How To Finance An Airbnb Rental: A Guide For Investors

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 investment property.

What Is An Airbnb Loan?

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.

What Is An Airbnb Rental?

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.

At this point, people often use the term “Airbnb” to signify any short term rental, but it no longer has a monopoly on short-term rental hosting. Sites like Vrbo and Golightly offer a similar platform, and future income from these sources will count toward your mortgage as well.

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 are still catching up after the lifting of COVID-19-related travel restrictions.

While you may be able to secure funding for an Airbnb property, keep in mind that there will be risks when managing it, 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 ones 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’ll 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 is your primary residence’s monthly bill. Investment properties, particularly short-term rentals, fall further down the priority list for payments  – 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 as a part-time home for yourself, there will be risks involved. Operating an Airbnb rental is not just something that requires you to constantly lease the property to tenants, it is also something that needs active management.

One of the biggest risks of operating a short-term rental is sharing your space with strangers. There’s always a chance a visitor could trash the property and cause damage. While Airbnb may provide some support to you if a guest destroys your rental space, you may have to cancel or deny upcoming bookings while you clean it up or get repairs made. 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?

The demand for travel has picked up since pandemic restrictions have been lifted around the world, so if you’ve considered the risks and you’re ready to get to work on your rental property, here are your options.

Airbnb Mortgage

If you plan on operating an Airbnb rental that isn’t on your property or a 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, 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. 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. Expect your lender to ask to see one years’ worth of rental income history through Airbnb, Vrbo or other short-term rental platform.

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 for any other reason, they should 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 a percentage of their projected earnings to verify their income.

Are There Other Options For Financing An Airbnb Property Purchase?

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 P