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How To Finance An Airbnb Rental: A Guide For Investors

Sidney Richardson6-minute read

June 02, 2021

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Operating an Airbnb space or property has become increasingly popular as travelers continually seek more comfortable and affordable accommodations when on vacation. If you’ve ever been interested in becoming an Airbnb host or rental property owner but aren’t sure where to start, let’s take a look at the basics of financing an Airbnb property.

What Is An Airbnb Loan?

Airbnb is an online platform that allows homeowners to rent out their homes for short periods of time to visitors. Hosts get to decide how much to charge visitors per night and are in charge of managing the property themselves. It’s free to list a property on Airbnb, but there are service fees charged to both the host and visitor for using their platform.

An “Airbnb loan” refers to any type of financing that can be used by an investor to buy a property for the purpose of using it for an Airbnb. There isn’t such a thing as a loan specifically for Airbnb use, but there are plenty of financing options made with rental property investors in mind.

Keep in mind when trying to secure financing for an Airbnb rental property that mortgages for investment properties work differently than a loan for your primary residence might. It’s likely that a larger down payment will be required to secure the financing, usually a minimum of 15%, and you’ll likely face higher interest rates as well.

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Is It Harder To Get An Airbnb Mortgage?

In general, it’s more difficult to get a mortgage for an investment property. In addition to the usual challenges, Airbnb and the travel industry as a whole have also recently taken a hit from the travel bans and restrictions during COVID-19.

While you may be able to secure funding for an Airbnb property, keep in mind that there will be risks when managing the property, too, as with any investment property.

 

Risks Of House-Sharing

 

Lenders tend to be averse to any potential risk when working with borrowers, so it can be somewhat difficult to secure financing for a rental property if you don’t have the cash out of pocket or a long track record of success with managing rentals.

Short-term rental properties are considered riskier than properties that operate with longer leases for a number of reasons. First and foremost, you’re responsible for constantly renting the space out to keep income flowing. If you can’t find tenants for your space for a few weeks or a few months, you make no rent money during that time, which could affect your ability to pay back a loan on the property.

Second, if your Airbnb property isn’t also your primary residence or you’re not living onsite, this is considered a risk to your lender as well. Should you have financial troubles, the first thing you’re likely to pay if you can’t afford to make payments on everything is your primary residence’s monthly bill. Investment properties, particularly short-term rentals, fall further down the priority list – making them something lenders will be more wary to entrust loans for.

 

Risks Of The Travel Industry 

 

Whether the Airbnb property you hope to manage is intended solely for visitors or serves also as a part-time place of living for yourself, there will be risks involved. Operating an Airbnb rental is not just something that will require you to constantly lease the property to tenants, it is also something that will require a lot of management.

One of the biggest risks of operating a short-term rental is sharing your space with strangers. There’s always a risk a visitor could trash the property or cause damages. While Airbnb may provide some support to you if a guest destroys your rental space, in the time it may take you to clean up, you may have to deny bookings. There are always things that could potentially come up, and anything that causes you to have to postpone new bookings will result in lost money.

What Airbnb Financing Is Available?

With the state of travel during the pandemic, it may not be the most ideal time to seek out financing for an Airbnb property. If you’ve considered the risks and you’re ready to get to work on your rental property as travel slowly becomes safer, here are your options.

 

Airbnb Mortgage

 

If you plan on operating an Airbnb rental that isn’t on your property or part of a house you already own, you’ll need to finance a new property that you can use as a short-term rental. Unless you can pay cash for it, which most new investors cannot, you’ll have to get a mortgage to finance the house or property. Many lenders offer mortgages for second homes or investment properties, but remember that it can be difficult to secure a loan for a property that will be utilized for short-term rental. Airbnb has only been around since 2008, so it’s not uncommon for a lender to deny loans for these types of properties, especially if the borrower doesn’t have a well-established hosting background.

 

Airbnb Refinance

 

If current Airbnb hosts are looking to refinance their properties to obtain lower interest rates, tap into equity to finance another investment or any other reason, they have some interesting financing options as well. In 2018, Airbnb partnered with Fannie Mae and several financial institutions, including Rocket Mortgage®, to make it possible for hosts to use their Airbnb Proof of Income on their refinance applications. With participating lenders, it’s now possible for Airbnb hosts to use their earnings to verify their income.

Besides refinance perks, Airbnb hosts seeking financing solutions can also take advantage of federal COVID-19 economic relief resources.

Are There Other Options For Becoming An Airbnb Host/Property Owner?

If financing a property conventionally to use for short-term leases doesn’t work for your circumstances, don’t worry – there are plenty of other options. Here are a few other ways you can secure financing and start renting out a home, with and without Airbnb.

 

Buy A Second Home And Rent It Out Part Time To Establish Your Income Producing Potential

 

Remember, a loan for a second home or investment property will always be considered riskier by lenders than a mortgage on your primary residence. Investing in another property for short-term rental purposes is even riskier. For more financial stability, you might consider buying a second home and, rather than allowing visitors to rent it frequently, rent it out long-term to tenants.

This way, you can establish regular income via monthly rent and reduce some of the risks that come with managing an Airbnb home, such as damages or messes created by guests.

 

Buy A Multi-Unit Property And Live Onsite

 

If you’re willing to invest in a multi-unit property and live onsite, it’s possible to qualify for an FHA or VA loan on the property, which both tend to have more forgiving credit and income requirements than conventional loans. While you would have to live on the property and it could have a maximum of four units, this is an accessible way to get started as an Airbnb host, as you could rent out the other spaces – up to three – to travelers.

 

Offer A Larger Down Payment

 

If your application to get a conventional loan for an investment property is a bit shaky, you can sometimes remedy this by simply making a larger down payment if you’re able. While 15% will likely be required already, if you can do more, your lender may be more willing to agree to a loan, even for a property being used for short-term stays.

 

Consider A Home Equity Loan

 

A home equity loan, sometimes called a second mortgage, is another potential option if you’re looking for ways to finance an Airbnb rental. Home equity loans and home equity lines of credit (HELOCs) can provide you with money in the form of a lump sum (or line of credit) based on the amount of equity in your primary home. This can be a great way to free up some of your assets if your money is all ‘locked away’ in a mortgage.

This extra money is a great way to finance new investments, but keep in mind you must repay it or there could be potentially severe consequences. Since a second mortgage holds your home as collateral, you could risk foreclosure if you wind up in a bad place financially. Rocket Mortgage does not offer home equity loans or HELOCs.

The Bottom Line: Prospective Airbnb Hosts Will Need To Be Flexible To Buy Airbnb-Worthy Property

While COVID-19 has created issues for the travel industry, particularly Airbnb and its hosts everywhere, financing a rental property is still very possible. Getting approved for conventional investment loans may be difficult, but it is doable – and there are FHA and VA options if you choose to live onsite, with some homes.

For current Airbnb hosts, there are plenty of financing options as well to help you invest in new properties or recover after some of the losses that came with the pandemic.

If you’re interested in financing a second home or multi-unit property to get started as an Airbnb host, apply for a mortgage online today.

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Sidney Richardson

Sidney Richardson is an intern writer covering homeownership, mortgage and lifestyle topics. She is a senior at Oakland University pursuing a degree in journalism and advertising.