Airbnb loans can help you become a rental property owner and allow you to earn extra dollars! However, financing a rental property is different than financing your primary home.
Airbnb rental properties have changed the way people travel. With 6+ million active listings and 4+ million hosts worldwide, Airbnb is growing every day.
In this guide, we will look at the options to finance an Airbnb rental property.
- Airbnb Active Users: 6+ million active listings. 150 million worldwide users. 1 billion stays booked.
- Airbnb Income: $23 billion, collectively earned by Airbnb super hosts from Oct 2021 to Sep 2022.
- Average Annual Revenue: U.S.A Airbnb hosts earn an average of $44,235 annually.
- Airbnb Risks: Rude guests, theft and property damage, and neighbor complaints, are the major risks involved with an Airbnb investment property. However, you can hire a management company to take care of the back end for you!
What is an Airbnb House?
Airbnb is a website where people can rent out their homes or rooms to travelers who need a place to stay. It’s an online marketplace for accommodations.
An Airbnb rental is a property or room listed on the platform. It can be a house, condo, apartment, or something unique like a boat house.
Travelers prefer Airbnb accommodations for the affordability and convenience factor. Many travelers also like the homely and local feeling of a home as opposed to a hotel room.
The average annual earnings for Airbnb hosts in 2020 was $8,749. But earnings depend on the size and type of property you list.
What is an Airbnb Loan?
Airbnb loans are simply investment property loans. Since Airbnb has gained immense popularity in the last 5 years, most investment property owners list their property on the website and become hosts.
Investment properties can be a way to diversify your investment portfolio and potentially earn passive income. However, you will have to pass stricter qualifications to gain a mortgage on an investment/rental property.
Additionally, you will have to put down a bigger downpayment (minimum 15%) to buy a second home.
» How to Buy a Second Home Without a Down Payment: Does the thought of paying a down payment discourage you from owning a second home? Worry not. You can purchase a second home with little to no down payment.
How to get a Loan for an Airbnb?
You can get a small business loan for an Airbnb property or choose to go with a collateral loan such as a mortgage. Here are the types of loans available to fund an investment rental home –
Types of Airbnb Loans
There are several types of loans available for Airbnb financing. Make sure to analyze your specific financial situation before applying.
1. Conventional Loan
Conventional loans are traditional mortgage loans backed by government-sponsored enterprises like Freddie Mac and Fannie Mae.
Here are the requirements –
2. Cash-out Refinance
If you have built enough equity in your existing property, opt for a cash-out refinance loan. You take out a new loan on your property, larger than the existing mortgage balance, and receive the difference in cash.
Here are the requirements –
- Equity: Minimum of 20% equity in your property
- Credit Score: 620
A Home equity line of credit lets you tap into your home equity. However, instead of getting a lump sum amount, you get a credit line. You can use this to pay the downpayment on your Airbnb property.
Here are the requirements –
- Equity: The balance on the remaining mortgage should be less than the worth of the house
- Credit Score: 740 or more
- Debt-To-Income Ratio: Minimum ratio between 40% – 50%
4. Hard Money Loan
If you have your eye on a unique property like a treehouse or cabin, a hard money loan can help you fund the purchase.
A hard money loan is a short-term, high-interest loan for quick financing. It is based on the value of the property (used as collateral) instead of your creditworthiness.
Here are the requirements –
- Downpayment: 25% to 30% for residential properties
- Credit Score: No minimum requirement
How to Use Airbnb Loans
An Airbnb business loan can be used to buy a new property or renovate an existing property. Here are a few more ways to use Airbnb investment loans.
- Spruce up the spare: You can turn an existing spare room into an Airbnb rental. Use the investment property loan to renovate and decorate the space.
- Landscape: You can build a beautiful sundeck, swimming pool, or blossoming garden to add value to an existing property. People are ready to pay more for properties that come with various amenities.
- Invest in something unique: Handcrafted treehouses, private island gateways, a boathouse, or even a cave-style home, make for amazing Airbnb experiences.
- Start Airbnb Arbitrage: If you cannot afford to buy a new property, consider a long-term rental property. You can sublet the property as an Airbnb rental to pocket the difference in revenue. Use a small business loan to start your Airbnb arbitrage.
Is it Harder to Get an Airbnb Mortgage?
Getting a mortgage for an Airbnb property is difficult compared to getting a mortgage for a regular home. This is because lenders see short-term rentals, like those on Airbnb, as riskier.
There are a few reasons why it may be harder to get an Airbnb home loan:
- Risk: Lenders think short-term rentals are riskier because the income can vary a lot. The money you make from renting on Airbnb can change depending on the time of year, how the market is doing, and how much competition there is. Lenders like steady and predictable income when they give out mortgages.
- No Rental History: Lenders usually want to see a record of rental income. This can be hard if you’re new to hosting on Airbnb or if the property hasn’t been rented out before. Lenders see this as more risky because there’s no proof that you can make money from it.
- Stricter Requirements: Lenders might have stricter rules for Airbnb mortgages. They may want a higher credit score, a bigger down payment, and less debt compared to regular mortgages.
- Local Rules: Some places have specific rules or limits on short-term rentals, including those on Airbnb. Lenders consider these rules when deciding if they want to give you a mortgage. If the property doesn’t follow the local rules, it can affect the lender’s decision.
Even though it’s harder, it’s still possible to get an Airbnb mortgage. You can try working with Airbnb lenders who specialize in vacation rentals or look for other options like private lenders.
What to Consider Before Buying an Airbnb Property
If you are new to the investment property space, you must consider some key points:
- Location: Location is the most important factor for a successful Airbnb rental. Consider the proximity to tourist attractions, easy transportation, and the overall desirability of the area.
- Local Rules: Research and understand the local regulations and restrictions regarding short-term rentals. It’s best to follow local rules and regulations to avoid hassles later.
- Property Management: For an Airbnb rental you require someone to maintain the property, handle bookings, and manage online guest inquiries. Determine how you will manage the property, especially if it is far away.
- ROI: You can look up prices on the Airbnb website to determine your potential earnings from a similar property.
Alternatives to Airbnb Rental Loans
If short-term leases don’t appeal to you, don’t worry. Here are a few other ways to finance your investment property.
- Buy a second home: Getting a mortgage for a second home is tough but getting a mortgage for a rental property is tougher. You can instead invest in a second home and rent it out to long-term tenants.
- Invest in a multi-unit property: You can buy a four-unit property with an FHA or VA loan. However, you must reside in the same property and rent out the spare rooms. This can be a good option for people who want to become Airbnb hosts but cannot manage far-off properties.
- Home Equity Loan: A home equity loan works as a second mortgage and can be the answer to your Airbnb dreams. However, consider this option carefully as your primary home will become the collateral.
What do you need to start an Airbnb?
Here are three tips to become an Airbnb super host and turn your property into a money-making asset.
- Mission Statement: Before your start, create a mission statement for yourself. What’s your vision for the property and how you want to operate are two important questions you must clearly define.
- Survey the Market: Look at competitive properties and at their branding, marketing, and business strategies to determine your business plan. You want to cater to the demography of the area for the best results. Say, your Airbnb is in a college town like Columbus. Creating a space for visiting parents will definitely bring in the $$$.
- Think Profit: You might want to go all out with the decor or add amenities like an infinity pool or spa room. However, stick to a budget that will clearly define your profit margin.
For prospective Airbnb hosts looking to buy an Airbnb property, you may require some creativity and exploring alternative financing options. Short-term rentals can be a great way to earn passive income. However, you must take into consideration the overall costs of buying a second home.
To overcome this challenge, hosts can consider options such as personal savings, home equity lines of credit, and many more.
Frequently Asked Questions
1. How to buy Airbnb property with no money?
There is no such thing as a free deal, however you can use certain strategies to pay less or no down payment. Here are a few - seller financing, gap financing, and house hacking.
2. How to get funding for Airbnb?
There are several ways to fund an Airbnb rental property. See Types of Airbnb Loan to learn more.
3. Are there SBA loans available for Airbnb?
The Small Business Administration (SBA) did not offer specific loans for Airbnb hosts. However, the SBA provides various loan programs to support small businesses, including startups and existing businesses.
4. Can you get a business loan for Airbnb?
Yes, you can get a business loan for your Airbnb hosting business. You can approach banks, online lenders, or consider peer-to-peer lending platforms for financing options.
5. Can I use Airbnb income to qualify for mortgage?
Yes. Some mortgage lenders might let you use your Airbnb income to qualify for a loan if you can show that you consistently earn money from renting out your place. You'll need to provide documents like tax returns or rental agreements. It's important to check with lenders to see if they accept Airbnb income.