The best loan structure depends on what you own, how you own it, and what you want to do with it. This page walks through the most common investor situations and which financing path fits each one. Submit your scenario at the end and we’ll tell you exactly where you land.
Most investors find they have more options than they thought, and fewer of those options are actually the right fit. Here’s the honest breakdown.
Option 1
Lower down payment (10-15%), a better rate than an investment loan, and available through most retail lenders. The catch: the property has to be for personal use. The occupancy rules require you to occupy the property part of the year, have no rental agreement in place, and hold exclusive control.
If you list the property publicly on a short-term rental platform, that conflicts with those conditions. The rate savings are real, but so is the compliance exposure.
A property financed as a second home must continue to comply with the occupancy and use representations made during origination. Frequent rental activity, rental-pool arrangements or management agreements may create eligibility or compliance concerns depending on the loan documents and actual property use. A business-purpose refinance may be worth evaluating.
Who this fits: Buyers who’ll genuinely use the property personally and rent it out rarely, within the loan’s occupancy terms. Not the right structure for an active short-term rental business.
Option 2
25% down, qualifies on your personal income (W-2, DTI), investment property pricing. Works fine at first, but creates friction as your portfolio grows: pricing adjustments stack up at 5-10 properties (1.875 to 3.375 points), 6-month reserves get required across all your properties, no LLC closing, and a hard stop at 10 financed properties.
Who this fits: A first or second rental purchase where you need the lowest possible down payment and have strong W-2 income. Fine short-term for investors planning to hold just 1-2 properties. Creates scaling problems later.
Option 3, most common fit for active STR investors
A business-purpose mortgage that qualifies on the rental property’s cash flow, not your personal income. No W-2, no tax returns. Close in an LLC. No hard portfolio cap. Built for investors buying rental property as an income-producing business.
The tradeoff: pricing runs higher than a second-home or primary-residence mortgage, and you typically need 20-25% down. The rate reflects the business-purpose structure, not a penalty.
Who this fits: Anyone buying or refinancing an active short-term rental where the property’s income drives the deal, from first-time STR buyers to portfolio investors. Especially valuable once you’re past property 2-3 and conventional friction starts building.
Pick the scenario that matches where you are now.
| Your situation | The issue | Likely fit |
|---|---|---|
| Buying first STR, strong W-2, 25% down available | Conventional investment loan works, but won’t let you close in an LLC and limits future scaling | Rental income loan or conventional depending on how much LLC closing matters to you |
| Buying first STR, self-employed or variable income | Conventional lenders will average your tax returns; DSCR lets the property qualify on its own | Rental income loan |
| Have a second-home loan, actively listing on a platform | Active public listing may conflict with second-home occupancy terms | Review second-home compliance; a refi may make sense |
| Own in personal name, want to move into an LLC | A simple deed transfer can trigger a due-on-sale clause; a business-purpose refi handles it cleanly | Refinance into LLC via rental income loan |
| Have 3-5 properties, feeling rate adjustments and reserve requirements | Fannie/Freddie LLPAs and 6-month reserve requirements at 5-10 properties | Rental income loan for future purchases |
| Approaching or at the 10-property conventional cap | Fannie/Freddie hard stop at 10 financed properties | Rental income loan; no equivalent cap |
| Want to pull equity from an STR for your next purchase | Cash-out refi available up to 70-75% LTV on rental income programs | Cash-out rental income loan |
| Property in an STR-restricted market (NYC, SF, Portland, Austin Type 2) | Lenders won’t accept an STR income projection where the market’s banned it | STR income basis not available; may still work as an LTR |
| Condo with an HOA that restricts STR | Without written HOA approval of STR, a rental income projection isn’t supportable | Confirm HOA rules before going under contract |
| Running 30-90 day stays (mid-term or Furnished Finder) | Signed leases count at most lenders; often a cleaner underwrite than nightly STR | Rental income loan; MTR income basis |
You don’t need an LLC to get a rental income loan. Plenty of investors close in their personal name. But LLC closing is available at most rental income lenders, and it’s worth considering for a few reasons.
Asset protection: A properly structured LLC separates the property’s liability from your personal assets. If a guest gets hurt on the property, a claim against the LLC doesn’t automatically reach your personal finances. Ask your attorney how meaningful that protection actually is in your state.
Clean portfolio structure: As your portfolio grows, holding each property in its own LLC (or a series LLC, depending on your state) keeps things compartmentalized. It’s easier to track income, sell individual properties, or bring on partners.
Avoiding a deed transfer later: Buy in your personal name and want to move the property into an LLC later? That deed transfer can trigger the due-on-sale clause in your mortgage. Closing in an LLC from day one skips that entirely.
What LLC closing requires: Articles of Organization (or Certificate of Formation), an IRS EIN, an executed operating agreement, and a certificate of good standing where your lender requires one. Note: domestic US LLCs are exempt from federal BOI filing requirements under the March 2025 FinCEN interim final rule, though some lenders still ask for their own beneficial-ownership certification. We walk clients through the entity doc checklist as part of the loan process.
Entity structure decisions carry tax and legal weight. STR Advisory doesn’t provide legal or tax advice. Talk to an attorney and CPA before making entity decisions.
On a rental income loan (DSCR loan), what matters most is the property’s cash flow against the loan payment. The ratio of net rental income to total housing payment (principal, interest, taxes, insurance, and any HOA) is called the debt service coverage ratio, or DSCR. Most programs want this ratio at 1.0 or above, meaning the property’s income covers its own payment.
Where that income comes from depends on the property’s history:
Twelve months of actual gross booking revenue from your platform. Lenders apply a 30-45% haircut for vacancy and expenses to get to net effective income. The strongest basis when you have it.
For a property with no prior rental history, many STR-focused lenders accept AirDNA or Rabbu market rent projections. Acceptance varies by lender. We confirm before submitting.
For mid-term rentals (30+ day stays), an executed lease counts as income evidence at most lenders. Often the cleanest basis for Furnished Finder and corporate housing operators.
Your personal income (W-2, tax returns) doesn’t come into income qualification. Your credit score still matters: 660 or above is preferred, lower is possible with a rate adjustment. Reserves (3-6 months of mortgage payment in liquid accounts) are required at closing.
Describe your property, your current loan (if any), and your goal. We review scenarios same business day and give you a straight answer on which structure makes sense.
Submit My Scenario →No credit pull. No obligation. Response same business day.