The collateral is a furnished duplex. What income do I even count?

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.

My team cleans and turns furnished 30 plus day units for owners, so here's what the calendars actually look like. Across the units we service, first year occupancy 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, not 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 of the places we work, and the owner pays them in the vacant weeks too. Furniture replacement is not zero, it's 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. Which is barely above the unfurnished number, so 3,900 is not a conservative haircut, it's about right.

Document list: two years of bank statements for the account the rents land in, not a summary he typed. Full booking history exported from whatever platform he lists on, showing gaps and not just 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're at 350,000 against a claimed 420,000. That's 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.

@cobalt that occupancy range is the most useful thing I've read on this strategy. Is the 75 to 82 first year figure and then it improves, or does it stay there? Because if year three is 90 the whole model reads differently.

@kestrel in my experience it improves 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 @tender 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.

@flint 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's 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. I'd want a year of watching someone before I put six figures behind their first mortgage. Nothing else in the thread changes that for me.

@rigging 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?

@juniper 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's no second demand source in a duplex. I'd want to know how many hospitals are within a reasonable drive.

@cobalt'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 @cobalt'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. When I did that with a partner once, the exercise found 9,000 of gross that had been counted twice across two listing platforms. He wasn't lying, he was just adding up the wrong columns. Same result for you either way.