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    Airbnb Loans: Small Business Financing for Airbnb Hosts

    rental loan

    Ready to run an Airbnb rental? The guest-hosting platform is one of the most successful players in the sharing economy. All you technically need is a private room in your home and a love for hosting guests. Airbnb has evolved and so have your opportunities to run a successful small business. Read on to learn how to finance your Airbnb.

    What To Consider Before Buying An Airbnb Property

    Airbnb rentals have become globally popular, with tourists preferring them over hotels. Still, your success isn’t guaranteed. Here are a few things to consider before purchasing:

    • Reputation: Airbnb’s success relies heavily on host involvement with guests. Online reviews can make or break your Airbnb business.
    • Maintenance: Will you be able to handle the constant cleaning and maintenance of your property? Or do you have the resources to hire a property manager?
    • Location: You might find a beautiful property, but if it’s not in the right location, you won’t have many bookings. Before purchasing an Airbnb property, do your homework. Check for amenities for tourists such as restaurants, entertainment, public transportation, and more
    • Legality & Taxes: Due to the popularity of Airbnb and pressure from the hotel industry, some cities have created burdensome regulations for short-term rental properties. Check with the municipality to learn about regulations, licensing, and tax requirements before investing in the property

    Dedicated Airbnb Financing Programs

    While Airbnb itself doesn’t provide financing to help you renovate your home or purchase a rental property, collaborations with Better Mortgage, Quicken Loans, and Fannie Mae have made it easier to access financing to invest in a rental property.

    Mortgage financing can help you undertake extensive renovations for your home to accommodate a successful Airbnb rental. Or, you can use the funds to purchase a rental property to host your guests.

    Additional Airbnb Loan Options

    Refinancing your mortgage may not be an attractive choice for you. Fortunately, there are other financing options you can pursue. Below is a discussion of some of the most popular Airbnb loan options, such as mortgages on investment properties, home equity loans, HELOCs, owner-occupied lending, and general small business loans.

    1. Mortgages On Investment Properties

    Investment property mortgages are more difficult to obtain and come with higher interest rates. The primary consumers of investment property mortgages are real estate agents and people who engage in flipping. From the perspective of lenders, these investments are riskier. Since the property isn’t your primary residence, they believe that you might default on the loan if the investment doesn’t live up to your expectations.

    Investment property mortgages require a larger down payment. Depending on the number of units in the property, you might need to come up with as much as 25% as a down payment. Repayment terms are usually shorter too.

    2. Owner-Occupied Investment Property Lending

    One way to increase your Airbnb income is to purchase a multi-unit property. You maintain your residence in one of the units and rent the others out to guests. As an owner occupant, you can choose from FHA and VA loans or conventional financing.

    Mortgages for owner-occupied properties are easier to obtain. The down payment is more manageable, interest rates are lower, and the level of cash reserves required to qualify is less than for investors. To qualify, the unit you occupy must be your primary residence. If you also own a vacation home, the terms of your loan will be adjusted accordingly.

    3. Home Equity Loan And A HELOC

    If you own your home, you can use the equity to take out a home equity loan or home equity line of credit (HELOC) to finance your Airbnb property.

    Your equity is determined by taksing the appraised value of your home and subtracting your existing mortgage. The percentage of equity against which you can borrow is determined by the lender. 

    By comparison, a HELOC is a line of credit from your bank. Your limit is based on your home equity, but you withdraw as much as you need. As you pay back the HELOC, the amount available is restored.

    4. Hard Money Loans

    There are private commercial mortgage lenders who specialize in Airbnb short-term rental financing. Unlike banks, they don’t require you to demonstrate experience, provide leases, or possess personal income to support your proposed Airbnb business.

    Known as hard money loans, independent commercial lending firms look at the value of your Airbnb rental property. Your personal credit score and cash reserves aren’t considered when weighing your application.

    The application process is streamlined, with many hard money lenders offering an online application with a quick turnaround. Origination fees tend to be higher, and a larger down payment is required. Shorter loan terms result in more significant monthly payments.

    5. General Small Business Loans

    Small business lending options include term loans, invoice factoring, and lines of credit.

    • Term loans provide you with a lump sum, which you pay off over time
    • Invoice factoring involves selling your unpaid reservations to an invoice factoring lender. In return, you receive an advance based on the total of your outstanding reservations
    • A line of credit is a form of revolving credit. The bank approves a limit, you withdraw what you need and pay interest on the amount you withdraw
    • A small business loan requires you to have a business plan, a record of previous revenue, and a good business credit score

    Conclusion

    Airbnb hosting continues to be a successful way to earn a side income. Some hosts have turned it into a full-time business. Much of the success depends on you. Before getting started, carefully consider all the financing options and local regulations before you make an Airbnb property investment.