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But getting into the lucrative short-term rental business requires capital. You’ll need funds to buy the property, furnish it, maintain it, and clean it between each use.
Fortunately, there are quite a few financing options that can help. Use this Airbnb business financing guide to determine your best path forward.
In this guide:
- Airbnb financing options
- What to consider with Airbnb financing
Airbnb financing options
If you’re interested in buying a property and running an Airbnb business, there are many financial products that can get you there. From small business and SBA loans to HELOCs, personal loans, and more, you have many choices.
Here’s what you need to know about each one:
Small business loans
Loans designed for small businesses can be a great way to pay for your Airbnb venture, though you may need to have a business license and track record of revenue to qualify. You will also likely need to provide a business plan that details how you’ll make your Airbnb business successful.
Small business loans typically come in one of several forms: term loans (these offer a lump sum that you pay off over time), lines of credit (these work like a credit card), and invoice factoring (which basically means the lender purchases your unpaid reservations and then advances you those fees). Some lenders may also offer cash advances based on your predicted sales.
- There are many types of loans to choose from
- You can take out only what you need (via a line of credit)
- You can get money from your bookings before the guest pays
- You usually need a good credit score to qualify
- You’ll probably need a business license and revenue record of at least two years
- You’ll likely need a business plan for your Airbnb business
>> Learn More: Small Business Loans Guide
Another option is an SBA loan. These loans are backed by the federal government’s Small Business Administration and are designed to offer business owners access to affordable financing.
There are many types of SBA loans, and the right one depends on what you’ll use the money for, how long you need financing, and how much you need. Your best bet is to speak with a lender who offers these loans to determine which program is best for your business.
- They typically come with low interest rates
- You can use the funds as you see fit
- Repayment terms are usually longer than other options
- The application process can be complicated
- You’ll need a business plan for your Airbnb, as well as various business records, licenses, leases, and financial statements
- Qualifying may be difficult
- Funding typically takes quite a while
- You’ll need good credit and possibly collateral
>> Learn More: SBA Loans Guide
If you’re looking to purchase a property specifically for Airbnb purposes, a mortgage can be a good choice.
With that said, not all mortgages will be an option. Government-backed loans like FHA mortgages, for example, require you to live in the financed property as your primary residence. If you’re planning on renting out the home full-time, it will not meet this qualification.
You could, however, use a conventional loan. These require decent credit and a down payment of at least 3% (though you’ll need to pay 20% if you don’t want mortgage insurance). Just make shop you around for your lender, as rates and terms can vary greatly on these products—especially for investors.
- They usually have low interest rates
- You can get long terms and low monthly payments
- Many lenders to choose from
- You’ll need good credit
- You’ll need a down payment of 20% if you don’t want to pay for mortgage insurance
- Government-backed loans won’t be an option
>> Learn More: Best Mortgage Lenders
Home Equity Loans or HELOCs
A home equity loan works just like a traditional mortgage: You’ll get a lump sum, and you’ll pay it off monthly plus interest. With a HELOC, you’ll get access to a credit line that you can draw funds from as needed—much like a credit card.
For both, the amount you’ll be able to take out will depend on how much equity you have in the home.
- Low interest rates
- With a HELOC, you can get additional funds later if needed
- They put your home at risk since the home acts as collateral
- You’ll have to pay closing costs and fees, just like with a traditional mortgage
>> Learn More: HELOC or Home Equity Loan for Investment Property
Hard Money Loans
Hard money loans are basically private loans designed for investment properties. They’re typically shorter-term loans, and they come with higher rates than you’d get with a traditional mortgage or home equity product. Eligibility for these is largely based on your credit score.
They usually offer faster funding than other options. Depending on your lender, you may be able to get funding in as little as a few weeks.
- Funding is usually fast
- They’re a good option if you’re not eligible for other types of loans
- They typically have higher interest rates than other options
- You’ll need a good credit score
- They come with short terms, which means higher payments
Personal loans are always an option, but they’re typically best reserved for small amounts only. They come with higher interest rates and shorter terms than many of the other options listed on this page.
The benefit is that they can be used for just about anything, and their funding is among the fastest of all your options. Depending on your lender, you can usually get money within just a few days and there are often no fees. There are also options for borrowers with bad credit (though you will probably pay a much higher rate for them).
- They offer fast funding
- You can qualify with lower credit scores
- You can use the funds for anything
- They come with short repayment terms
- They have higher interest rates than other types of loans
>> Learn More: Best Personal Loan Lenders
What to consider when looking for Airbnb financing
Before deciding which financing option is best for your Airbnb venture, you’ll want to consider a few factors including:
- The costs of Airbnb hosting: In addition to the costs of the property (mortgage, insurance, taxes, etc.), you also have cleaning and maintenance fees. You will also need to furnish, decorate, and stock the home (after every use) and clean it between guests as well. The Airbnb platform also charges a fee of 3% for most hosts.
- Your goals for the property: Will your Airbnb be a full-time business or just some extra side income? Many financing options will require you to have a business license and record of revenue, so if you’re opting for more of a side project, keep this in mind.
- Your potential income: It’s important to study up on local Airbnb fees in your area to gauge what you’d presumably make in any given month. This is critical if you want to ensure you’re making enough rental income to cover your loan payment, as well as the other costs of the property.
- Your city’s rules: Many municipalities have strict rules surrounding short-term rentals like Airbnb. You may need a license, you might need to pay a fee, or you may not be able to operate one in your area at all. In some cases, your homeowner’s association may have rules against rental properties as well.
There’s a lot to think about when launching an Airbnb business, but fortunately, there are plenty of financing options if you need the funds to make it happen.
To boost your chances of getting the most affordable loan possible, work on your credit first, and be sure to shop around. Rates and terms vary by lender.
Author: Aly Yale