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Real Estate Enthusiasts

Can you buy a home with plans to rent on Airbnb?

Here’s what you need to know about financing an Airbnb property

rent Airbnb

Renting your home out on Airbnb can be a smart way to make some extra cash. In fact, it might even make homeownership more affordable.

According to a study from Earnest, the average Airbnb host makes about $924 per month. Considering the median mortgage payment sits around $1,100, that’s a pretty big chunk of change to be bringing in.

But buying an Airbnb property isn’t quite the same as buying a new home to live in. Are you thinking of buying a house to rent out on Airbnb? Here’s what you need to know about financing that purchase.

Conventional loans

A conventional loan is a smart way to finance an income-earning property. These can be used on primary residences, second homes and investment properties, and they require down payments as low as 3%.

There is a catch, though. If you plan to use the property as an investment (you’ll have to indicate so on your loan application), then you could face more stringent qualifying requirements. That might mean needing a higher credit score, a bigger down payment or more in cash reserves. The loan also might come with a higher interest rate.

A nice perk with conventional loans is that you can now refinance them using Airbnb rent income to qualify. So if you’re successful in your short-term rental ventures this year, you might be able to use those earnings to refinance next year and get a lower interest rate.

FHA loans

You may also be able to use an FHA loan to buy your home, but there are caveats. Since FHA loans are designed for primary residences only, you’ll need to live in the home for at least a year before renting it out. (You will also need to move into the home within 60 days of closing on your loan).

The other option is to buy a multi-unit property and live in one of the units. As long as one of them is your primary residence, you can rent the others out freely.

Using an FHA loan for your property can be a good move if you don’t have much saved up for a down payment (the minimum is 3.5%) or you have a less-than-stellar credit score. 

Hard money loans

A third option is a hard money loan — essentially just short-term financing from a private lender or investor. These loans are typically easier (and faster) to qualify for, but they come with higher fees and interest rates.

It’s not just your mortgage to think about

Beyond your mortgage loan, you’ll also need to think about a few other factors before buying a short-term rental house. First, there’s your city’s rules and regulations. Many municipalities have banned or at least limited these rentals in recent years, so you’ll need to be sure renting out an Airbnb is even allowed in your area before buying a property.

Additionally, there are other costs to factor in, including things like licensing (if required by your city), taxes (including any exemptions you might lose by not living in the home), insurance, cleaning fees, supplies and more. If the home is located in an area with an HOA or condo association, there may also be dues there, too. 

The bottom line? You can definitely purchase a home with the intent to rent it out on Airbnb. Just make sure you carefully consider all the costs and implications first. If you’re not sure if it’s a good move, talk to a financial advisor or loan officer. They can help point you in the right direction for your unique goals and budget.

3d rendering of a row of luxury townhouses along a street

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