NO RENTAL HISTORY - ANNUAL MARKET RENTS DO NOT MEET REQUIREMENTS Lenders will consider financing properties at the maximum 75%-80% Loan to Value (LTV) even in situations where the annual market rents do not support a loan of this amount. Currently, lenders are using the AirDNA full report and assuming a reduction of 20%-30% from the gross estimated revenue. If the property meets the lender’s cash flow require - ments with that reduction, the loan is approved for maximum LTV. So, if one of these methods works for the loan request, you can expect similar rates and loan amounts as an annual rental loan from a private lender. If all else fails, and the property does not meet any of these methods, there are a few lenders that will lend up to 75% LTV without considering the cash flows. These rates will be mark - edly higher, generally 0.5-1.5% based on the FICO score of the borrower. So, while you’re on vacation this spring, stop by a real estate agent’s offices to see if you too can pick up a vacation rental for your portfolio. It could be the start of riding a new wave of investing. • Eager to learn more about real estate investing? Please visit www.thinkrealty.com/courses for additional subject matter information from our Resident Experts. Damon Riehl, founder and CEO of Investment Property Loan Exchange, has more than 35 years of lending experience in a broad array of asset classes, including commercial and residential mortgage, small business, and construction lending. He held top leadership positions as head of commercial lending for Ocwen Mortgage, head of unsecured lending for Citibank, global mortgage leader for GE Capital, head of construction products at Fannie Mae, and a member of the Harvard Joint Centers for Housing Studies. Riehl has built six de novo lending platforms and used that knowledge to build and grow Investment Property Loan Exchange and the FinTech platform LoanBidz.com.
Typically, these lending practices are applied in the following ways. ESTABLISHED RENTAL HISTORY If the property has a 12-month history as a short-term rental, the lender will review that information and the data from an AirDNA report, with a 20%-30% reduction from that estimate. The lender will use the lower of these estimates to deter- mine whether the property will meet cash flow requirements with a full 75%-80% LTV loan in place. NO RENTAL HISTORY - ANNUAL MARKET RENTS MEET REQUIREMENTS Lenders will review the apprais - al and the market rents, as if there were an annual lease in place. If the annual market rents work for the cash flow calculation, the lend - er will assume the property can be converted to an annual rental in the future, if needed. The lender will generally approve the loan if the income from the AirDNA report is equal to or greater than the annual market rent.
models. As a result, they financed these properties with a reduced Loan To Value (LTV) of around 65%- 70% and charged a rate 0.5%-1.5% higher than normal rental loans. METHODS FOR EVALUATING CASH FLOW The private lending market is working hard to understand the risk and improve the loan options available for short-term rental pur- chases, but lenders are at different stages of product development. The top lenders in the shortterm lending space use these methods to evaluate the cash flow of a new short-term rental property: 1 Require a 12-month history as a short-term rental 2 Use the market rents from the appraisal, as if it were an annu- al rental lease 3 Use a data source, like AirDNA,to estimate vacancy and rental rates
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