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Airbnb Financing - Understanding Rental Property Financing
Since Airbnb launch in early 2008, Airbnb Inc. has forever changed the way travelers view and locate places to stay when away from home. The "old days" of locating traditional hospitality locations are OVER - Thank Goodness to Airbnb, investors now have have the ability and opportunities to compete, and often times outpace, revenue of traditional market rents using a standard 12 month lease.
Airbnb has made it possible for virtually anyone who controls a rental property or single family house or room fro that matter, to make decent part time or full time income. All due to a 3rd party that doesn't own any real estate.
Most of our clients are experienced real estate investors that have multiple income property loans either on a monthly rental or expanding into the vacation rental model not using their current primary residence. Whether you are a seasoned pro like many of our clients or a first time investor, we are here for you to help grow your rental business. Call us today!
What Is Airbnb Financing?
There is not an officially sanctioned “Airbnb loan” just yet as of spring 2019. We have been speaking with them but, truth be told, the home-renting beast remains on the sidelines with their models of connecting travelers with property owners. We can't really blame them. committing to a dedicated lending division is a complete different undertaking. There are only a FEW banks that understand Airbnb loans, this business model, and are able to offer financing for this type of asset class.
The term “Airbnb loan” has come to reflect basically any financing vehicle available that someone takes on a loan to purchase, refinance, or cash out on a home they own.
Popular Options for Financing Airbnb Rental Properties
Understanding there are no official “Airbnb loans” available for investors doesn’t mean you’re out of lending options. Although we don't want you to go anywhere else, we feel compelled to describe the other options and why we are a different lender that focuses strictly on the entrepreneur looking to expand the rental business. There are actually a few different types of Airbnb loans investors to consider when comparing rental property loans:
1. Traditional Mortgage for Investors
Undoubtedly the most common and cheapest financing option most people think of when they apply for an investment property loan such as an Airbnb property is the traditional 30 year bank mortgage. Most applications are generally gathered and referred to as the Uniform Residential Loan Application (Form 1003).
The Traditional mortgage is basically the exact same type of mortgage most investors/owners use when they Purchase/Refinance/Cashout their primary residence.
On the Form 1003 application, and applicants will be required to specify how you intend to use the property. Meaning, will the property be your primary residence, a secondary residence, or an investment property? This is the most important question you will have to answer.
The selection you choose mark on the application can only be considered a primary residence if you actually intend to live in it, or have lived there for as least 6 months of the year. In most cases, underwriting will make you prove your residency in various forms that you actually reside in the location being financed.
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. If you are crafty enough to pull this off several times in a row, you will eventually be capped by the maximum GSE (Government Sponsor Enterprise) limit of 10 properties owned for each person, regardless of who you are or how powerful you think are.
Keep in mind these are loans that are REQUIRED to be documented in a personal name.
We provide financing to almost any entity such as LLC's, LLP's, sCorp, cCorp, land trusts as well as individuals.
2. Investment Property Loans - Stated Income Financing
Stated Income lending for rental property loans is becoming more popular as the traditional mortgage banks are not very excited about vacation rental properties such as Airbnb even if you have the ability to prove your income.
First, even if you are able to locate a lender that is OK with you "stating" your personal income, they often times won't be comfortable financing your Airbnb property because most lenders don't understand how to underwrite this asset class.
Second, 95% of the stated income lenders that are able to successfully close on Airbnb rental properties will use what is called market rental income or a FNMA form 1007 - Market rental survey.
Good News - We have a unique underwriting model that can quickly be determined by asking just a few bits of information. We use a hybrid and have the ability to use market rents as well as income proven income guarded by a safe LTV (loan to value) of up to 75% of today's value.
3. Asset-Based Airbnb Financing
Another option is an asset-based loan. As the name suggests, this is a loan you qualify for by levering other assets you own.
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 asset based loans have to do with hefty down payments that tend to be between 25 to 30% and higher interest rates.
Still, they’re easier to qualify for and, if you intend to begin renting out your property on Airbnb, the higher interest rates will be covered in the mortgage, which will also help you earn back that large down payment.
We provide Airbnb financing up to 80% of the value and interest rates in the 6-7% range, without causing you, the borrower headache.
4. Hard Money Airbnb Financing
Hard money financing options are normally a combination of asset-based lending and stated income lending guidelines. There are many individuals lenders as well as National hard money Airbnb lenders out there to choose from that will take your money and finance your rental property.....Only draw back is....It will cost you big!
The many drawbacks of this type of loans is you will often be restricted to leverage of 60-65% LTV. Leaving trapped equity in your cash out or requiring you to produce a higher out of pocket down payment of at least 30-40% or more coupled with much higher interest rates.
We finance Airbnb rental property with competitive interest rates starting in the low 6's without using persona tax returns, using your LLC, Scorp, or personal name. Call us now!
Getting Started with Your Airbnb Financing
Rental Property Loan such as Vacation Rentals, VRBO, and Airbnb properties are all we focus on financing. Our associates are experienced and we do not collect up front fees or applications.
As a Direct Mortgage Lender, we specialize in working with experienced investors or first time property owners who want to grow their rental portfolios.
If you’ve had trouble with traditional bank-type mortgage lenders in the past, you have located the right lender for you! Please spend a few minutes to complete our loan application or call us now to discuss how we can help and you can begin improving your portfolio.
