How to Finance a Short Term Rental in Myrtle Beach

Avery Carl [00:00:03]:
Hey guys, it’s your host, Avery Carle. Welcome to the short term show special episode series on Myrtle Beach, South Carolina. I’m super excited to do this 10 episode deep dive into this market with.

Brenna Carles [00:00:13]:
You and I wanted to make a.

Avery Carl [00:00:14]:
Few notes for you first.

Brenna Carles [00:00:16]:
So if you want to set up.

Avery Carl [00:00:17]:
A search for properties or see current purchase prices or current income numbers in this market, you can do that at our website, the shorttermshop.com.

Brenna Carles [00:00:25]:
If you just want to connect with.

Avery Carl [00:00:26]:
Us and hang out and talk about short term rentals more, you could do.

Brenna Carles [00:00:29]:
That in our Facebook group.

Avery Carl [00:00:30]:
It’s the same title as my book. It’s called short term rental, Long term wealth. And you can also find the information on all of our other market short term show special episode series there as well. So we look really forward to hanging out with you over the next 10 episodes and we’ll catch you guys on the next one.

Brenna Carles [00:00:46]:
Let’s go foreign. Hey guys, welcome back to another episode of the short term show special episode series on Myrtle Beach. Today we’re going to be talking about financing because there are some pretty specific things about financing properties in this market that we want to go over and we have a cool panel here to help us do that. First, we have Brenna Carls, who you may recognize from some of the other market episodes. But Brenna, go ahead and introduce yourself really quick.

Brenna Carls [00:01:20]:
Hey guys, my name is Brenna. I’m the CEO and co founder of the Mort Workshop with Avery. So I’ll be on this episode to help answer any questions you have about the market regarding financing.

Brenna Carles [00:01:29]:
What else do you do?

Brenna Carls [00:01:31]:
Oh, I mean, we specifically specialize in short term rentals, long term rentals, and vacation home loans. So we’re going to go through all of those products for you, the details around them, frequently asked questions around them. I also like to eat pizza on the side. If Avery’s wanting me to say anything personal, that’s about it.

Brenna Carles [00:01:53]:
All right. And then we also have Bradley, who you might recognize from some previous episodes. Also Bradley Klein, one of our agents in Myrtle Beach. Bradley, do you want to introduce yourself really quick?

Bradley Klein [00:02:03]:
Hey, I’m Bradley Klein and I’m one of two agents in the Myrtle beach markets, myself and Samantha. I’ve been working in the Myrtle beach market for four years and the short term shop joined August of last year and I’ve been with them pretty much since the beginning.

Brenna Carles [00:02:18]:
Awesome. And we appreciate that. So let’s talk about the different types of financing that you’ll probably see in this market. So Bradley, would you say of the deals that you do, what percentage of them are condos and what percentage are single families?

Bradley Klein [00:02:33]:
So predominantly, I would say it’s 70 to 75% condos and 25% single family. It’s mostly due to zoning, of course. The Grand Strand is 60 miles, so you’ve got condos predominantly along the whole stretch. And then within a few blocks and within a few city areas, of course, you have some single family homes, but predominantly condos.

Brenna Carles [00:02:59]:
Right, gotcha. So condos guys, cannot be conventionally financed. And we will get to that in just a second because I think that’s going to take up the bulk of the time. But for the 25% of single family homes that we see, transactions that we see done in this market. Brenna, let’s talk about the types of financing you can get on single family homes, starting with conventional. So what’s a. Well, a conventional loan guys, is the easiest type to find. You can walk into any bank, mortgage brokerage, lender in the country and they will have conventional loans.

Brenna Carles [00:03:32]:
But Brenna, can you tell us about how you qualify for a conventional loan?

Brenna Carls [00:03:36]:
Yes. So conventional loans go off of your personal income and personal debt. So we pull your credit, look at your credit score, credit bureaus to see what debt you have. Debt to income is literally debt divided by your monthly income and then your proposed monthly payment. So that’s what conventional loans go off of. You can go mostly anywhere to get these. But be careful because we underwrite strictly to Fannie Mae and Freddie Mac. There are some places that have rules or what’s known as overlays on top of what Fannie and Freddie allow.

Brenna Carls [00:04:10]:
So you always want to ask that question when you’re talking to a lender to see what they do and do not allow. There’s different conventional loans. So there’s the second home loan with 10% down. Your primary intent has to be to vacation there first. So if you’re just getting started, that might be a great loan for you because you may want to get your feet wet, want to vacation there, rent it out when you’re not occupying it and see if this real estate investing is really good for you. And then if you know that you’re going to do it strictly as an investment, then you can do the 15% down investment only up to the 2024 conforming loan limit, which is 765.50, I believe it was. So it went up just a little bit this year. And then if you want to do jumbo, so we’ll get into that In a second.

Brenna Carls [00:04:57]:
So Jumbo is still kind of considered conventional financing, but those are the two loan types that you would do for investment real estate.

Brenna Carles [00:05:05]:
All right, so let’s talk about an investment loan really quick. So a lot of people mistakenly think that the minimum down payment for a conventional investment loan is 20 or 25%, but that’s actually not true. It’s 15%, which is pretty cool in my opinion, to be able to put down because I think most people think it’s 20 or it’s 25 for anything with more than two doors. So I think that that is a very important call out because a lot of people don’t realize that. And conventional investment loans, I mean, you can do those as a true investment, but a lot of people want to use a 10% down vacation home loan. So can you tell us about that.

Brenna Carls [00:05:44]:
Really quick what a 10% down vacation home loan is? Basically your primary intent is to vacation there first. Fannie Mae says that you need to occupy it for some time during the year. It doesn’t say specifically how many days, but for some time during the year. And then Fannie Mae allows you to rent it out when you’re not occupying it. So remember I said that you want to check with each lender that you talk to to see if they have overlays, because a lot of banks and credit unions will have what’s known as overlays where they will not allow you to rent out your second home at all. So always be careful with that and make sure you’re doing your due diligence on that type of transaction. Right.

Brenna Carles [00:06:21]:
So with conventional of both, both types. So whether it’s investment or second home, you can only get 10 of those. So keep that in mind. And it’s something that if you do it strategically, you can actually do more. So if you are, let’s say a two income household, both spouses work. If you put one spouse’s name on each contract and you alternate whose it’s on, whose name it is on it, you can actually get 20 collectively. But if you put both names on every contract, then you can only get 10 collectively. So if you can each qualify for properties on your own, try to do that because you can get more properties that way.

Brenna Carls [00:06:59]:
Now really quick though, second home loan, it’s one second home loan per area per married couple. So you wouldn’t be able to finance a second home loan and then your spouse be on title and then them finance a second home loan in the same Myrtle beach area. But let’s say you want to get a second home loan. And let’s say maybe your, your parents want to have a vacation home loan as well. You can do that as long as you aren’t on each other’s loan in the same area. So just keep that in mind. Yeah.

Brenna Carles [00:07:25]:
So guys like you can get one per market when it comes to second home loans. You can get as many as you want in the market if it’s an investment lo so but my advice is if you’re trying to buy multiple in a market and you’re trying to do some like cute stuff to try and get two second home loans, just put the extra 5% down and make it an investment loan so you’re not committing mortgage fraud. That’s typically, you know, that’s frowned upon. I think in our country you can go to jail for it. So just make sure you stay out of the gray areas of, of those things. So but in terms of going back to conventional as a whole, so she talked about being qualified on your debt to income ratio. So what that is is how much money you make versus how much money you have in expenses or not expenses, sorry in loans that you’re paying every month. So your mortgage, your car, your student loans, your rent, things like that.

Brenna Carles [00:08:20]:
So the thing about conventional loans is if you’re planning on doing multiple, you kind of have to time it right. So if you only have enough debt to income ratio to buy one $500,000 property, but you’ve got the down payment to buy two or three, what’s going to happen is when you buy that property, that debt is going to show up on your debt to income ratio, but the income that you’re making off of that property will not show up until the next your next tax return. So if you buy something in like June of one year and you that debt now goes on your debt to income ratio, but the income won’t show up until you file file next year’s taxes. So it’s possible that you’re not going to qualify to buy another one even though you have enough money and down payments to do that until you file your taxes next year. So keep that in mind when you’re buying things and when you’re using conventional loans that you have to kind of time that debt to income ratio to where you’re it’s the least amount of time before you file your next taxes, if that makes sense. Does that say that right, Brenna?

Brenna Carls [00:09:21]:
So yeah, let’s just break it down a little for simplicity, simplistic purposes. So what Avery’s talking about is when you go to do an investment only loan, you actually can use proposed rental income to help offset your mortgage payment for that specific deal alone. But if it’s short term rental income, you’re able to use it on that loan. But as soon as you close that loan, that’s not projected anymore because you own that property. So you have to wait and file your tax return before you can claim income on that property after you close on the loan. During the loan, you can use proposed rental income as soon as you close on a short term rental property, then you have to wait until you file your tax return. And that’s what she’s talking about. And so there’s different avenues to leverage debt that we’ll get into.

Brenna Carls [00:10:04]:
But yeah, so you can use proposed rental income on investment only, but not second home loans.

Brenna Carles [00:10:10]:
Gotcha. So I think that’s important to know too. If you put that extra 5% down, then they can use the projected rent on the property you’re about to buy and you don’t have to wait until next year. They can use it to qualify you. So keep that in mind when it comes to conventionals. Conventionals you can only get in your personal name. You cannot get those in an llc. Anything else on conventional? Oh, typically guys conventional loans will usually have the best rates of any of the other types of loans.

Brenna Carles [00:10:40]:
So I’m a big fan of maxing out your conventionals first. There are other people and influencers disagree with that. But it’s. You’re always going to be able to put the least amount down and have the lowest interest rate of any of the other types of properties. There may be a few exceptions to that rule here and there. Don’t, don’t hit me up on the comments to tell me why I’m wrong about that. I’m mostly right. Typically that’s going to be the case.

Brenna Carles [00:11:05]:
So that’s what I did with my properties. That’s what I recommend doing because it’s the easiest. Lowest down payment, lowest interest rate typically. Anything else on those, Brandon?

Brenna Carls [00:11:14]:
So let’s go. I’m going to say because people get confused with jumbo loans. So can we go over that really quick?

Brenna Carles [00:11:19]:
Sure, yeah. Almost forgot about jumbo loans.

Brenna Carls [00:11:22]:
So jumbo loans. A lot of people think that jumbo loans are hard to finance. I see. Well, I heard you know, the jumbo loans hard to finance. And my question is why it’s not. I don’t know, it’s just a rumor, I guess. It’s, it’s qualified the exact same way as A conventional loan, it’s just not considered conventional because it’s above the conforming loan limit that FHFA puts every year. So for a second home loan, you can still do the 10% down or I guess it’s 10.01% down on a jumbo loan.

Brenna Carls [00:11:51]:
So anything over that conforming loan limit would be considered jumbo. You can still do 10 down as a second home with that. But then when you get to investment only jumbo, it’s 20% down. So keep that in mind. There’s no difference in how we underwrite the file, how long it takes you to qualify for the file or anything like that from conventional, it’s just literally the loan amount. And then generally jumbo loans can go up to a 45% debt to income ratio. Again, that is your monthly debt divided by your monthly income. Conventional, which is the FHFA conforming loan limits is up to 50% as long as Fannie Mae or Freddie Mac approves it.

Brenna Carles [00:12:30]:
Good to know because I think a lot of people don’t realize that conventionals are not, I mean, sorry that jumbos are actually not conventional conforming loans. So good thing to remember. And do the second home loan rules still apply. You can still put 10% down on a jumbo second home. What about a jumbo investment?

Brenna Carls [00:12:49]:
Jumbo investments 20. So we still write underwrite to Fannie Mae. It’s just the difference is how we sell it to the secondary market with jumbo versus conventional loans, they’re just bundled differently and that’s, that’s the back end kind of complicated stuff. But yeah, we still underwrite to the same guidelines as Fannie Mae allows for conforming loan limits.

Brenna Carles [00:13:08]:
All right, so now back to Bradley and the non warrantable condos. So you said about 75% of of the deals that you do are condos. How many of those would you say have been non warrantable?

Bradley Klein [00:13:23]:
If you had to guess, probably 99% whether, whether it’s non warrantable or condotel, which essentially is the same thing. But yes, they’re about 99. It’s very rare now that any of them are conventional qualify for conventional terms.

Brenna Carles [00:13:39]:
So would you say, I know a lot of investors when they hear the word condo, if they don’t own any, they autom dramatically get a little scared and they’re a little bit condo averse. Can you kind of tell us why buying a condo in this market is not something to be afraid of? Because they’re scared of them deciding the condo association deciding no more short term rentals. Or something like that.

Bradley Klein [00:13:58]:
Predominantly because Myrtle beach is a vacation town. It’s all it ever has been. I mean, prior to it being Myrtle beach, it was a swamp. And now obviously ever since it’s been around, it’s been, it’s. Its main industry is hospitality. So if they were to ever do anything as far as restrict regulations on short term rentals, they would pretty much lose their entire infrastructure. Also short term condos, of course, your HOA typically includes all of your fees. A lot of the better buildings that do generate the higher numbers, they generally include your insurance, your HO6 policy, all utilities, access to all the amenities.

Bradley Klein [00:14:39]:
So essentially if you’re somebody, let’s say lives in California or just somewhere that isn’t convenient to get to Myrtle beach within a few hours, you essentially don’t really have to worry about anything except covering your monthly HOA fee, making sure you, your vendors are doing what they should be doing. And essentially at that point it runs itself. So it’s a lot less legwork with a condo.

Brenna Carls [00:15:04]:
I’m going to break down what you just said so people understand for financing purposes, for the HOA fee guys like he’s talking about, it can be very useful because it can cover things like sometimes it covers your utilities, cable. You don’t have to worry about all of those extra expenses. However, when it’s coupled into an HOA fee, that monthly payment does count against your debt to income. So keep that in mind. Normal utilities, cable, Internet doesn’t count against your monthly debt to income, but when it is coupled into an HOA fee, it does. We do pre approve you with a cushion in there for an HOA fee just in case you do have one. Because we don’t want you to go under contract and have an astronomical HOA fee and then not qualify. So just keep that in mind when you’re looking in this market.

Brenna Carls [00:15:48]:
A lot of these places, 98% will have HOA fees. And then he said an HO6 policy. So that’s just, it’s homeowners insurance is just the homeowner’s insurance type. Four condos or an attached single family home that shares a wall. So it’s just, you have to just let your insurance agent know that it is a condo. So they do write the correct policy for you, which is an HO6 policy. And then when you hear the word non warrantable versus warrantable condo, non warrantable in the areas we specialize in. So in Myrtle beach just means that there are more investment units in second home units than there are primary residence units.

Brenna Carls [00:16:29]:
Now with it being a beach, it can be deemed non warrantable if a hurricane comes through and makes damages. And it’ll be deemed non warrantable until those damages are fixed. But most of the time, 99% like Bradley said, is non warrantable because there’s more second home and investment property units than there are primary residence units. And then a condotel is kind of the same thing except it acts and operates as a hotel. So you go in, they can hand you a key card to every single unit in that condo. So everybody and their mom that works there has access to it as opposed to a non warrantable condo. You can probably put a door code on your door and nobody’s having a key card to get in and things like that. And that’s, that’s kind of the main difference between the two.

Brenna Carles [00:17:10]:
All right, so to kind of, in summary, talk about this. So non warrantable condos, condo buildings, HOA fees, nothing to be scared of in this market, everything’s going to be non warrantable. And there’s a lot of things that can make a condo non warrantable, but the main thing is going to be in this market that a higher percentage of units are owned by investors or second homeowners than primary homes. I actually years ago had a condo under contract in Destin for I don’t even want to say how much because it was so dumb, we should have bought it. And we called our regular lender at the time and got halfway through the deal and then she said, oh hey, this is non warrantable, we can’t do a conventional loan on this. And I mistakenly thought, oh man, non warrantable means you have to pay cash. How do all these people who own all these condos in Destin pay cash? That’s crazy. Incorrect.

Brenna Carles [00:18:04]:
Don’t make that mistake. I think a lot of people hear that word not conventionally financeable and think that that means not finance at all. And that’s not what it means. So all it means is you have to get a different type of financing.

Brenna Carls [00:18:16]:
Like what Brenna, you can do credit union or community bank in the area. So Bradley would be able to give you those referrals that can do a lower down. Otherwise you can do a DSCR loan or what’s known as debt service coverage ratio loan for non warrantables or condotels. So DSCR loan stands for debt service coverage ratio. It is not a conventional loan. It goes, it does not go off of your personal debt or personal income. It goes off the property or purchasing’s proposed monthly rental income. So how much it makes as opposed to the debt.

Brenna Carls [00:18:51]:
So it’s usually 20% down for those, those products. There are options that you don’t have to have a prepayment penalty. A lot of these loan options have prepayment penalties, which means if you sell or refinance in the first five years, you’ll have to pay interest on, on those years that you sell before the fifth year. Conventional doesn’t have any of that. So just keep that in mind. It is not a conventional conforming loan. It is really good though. Like we were talking about.

Brenna Carls [00:19:17]:
Let’s say you did that short term rental conventional loan. You use proposed rental income. But now after you closed it, your debt to income ratio is too high to qualify for conventional again. Then you can strategize and do a DSCR loan. If you want to buy another property within that year until you file your tax return. You can also close those in an LLC as opposed to conventional. You’d be closing those in your personal name. DSCRs can close directly in your LLC.

Brenna Carles [00:19:42]:
Okay, awesome. Thank you for that explanation. So I think DSCR loans are perfect for, for those of you who maybe just switch from W2 work to 1099 work. So you’ve got the down payment and everything you need. But maybe you don’t have the two years of income to show on 1099 to qualify for conventional. Or maybe it’s a situation where you’ve got a lot of cash but your debt to income ratio, like you don’t have a ton of income to show. So like somebody who does real estate investing for a living, this will be the category that they fit into. So they’re giving you the loan not based on your debt to income ratio, but based on the ability of the property to cover the mortgage by a certain percentage each month.

Brenna Carles [00:20:29]:
So I think a lot of people get really excited about that and they want to get all these DSCR loans, which is great. You can get unlimited DSCR loans by the way, like Brenna said, you can get them right in your llc. But there is a catch. The interest rate is typically going to be higher than conventional loans and some of them are going to have prepayment penalties, which you touched on a little bit, Brenna. So keep that in mind. You have to make sure that this is going to be something you’re going to hang on to for a while and that you’re okay with that interest rate. I heard when, when DSCR first came around, I would see investors get so, so excited and then they’d be like Wait, this isn’t a deal. The interest rate is 2 points higher.

Brenna Carles [00:21:07]:
Well, of course it is because the bank is giving you a loan on the idea that you are going to do a good enough job managing it to pay the mortgage. So it’s a riskier loan for a bank than a conventional loan that’s based on your ability to buy via your debt to income ratio, your ability to borrow. And the bank is going to charge extra for that being riskier to them. Brenda, did you have anything to add to that?

Brenna Carls [00:21:32]:
No, not for DSCR loans.

Brenna Carles [00:21:35]:
All right, and do you want to explain real quick? Bradley said a non warrantable condo or a condo tell. And we’ve got another episode that’s going to go into the types of properties a little more in depth. But can you just kind of give us a high level of what the difference between a condotel and a non warrantable condo is? Because I think sometimes people misunderstand the difference.

Brenna Carls [00:21:56]:
Yeah. So non warrantable is just. There are more second home units and investment property units than there are primary residence units. Condotels are exactly what they sound like. They act and operate as a hotel. You go in, I give a lot of the examples of Miami. You go in, there’s valet parking, they hand you a key card to every single unit in that condo. They have things like bars beside the pool and these services that normal condos may not have.

Brenna Carls [00:22:26]:
And your lender should be able to figure out which is which. So between a non warrantable condo or a condotel, they’re both in Myrtle beach and they’re both able to be financed by dscr. And then Bradley, I don’t know for like local banks and credit unions, do they, do they finance both or do they just do normal?

Bradley Klein [00:22:45]:
They do, there’s just generally a higher down payment, especially if there’s a higher ratio of investment units as opposed to even second homes. They typically require 25% down locally but they do still finance them. There’s just fewer lenders that will do condo tails.

Brenna Carles [00:23:02]:
Now let’s talk about true commercial loans.

Brenna Carls [00:23:05]:
So.

Brenna Carles [00:23:06]:
So when it comes to commercial loans, the bank is going to have to either be local to you or local to the property. So there you get commercial loans from small local banks and credit unions and they’re going to want to build a relationship with you. So if you’re Planning to buy 20 short term rentals and only one of them in Myrtle beach, they’re probably not going to give you a loan. They’re going to want you to put money in their bank. They’re going to want to see that you want to buy multiple properties and use them for financing. They are truly there to build a relationship. So, so you’re probably like if you live in Houston and you’re buying in Myrtle beach, you’re probably not going to be able to get a loan from the bank of the Midwest on a non warrantable condo in Myrtle Beach. They in order to get these, I would say these are the most difficult type to get.

Brenna Carles [00:23:50]:
But they, they don’t go off of your debt to income ratio, they go off of the property itself again. But they’re going to want to see a whole PFS or personal financial statement which is everything you make, what all your investments make, where all your investments are. They want to see experience in the space and then they’re also going to want to see a business plan. So you plan to buy 10 condos in Myrtle Beach. They want to see what your business plan is for that. And then they take all of those things once a week to what’s called committee and everyone that the higher ups at the bank look at your file and decide whether or not they want to give you a loan. So I’d say this is the most difficult type to get. A lot of small local banks haven’t caught on to short term rentals yet.

Brenna Carles [00:24:35]:
Even in short term rental areas like I know down here in like Panama City, it’s still hard to get find a commercial lender who will do a short term rental. Is that the same there Bradley, or do you see many local lenders doing commercial loans on short term rentals?

Bradley Klein [00:24:49]:
I don’t come across a whole lot of commercial loans I think predominantly because most of my clients are out of state so we don’t come across them too regularly. In fact, come to think of it, I probably haven’t had any client users commercial lender locally.

Brenna Carles [00:25:03]:
That’s kind of what I expected to hear. So if you can find a commercial lender who will do short term rentals locally, that’s awesome. But typically you’re going to be probably going with like a DSCR with a broker like the mortgage shop. Anything else to add to commercial Brenna?

Brenna Carls [00:25:19]:
I think that that’s about it. Unless it’s you know, a large national bank that you already have a relationship with that is in the Myrtle beach area. You would have a pretty hard time to get a commercial loan just because they want a lot of times three things from you. So they either want your auto loan, credit card, mortgage or some something along those lines. So they have your asset in their bank. So just keep that in mind.

Brenna Carles [00:25:44]:
Sorry. I was like going to cough but then it wasn’t happening. I got strep throat from my kids again. People go through and listen to all the short term shop content from recorded from the time school started to now there’s probably going to be like 10 episodes where I’m like, my kids gave me Covid. My kids gave me whatever. Just wait, Bradley, just wait till preschool. It’s you.

Brenna Carls [00:26:03]:
Yeah.

Bradley Klein [00:26:03]:
This whole time he’s been screaming in the background. His grandfather’s like bouncing around like, is he hungry? I think so.

Brenna Carles [00:26:09]:
Well, we are about to wrap up. We’ve only got one more type of financing left. So we’re going to talk about creative financing. So that is it can be any number of things because it’s creative. So it is what you make it. But the two main types we’re going to talk about are owner financing and subject to. Owner financing is basically when the owner of the property who’s selling it to you, the seller acts as the bank instead of you going to get a loan from the bank. This only works if the seller owns the property outright and has no mortgage on it.

Brenna Carles [00:26:37]:
And instead of you making a down payment to the bank and then making payments to the bank, you’re making a down payment to the seller and then making payments to the seller. We don’t see this very often in the short term rental or at least in the vacation rental world. That happens a lot more in the long term rental world and typically it’ll be more a more distressed seller type vibe. Not always, but sometimes people you’ll get sellers to do it because then they don’t have to take it changes the tax situation. I want to speak out of turn on taxes. It changes their tax situation. So it’s hard to find. So it.

Brenna Carles [00:27:14]:
But while you guys are out there looking at deals with your agent, just know it’s don’t even ask about owner financing if the seller does not own it free and clear because it’s not going to happen. That’s part of the things that has to happen to be able to do owner financing. Now, subject to is basically the same thing as owner financing if there’s a loan on it. So it’s not the same thing, but it’s the alternative to owner financing if there is a loan on the property. So what subject to is. And again, go follow Pace Moreby to learn everything there is about subject to. I am not the expert on that, but subject to is when there’s a loan on the Property. And instead of you going and getting a loan at a new bank, then paying the seller and you taking the property, you’re kind of, I don’t want to use the word taking over their loan because it’s not a true assumption of the loan.

Brenna Carles [00:28:06]:
But what you’re doing is you’re just going to start making their payments on their mortgage and then you’re going to figure out another way to pay them for the equity in the property. So, for example, if they’ve got a five, and we see a lot of this right now because we see a lot of sellers who have much lower interest rates on their mortgages than what you would be able to get today on a new mortgage. Or so what you. The way that it works is if a seller has a $500,000 loan at 3% on a property, but that property is worth 800 and they’re going to sell it to you for 800, you’ll just start making payments on their 3% loan. And for the equity, that extra 300, you’re either going to pay them cash, or if you don’t have that much cash, you’ll make a down payment to them and they will owner finance the rest of that equity to you. So you’ll have a payment to their bank and then a payment to them monthly. Now, there’s a lot of ways that that can go wrong. There’s a very specific set of circumstances that all have to line up in order for that to work.

Brenna Carles [00:29:04]:
It can be a really great option. If you do have a distressed seller who maybe is having a hard time getting it sold conventionally and they just want to get out of it, that is definitely an option, a way to go. Again, I’m not an expert on this. I know there’s a lot of ways for it to go wrong. So you want to make sure that you are following the experts on that, like Pace. But again, this is not something that you see a lot of owners who are willing to, to do. I mean, just, I mean, think about it. I have never sat at the closing table when I’m selling or buying a property and thought, oh, I really want to be wrapped up with the person on the other side of this table for the next X amount of years.

Brenna Carles [00:29:43]:
I don’t, I want to take my money and go, I’m going to give you your money and never see you again. I’ll take the property. Let’s. We don’t have to talk ever again. And I think you’re going to find that especially in vacation rental Markets like this where most people’s properties are either second homes or investments that they’re in most cases not going to be in a distress situation and they just want to unload the property, take their money and go make a clean break. But again, not saying that it doesn’t happen, we see it happen, but it just is. They’re not. It doesn’t grow on trees.

Brenna Carles [00:30:14]:
Does anybody have anything to add to that? Yeah, I don’t have a lot to say about it because I’ve never done it. It’s probably not anything I’m ever going to try and do, but some people want to, so we need to cover it. Brenna and or Bradley, is there anything that we haven’t touched on related to financing properties in this market that we need to touch on before we go?

Brenna Carls [00:30:33]:
I’m just going to touch on HELOCs really quick. I’m not saying it’s the best way to get your financing done, but if you have a primary residence or any other residence that has equity in it and you want to use some of that, you can use that for your down payments. However, you want to make sure that you can cover that monthly payment. And I usually say you want to put that monthly debt onto your W2 income right now or your self employed income and make sure you can pay that as your primary residence mortgage payment. Lump your first mortgage in with your HELOC monthly payment as well to see if that makes sense for your financial goals per month. And then if it does, then great, you can definitely use that as a down payment option. You just don’t want to max yourself out on those HELOCs or home equity lines of credit. Act like a credit card.

Brenna Carls [00:31:20]:
It’s revolving so you can pull your equity, pay it back, pull it, pay it back as opposed to a cash out refinance is one and done. HELOCs will generally have much higher interest rates than normal refinance loans would. But it is an option for you if you have a lot of equity that’s just sitting there in a property that you already own.

Brenna Carles [00:31:39]:
Totally agree with that. And guys, be conservative if you’re going to get a heloc. Please, please be conservative. I don’t want to see you guys who have $350,000 in equity in your primary home going and getting $300,000 HELOCs to go buy a bunch of properties. I mean maybe you can, maybe you can afford it, but my rule of thumb is if you can’t pay, make the payment on that HELOC out of your Day job income. Don’t get it. I see a lot of people, a lot of influencers too, telling people, let me saying, okay, I bought this 600,000 three years ago and now it’s worth a million. And so I’ve pulled out all of this money out of it to go buy all these other properties.

Brenna Carles [00:32:18]:
And I guarantee that the initial property that they’re doing this heloc on, they financed it so far to hell that it’s not cash flowing anymore. So don’t leverage yourself to where your initial investments are no longer cash flowing just so you can say I bought more doors because it defeats the entire purpose you bought them for. What if the, the first one isn’t cash flowing? That doesn’t help you. So be conservative with your refinancing and your helocs and all that. Make sure you’re not overleveraging yourself. And yeah, just a note on being conservative with that. I don’t want to see you guys get in any trouble there. All right? Anything else, Brenner? Bradley, before we go, Bradley’s newborn made it through.

Brenna Carles [00:32:59]:
Made it through the episode. Great. So we, we appreciate you being here, Bradley. And guys, if you’re ready to maybe start shopping with us with one of our agents in the Myrtle beach market, you can do that by emailing us agents at agents at the short term shop.com and we’ll get you connected. You can also join our Facebook group called short term rental Long term. Well, same title as my book right behind me. We also have a Thursday live Q and A call. If you have specific questions, myself and Brenna and Luke, you can sign up for that@strquestions.com and Brenna, if they want to explore any of the financing options with the mortgage shop that we talked about, where can they do that?

Brenna Carls [00:33:35]:
Yeah. So you can either go to our website, which is just www.mortgage.shop. you can call us at 800-816-7982 or if you want to email me directly and you just have a few financing questions or want to go over your personal deal, it’s Brenna V R E N N a@mortgage shop.co. we were too late to get.com, so just Brennaortgageshop.com co. All right, well, thank.

Brenna Carles [00:34:03]:
You guys again so much for being here and we will catch you on the next episode.

Bradley Klein [00:34:06]:
Thank you.