How Do You Finance for Airbnb?

Buying and owning Airbnb investment properties mean that you can have a steady and continuous source of passive income. With several Airbnb properties in your portfolio, you may even be able to quit your full-time job to focus on your short and longer-term tenants. However, before getting to that point, you first need to finance your first Airbnb property. This can be an easy process that takes only weeks, or you could have to work for several months before you ultimately close on an Airbnb.

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So, how does a person who wants to own Airbnb properties get financing? Pay attention and find out below so that you can reach your Airbnb property ownership dreams. (Kram Capital)

Choose an Airbnb Property

To get started, you have to know what types of properties you want to buy compared to what exactly is within your price range. While you may aspire to own a sprawling, three-story Airbnb rental home, initially you might only be able to invest in more modest properties. Choose the area where there are suitable properties for sale and then take inventory of what is available, how fast homes are selling, and what the average prices are. You can really pinpoint what your price range for an Airbnb rental property will be after you do some timely research.

Review the State of Your Personal Finances

In addition to choosing ideal Airbnb properties that you believe you can afford, you also have to consider what the viewpoint of the finance companies will be. Your credit history will demonstrate to mortgage companies just how well you do with managing your debts and financial obligations. Your bank records will show how much cash you have available, what your income is, and how you go about managing your finances. It helps to know what each bank looks for in applicants beforehand, so review the state of your personal finances before looking to be pre-approved for Airbnb financing.

Create a Realistic Plan

The purpose of buying Airbnb rentals is to increase your income. At the same time, your debt obligations will be increasing. Therefore, all investors need a plan that is based on projected incomes and expenses. Calculate how much you will charge for Airbnb rentals, what your cleaning and listing fees will be, and how much you’ll pay in taxes. From there, you can get down to actual profits. Realize that this plan is especially important for periods when your properties are not at full occupancy. Even when your properties are not performing as well as you’d like, your plan should still show that you can cover all of your debts.

Start Contacting Finance Companies

As you look for different Airbnb rental property opportunities, you will also start to see what finance companies could be a good match for you. Reach out to them and learn about their underwriting criteria, particularly if you are self-employed, have recently changed employers, or have a business that has been operating for two years or less. Some finance companies won’t even consider applicants until they have a 750 or above credit score. You don’t want to apply for more mortgages than necessary, but you also want to see what all of your Airbnb financing options are.

Applying for Airbnb Financing

When you get to the point of applying, you will want to be organized and ready to go. After sending in your documents, you will want to hear back from the mortgage company. Approvals can come back in as little as minutes, so being organized will aid you in getting to closing quicker. The good part about the mortgage application process is that you will be told exactly how you can qualify. This information is pretty much interchangeable, so you can just repeat the same process with multiple mortgage companies at once.

Getting Approved and Considering Alternatives

Not all investors are approved for Airbnb financing straight away on their first try. Most of the time, an application can’t be approved until additional information is provided as part of the underwriting process. You may need to explain certain portions of your credit history, or identify the origins of a few deposits listed on your bank statements. If the information that you provide meets the requirements of your finance company, you will be approved to buy an Airbnb property. If you are not approved, you shouldn’t give up on buying property. There might be another bank that will be happy to approve you based on the same information provided to the first finance company. The finance company that did not approve your initial mortgage application may be able to direct you to a different loan product that you could have more success with. Remember that real estate market conditions, appraisals, and other factors can impact the final decision that finance companies make.

Financing an Airbnb isn’t much different than financing any other major purchase, particularly when it comes to real estate. You will provide proof of your finances, and you will answer questions about your identity, place of residence, and occupation. As you get closer and closer to being approved for financing, you will learn more about what your responsibilities as a property buyer will be. If all goes well, you will be listing your Airbnb and making rental income soon.


Interesting Related Article: “Edawn Coughman Explains the Dos and Don’ts of Running a Successful Airbnb