Airbnb & Vrbo Investment Finance Guide for Entrepreneurs

Introduction: How to Finance an Airbnb Investment

The home is the most valuable asset in the United States. A large number of Americans are looking for ways to invest in real estate, but many do not have the financial means to purchase a home outright. We have the secrets that real estate investor gurus aren't telling you. And yes, we're gonna tell you all about it.

Business loans for wealth building can be a challenge but we are here to show you how to get started in profitable homeownership and expand into a complete wealth-generating portfolio.

How can you get an investment property loan approved for an Airbnb loan or Vrbo loan with poor credit? We use potential property income for fast approval! As hard money lenders, we have hard money loans with competitive interest rates for vacation rental and short term rental properties that other lenders can't compete with.

Airbnb, Vrbo, Homestays, and other new companies have changed the way people find places to stay when they travel. The days when hotels and motels were the only two options are long gone.

These short term rental company brokers made it so that anyone who owns a home can make a nice little side income – or even a full-time income – by renting it out to others.

If you’d like to get in on the action but don’t want to use your current residence, one option is to use it to purchase a rental property.

What Is are "Airbnb Loans" or "Vrbo Loans"?

There is actually no such thing, just a generic name for a loan program for short term rental investors with less than perfect credit. In essence, they are just short term rental loans. The home-renting giants remain content in their field and hasn’t shown any signs of wanting to branch out into offering mortgages, too. That is where we are here to help you, the real estate investors, to understand investment property loans for short term rentals.

The 5 Most Popular Options for short term rental loans.

Investment property loans abound to help you boost your rental income on vacation rental properties. We know your Airbnb property is an investment property purchase to build rental income so depending on how you want to generate income either with new property, build cash flow and cash reserves on your primary home, we have investment property loans for all real estate investors. There are actually four types of loans people tend to use when looking to buy a rental property they can list on the popular site.

1. A Traditional Mortgage

Perhaps the most common option most people think of when they want investment properties is the traditional mortgage. This is generally referred to as the Uniform Residential Loan Application (Form 1003).

It’s the same type of mortgage most people use when they purchase their primary residences, which is where things can get a bit sticky if you only want the property for Airbnb purposes. Mortgage payments, down payments, loan limits and interest rate on the real estate for a rental income property is not the same for a traditional mortgage.

On Form 1003, you need to specify how you intend to use the real estate. Is it going to be your primary home, a secondary residence, or an investment property?

It can only be considered a primary residence if you actually intend to live in it for most of the year. In most cases, you have to actually move into the home within 60 days of closing or its standing could be in jeopardy.

At the same time, there are no laws against buying a home listed as your primary residence and, later, moving out but keeping it as a rental property. Many people collect rent on their primary residence while still living in it by taking on a roommate – still perfectly legal.

You just can’t apply for the mortgage with this intention in mind – unless you list it – or you risk committing occupancy fraud. Commercial real estate investors should investigate short term rental property instead.

2. An Investment Property Loan

Although traditional mortgages may be behind most Airbnb properties, those who buy homes specifically to rent them out usually use investment property loans. These are specifically for investment properties used as rental property for the investment property loan.

This smooths out a lot of the aforementioned wrinkles, but there are still a few caveats. Again, this will change how your mortgage lender calculates your monthly payments for the real estate, may require tax returns, may end up only getting a minimum loan because of your minimum credit score as this is more akin to conventional loans.

First, it will be harder to qualify if you can’t show what the home is worth in rent. This is much easier to do with a traditional rental property, one that you intend to rent out to full-time tenants. If you only mean to rent it out through Airbnb, it’s more difficult to make a case for how much it will bring in each year.

Second, expect that it will cost more both in interest and your down payment. Lenders tend to charge more for these properties because, again, they’re not sure how much it will make and worry borrowers will default on a home that isn’t their primary residence.

Third, qualifying for this type of loan may also require an LTV ratio of 80% or more, a credit score of at least 740, and liquid reserves that are good for six months.

Fourth, the lender will want a rental schedule to go along with an appraisal. It should make a case for the kind of income you expect it will generate.

3. An Asset-Based Loan

Another option is an asset-based loan. As the name suggests, this is a loan you qualify for by levering other assets you own. Lenders typically will not consider the value of investment purposes for the home purchase.

Homeowners with just one residence typically use these loans when buying an investment property by putting up their house as collateral. Among other things, it saves them from the hassles associated with traditional and investment-property loans.

The drawbacks of these loans have to do with hefty down payments that tend to be between 25 to 30% and higher interest rates. You will need bank statements for the mortgage lenders, tax returns, etc... to determine your debt to income ratio to obtain the investment properties. Your personal credit score will have priority over the vacation rental rental income. In fact, the rental income does not even come into play, the property owers are putting up collateral for their Airbnb rentals.

Still, they’re easier to qualify for and, if you intend to begin renting out your property on Airbnb or Vrbo, the higher interest rates will be covered in the mortgage, which will also help you earn back that large down payment.

4. A Blanket Loan

Maybe you’ve already successfully used one of the Airbnb-Vbro financing options above to purchase your first investment property and rent it out to guests. Or maybe you haven’t used Airbnb yet, but you own other rental homes and have seen their clear potential in the short term rental housing market.

In any case, if you’re now ready to scale up your operation to include numerous Airbnb rental properties, it’s hard to think of a better lending option than a blanket loan.

This type of loan is designed to provide financing for multiple properties through one single mortgage. Builders and developers often use them to buy large plots of land and turn them into individual properties.

However, investors who want large portfolios favor them, as well. Blanket loans that save them on administrative costs are far more convenient than multiple loans. A lot of times, they’re the only way to find funding for more than a few homes at a time.

As with asset-based loans, lenders don’t care about your personal finances, either. All they want to know about is your properties’ potential to make money.

Show that it will be easy for you to repay them and the loan is as good as yours. To learn more about blanket loans, click here.

5. DSCR No Ratio Loans for Short Term Rental Real Estate

Airbnb financing for real estate investors now have new options for investment properties with lower down payment, can apply for the mortgage online and your investment property can offer you much more than conventional mortgages.

As short term rental investment property buyers, hard money loans from Rental Home Financing can get your short term rental investment properties setup with a lower down payment vs conventional mortgages.

A DSCR no ratio loan for a vacation rental does not use your W2 to qualify you for credit, the underwriting process is simple especially if this is a stated investor loan. You tell us how much you plan to rent out for on short term rentals and your investment property gets commercial lending from hard money lenders like us that beats the pants off a conventional loan.

Yes, you can combine this with home equity loans. We offer BRRRR (Buy, Rehab, Rent, Refinance, Repeat) home equity loans with DSCR no ratio for short term rentals to help you get that investment property. This type of short term rental property does not require income to qualify as a property owner.

This type of Airbnb financing can get your cash flow running as a beginner with a home equity loan provided you are actually renting out space on the current property. As a mortgage lender, we look at the cash flow of the Airbnb property, not the cash flow in your private bank account.

Getting Started with Your Investment Property Loans for a Short Term Rental.

Now that you better understand your options for Airbnb mortgage, you may feel ready to take the next step as a short-term rental investor. You want that short term rental property so bad you can taste it.

Your real estate agent has already helped you have your investment property picked out, and possibly even a larger down payment is ready, you know we are ok with your credit score, and perhaps even have a property management company picked out to manage your short term rentals; so if you are done house hunting, apply online now or give us a call.

In that case, we are your mortgage lenders here to help with a competitive interest rate to boost your rental income. At Rental Home Financing, we specialize in assisting experienced investors who want to add more properties to their portfolios.

However if this is your first vacation rental Airbnb property, we can help boost your monthly income as well. If this is your first investment property for rental income or your 100th, we can help you transition as property owners from traditional rentals to property owners in the booming short term rental market.

 

If you’ve struggled with traditional lenders in the past, we’d love to work with you.

Just complete our loan application and we’ll get back to you ASAP, so you can begin improving your portfolio right away.