff is limited, then going the DSCR route tends to be a little bit better. I’d say that the LCVs are about the same. I think both of them are around 75%, I want to say. So that doesn’t change too much, but you are paying more upfront with the DSCR products than you are with the traditional investor loans.
Ashley Kehr:
So I’m doing two refinances right now, or I just finished the one, and that was a short-term rental. We did that on the commercial side, but they did not take into account what our short-term rental income would be because we hadn’t had it active. At the time that we started the refinance, we were still finishing up the rehab. So, Tony, in your experience for doing them for short-term rentals, are you going to specific lenders that understand short-term rental income, or what should I do differently going forward? Because when they sent the appraiser out, the appraiser was just there to appraise the property and not do any kind of income approach.
Tony Robinson:
So there’s two options. So your first option is to hold onto the property for at least about six months and show that you have short-term rental income on that property. Most lenders I’ve talked to said that if they can see at least six months of documented income, then they can use that to project out what that property would do on a year. If you had it for a year and it shows up on your tax return, then that’s the easiest way because then they can just look at that tax return and say, “How much money did this property generate?” So even if the lender doesn’t really understand short-term rentals, if you have a long enough paper trail to show how that property is actually performing, lenders that I’ve talken to or spoken with have said that that’s a decent route to go down. The other option is to work with a lender that actually understands and offers DSCR products specific to the short-term rental industry and who have the ability to underwrite the property not just as a long-term rental, but as a short-term rental as well. That’s the kind of lender that I’m working with right now is someone who specializes in the short-term rental space for DSCR products.
Ashley Kehr:
Okay. Awesome. That’s why I love that we get to be co-hosts of the show because I always get to pick your brain on everything short-term rentals that I don’t know.
Tony Robinson:
So you got options out there.
Ashley Kehr:
Yeah. I’ll have another one that I’ll be doing this fall. So, yeah, I’ll have to consider which would be the best.
Tony Robinson:
Look at you turn into a little short-term Airbnb queen over here, huh?
Ashley Kehr:
You would be so proud of me. I just hired an operations manager, someone to handle the day-to-day.
Tony Robinson:
There you go. I love that.
Ashley Kehr:
Yeah. Her third day, I have the septic pumped at one of the properties, and it was so relaxing for me. I had to do nothing.
Tony Robinson:
Yeah. Yeah, and that’s so funny because we’re actually on the inverse where our operations manager, actually, her last day was last Friday, so she moved on to another role somewhere else. So, now, me and Sarah having to step back into the operations at least in the short-term while we try and source someone else, so it’s like… I actually have my ops calls right after this with our VAs to try and keep everything moving. So I’m glad you’re enjoying that process, and hopefully, I can get back there soon enough.
Ashley Kehr:
What a great way for you to come back to vacation, having to work more.
Tony Robinson:
Totally. Yeah, having more work to do. Yeah.
Ashley Kehr:
Okay. Well, thank you guys so much for joining us for this week’s Rookie Reply. I’m Ashley, @wealthfromrentals, and he’s Tony, @tonyjrobinson on Instagram. Don’t forget to check out the Real Estate Rookie YouTube, and we will see you guys on Wednesday where we will have a guest.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.