Purchasing a “Rent-Ready” Property
Many investors believe that, when buying a property, it must currently be rented or they thing they must hurry and find a tenant.
When purchasing with a DSCR loan, the property needs to be in “rent-ready” condition, not necessarily occupied with a tenant. It is not uncommon for customers to buy an investment property that was used by the seller as their primary residence or a family vacation home. Sometimes an existing tenant may vacate as their lease is expiring prior to settlement. In some instances, the property being purchased may have recently gone though major renovations, making the property “rent ready” but the seller may leave it up to the new buyer to find their own tenants. If the seller used short-term rental services such as Airbnb or VRBO, It is not uncommon for a property in a resort-area or vacation destination to be unoccupied at the time of purchase. It is not a lending requirement that any property you plan to purchase currently be occupied. In these instances, the fair market rent on the appraisal is the qualifying income for the loan.
- If the property is currently occupied by a tenant and will continue to be occupied by the tenant, a copy of the lease can be used for the qualifying income on your new DSCR loan. The lease must contain verbiage acknowledging the terms if the property transfers ownership, or an executed lease transfer would need to be provided. Any lease-in-place would require an extension if expiring within 30 days of settlement.
- If the property being purchased was used for a short-term rental, qualifying income can be taken from the prior 12-month transaction history from the renting agency (such as VRBO or Airbnb). If the property was not being rented for the prior 12 months using these services or similar rental firms, the fair market rent from the appraisal would be used for DSCR loans.
