Vacation Rental Property Loans

The Benefits of Vacation Rental Property Loans

You might be wondering why you’d want to go into debt to host an Airbnb. The truth is that rental property sites are a popular trend that is unlikely to go away anytime soon. That means you want to jump into the market sooner rather than later.

If you’re trying to decide whether Airbnb loans are right for you, consider these key stats about vacation rental property in the U.S.:

• Amount of revenue: Vacation rentals are worth approximately $19 million for 2022 in the United States alone. The average revenue per user (ARPU) is about $305.

• Revenue growth potential: Short-term rentals are increasingly popular, with an anticipated annual growth rate of 2.5% by 2023. 

• Global comparison: The U.S. is a leader in vacation rental properties with more revenue generated than any other country in 2022. That makes it a hotspot for investment properties.

With this potential, it’s important to start looking for vacation rental property loans before the market is so established that you can’t catch up. It takes time to build a client portfolio and establish a consistent vacation rental income stream.

4. Common Types of Vacation Rental Property Loans

The term “vacation rental property loans” refers to several types of loans that property investors can use to purchase single-family homes, multi-family complexes, or land for subdivisions. These are the most common types of vacation rental property loans.

1. Conventional mortgages for homes or apartment complexes

The most common type of vacation rental property loan for individual investors is the conventional mortgage. However, conventional mortgages can also be used to purchase apartment complexes if you want to invest in one that is in your home county. You can’t get a conventional mortgage to invest elsewhere, though.

Conventional mortgages generally offer the most competitive rates and loan terms. They are also backed by government agencies like Fannie Mae, Freddie Mac, and the Federal Housing Authority (FHA). This means they are some of the most secure types of loans you can receive.

2. Home equity loans for single-family houses or duplexes

If you already own a home or multiple pieces of property, you might be able to take advantage of home equity loans to purchase vacation rental property. HELOCs and home equity loans use the equity you have in your home as collateral, but this can be risky if your income is unstable.

This is a great option for families that want to take advantage of their credit history and low mortgage balance. They usually have competitive rates and they are available for most banks and financial institutions. The biggest limitation is how much you can borrow against your property.

3. Blanket mortgages for purchasing more than one rental property

Investing in one piece of property is simple, but what if you want multiple vacation rentals? Blanket mortgages are the most effective way to purchase several properties at one time. You can use them to diversify your portfolio and manage the payments for several homes.

Once you’ve paid down your balance, you might be able to use the equity in a blanket mortgage the same way you would use a home equity loan. This means you can finance other investment projects to further expand your investment cash flow.

4. Cash out refinance investment property

You may cash out refinance investment property to expand your portfolio by freeing up equity to give you the cash out options to grow your business.

Tips for Finding the Best Vacation Rental Property Loans

As with any financial decision, you don’t want to choose the first lender that you review. Your vacation rental property loans need to offer you significant value over spending any cash you have on hand. That means you need to spend time researching several options.

Fortunately, you can narrow down Airbnb loan options by following these three quick tips:

• Determine your investment goals: You need to have property investment strategies before you apply for vacation rental property loans. That means you need to formalize your investment goals before you start researching loan options.

• Find the right type of loan: With a solid plan, you can decide the type of loan you need. This will lead you to a list of potential lenders. You’ll want to review their loan requirements first, then make a list of their costs and features. This is tedious but critical to the next step.

• Compare different lenders’ terms: You need to compare the specifics of the loan, like how long you’ll be paying on it, how much the APR is, and whether or not you will have to pay any other loan fees like prepayment penalties. You might also want to compare features and perks.

It does take time to find a list of vacation rental property loans, but this chart of options is crucial to choosing the right investment tool for your goals.

How to Choose the Right Vacation Rental Property Loans

With your list of vacation rental property loans in hand, you want to see how they compare to your rental income projections. That means you need to have some idea of the rental market where your property is located, and you need to know how long it will take you to be profitable. You might even need to put together a list of other expenses to get the most accurate ROI projections.

Rank each lender based on how much it will cost you and what other features they offer, like convenient account management or auto payment options. As hard money lenders, we have the resources to help your portfolio grow.

Trying to decide on the best vacation rental property loans for your goals? Rental Home Financing can help you narrow down your investment property financing options.