The collateral is a furnished duplex on a mid term rental, what income actually belongs in the underwriting

New here, so a naive question: does the furniture count as part of what you can take if this goes bad? Or is your security just the building?

Underwrite at 3,900. Then check whether 6,400 is real, and treat anything above 3,900 as upside that pays for the furniture and the turns rather than as debt service capacity. Operators who clean and turn furnished 30 plus day units see the same thing in the calendars again and again. First year occupancy in that segment typically runs about 75 to 82 percent. That means the honest annual gross on a 6,400 a month asking rate is more like 58,000 to 62,000 rather than 76,800. Out of that comes turn cleaning at roughly 150 to 250 a unit per stay, and these units turn four to six times a year each. Owner paid utilities and internet run 250 to 400 a month per unit in most markets, and the owner pays them in the vacant weeks too. Furniture replacement is a real line as well, a mattress here and a sofa there every year. Stack that up and his 6,400 gross is behaving like maybe 4,100 to 4,400 net of the furnished-specific costs. That is barely above the unfurnished number, so 3,900 is closer to accurate than to a conservative haircut. Document list: two years of bank statements for the account the rents land in, rather than a summary he typed. Full booking history exported from whatever platform he lists on, showing the gaps as well as the stays. Copies of the current leases with the term dates. The first mortgage note and payoff statement, so you know the real balance and whether the first has a due on encumbrance clause that your second could trip. An appraisal or at minimum three closed comps, since his 420,000 is his opinion. Insurance declaration page naming you. Personal financial statement and credit. At 240,000 first plus your 110,000 you are at 350,000 against a claimed 420,000. That is 83 percent on a number he gave you. Get the value verified independently before anything else, because every other line depends on it.

The one page summary is the whole story. Nobody with two years of clean bank statements sends a one pager and a phone photo.

That occupancy range, @angela_burke, is the most useful number in this thread. Is 75 to 82 a first year figure that then improves, or does it hold there? If year three runs at 90 the whole model reads differently.

It generally improves, @aaron_fitz10, if the operator builds relationships with the staffing coordinators and gets repeat placements, and it stays flat if he's just posting listings and waiting. Which is a question @sonia_alvarez can actually ask him. Where do your tenants come from, and how many were repeats or referrals from a prior stay. The answer tells you whether he has a pipeline or a listing.

Second position at 10% behind a first that's already at 57% of a value you can't verify is thin pay for that spot. If the operator defaults you're either paying off 240,000 to protect your 110,000 or you're watching the first foreclose. Price it or pass.

@joe_delgado5 said it. 10% for second lien on a furnished operating business, because that's what a mid-term rental is, is a rate for a first. I've paid 12 to 14 for gap money on projects with better coverage than this.

Also go see it. Furnished photos from six months ago and a unit that's been through eight tenant turns are different buildings. Look at the doors, the floors at the entry, and under the sinks. If the finishes are beat up already, the 420,000 has a repair number sitting behind it that nobody put on the one pager.

What is he doing with the 110,000? You didn't say. If it's paying off other borrowed money or covering a shortfall somewhere else, the property's income doesn't matter much because you're funding a hole. If it's buying the next duplex, at least you know where it goes. Ask, and ask for the settlement statement afterward.

Five weeks. A lender in this position should want a year of watching someone before putting six figures behind their first mortgage. Nothing else in the thread changes that.

@megan_doyle15 asked the furniture question and I don't think anyone answered it. I'd like to know too. Is furniture covered by a mortgage or is that a separate document?

@kevin_lombard my understanding is that a deed of trust or mortgage covers the real property and fixtures, and loose furniture is personal property that needs its own security agreement and a filing to perfect it. The mechanics and where you file vary by state, so that's a question for the attorney drafting the loan documents rather than for us. I only know because I asked about appliances once.

Run the downside on paper before you decide anything. Bad quarter: one unit vacant two months, the other at 2,800. Gross for the quarter maybe 9,600. First mortgage takes 5,160, your interest takes 2,751, utilities and a turn or two take 1,500. He's at zero and he has to bring cash. That's not a catastrophe scenario, it's an ordinary February in a market with a slow staffing cycle. Ask him what his reserve is and ask to see it in a statement.

The medical center part matters more than the property. One big employer changing its contract staffing budget takes his 6,400 down and there is no second demand source in a duplex. The question to ask is how many hospitals sit within a reasonable drive.

@angela_burke's turn cost numbers match what I've been quoted when I priced this work out. The thing owners underestimate is that a turn on a furnished unit isn't a clean, it's a clean plus linens plus restock plus checking 60 items against a list. Two to three hours more than a standard vacancy clean.

One thing to add to @angela_burke's document list from the borrower side: ask for the last twelve months of actual deposits and then ask him to reconcile them to the 6,400 himself, in writing. That exercise has a way of surfacing things like 9,000 of gross counted twice across two listing platforms, which happens to perfectly honest operators who are simply adding up the wrong columns. The result for you is the same either way.