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Introduction: How to Finance an Airbnb Investment
Enter Airbnb & Vrbo Markets!
Airbnb & Vrbo is a popular way for people to make money from their homes when they are not using them. It also provides an investment opportunity for those who cannot afford to buy a house outright.
If you made an investment in a vacation home, it continually incurs expenses and is not protected if you get sued; however, as property belonging to your LLC, it is protected if your personal banking ever encounters challenges! You get to keep your vacation home for when you choose to use it and use it to increase your wealth at the same time.
1. Getting Creative with Your Credit Score
Credit scores can be a tricky thing to manage, and it's possible you don't know the best way to go about it. Fortunately, we're here to help. The best way to mortgage vacation rental property and other short-term rentals for profit is to make it a real business. Yes, you can live in them but why complicate with multiple tax complications and personal credit issues when you don’t have to.
The first step is to understand how credit scoring works. If you are just starting out, you may decide to just rent a cabin and need some startup money. Clean up your personal credit the best you can so that you can open a business bank account to keep track of these expenses. The higher your credit score, the more likely you are to get approved for loans and other forms of credit. Your credit score is based on a number of factors that include:
- Payment history
- Debt-to-credit ratio
- Length of credit history
- Types of credit used
- Inquiries into your report
1. How can you improve your score?
First off, always make payments on time. This means paying your bills before they're due as well as any fees or fines incurred by late payment. You should also try to limit your inquiries by attempting multiple lines of credit under one inquiry.
You may be the one to decide you don’t want a certain lender but not getting a loan after an inquiry to some lenders is a bad thing. Get to know your lender, when you feel informed enough and are ready to make your decision then apply now.
2. Focusing on Equity vs Creative Debt Financing
The money you are going to get from the rentals can be used as a form of debt financing. You have a business now and are ready to get serious about investing, your personal credit is no longer an issue at this point. Equity financing is when you offer your company to investors in return for a percentage of the company, in this case, your credit is based on rental income potential. Use financing that does NOT use DSCR Ratio to qualify your loan and get your investment with much fewer delays. To learn more about NO DSCR Ratio Loans, click here.
EZ Qualifying Process – 3 week closing
- No W2s Required
- No tax returns Necessary
- No 4506s Ever
- 620 credit minimum
- Past bankruptcy OK – Greater than 2 years
- Past foreclosure OK – Greater than 2 years
- LTVs up to 70% of the value today
The benefits of equity financing are that it provides more control over the investments, which can lead to better management decisions. The benefits of debt financing are that it's easier to get approved because lenders are looking for stability rather than risk. Your loan is approved based on the income of the property, not your personal tax returns.
3. Understanding the Different Types of Loans Offered by Banks and Alternative Lenders
Loans are an important part of the financial market. They provide people with the opportunity to buy a house, start their own business, or go to school. There are many different types of loans that are offered by banks and alternative lenders like us at Rental Home Financing.
Some examples are blanket loans, apartment building loans, multifamily home mortgage loans, stated investor loans, and blanket loan lenders. A home mortgage loan is a loan that is used for purchasing a house. A stated investor loan is a type of personal loan that is used for investing purposes.
Blanket loans put all property under one loan. Multifamily lenders provide financing for more than one residential building or property at once. Short-term rental property loans are also available for people who want to buy property where they can rent it out on a short-term basis like Airbnb rentals. To learn more, contact us today for the program right for you!
4. Maximizing Your Rental Income with Tax Deductions and Tax Credits
As a landlord, there are many tax deductions and tax credits that you can take advantage of to maximize your rental income. These include:
- Deducting your mortgage interest and property taxes from your taxable income.
- Deducting the cost of repairs on the rental property from your taxable income.
- Deducting the cost of renting out a personal residence from your taxable income.
- Taking advantage of tax credits for renting out a personal residence.
The Right Way to Invest in Airbnb for Beginners
The best way to invest in Airbnb for beginners is to start small so you can learn to know the market. There are many new competitors to Airbnb and personal methods of competing in the market for even more profits.
Once you understand the in and out business side, it’s time to go shopping for property near attractions and between at least to major destinations frequented by travelers. Scour Craigslist, cut deals with landowners for new construction loans, be creative in taking in new partners but try not to grow too fast. More property means more management so grow with the flow.