Which loans and terms are best for Airbnb investing? What should you look for?
Unfortunately, there’s no one “best loan” for investing in Airbnbs. Your loan options for short-term rental investments will come down to your credit, your income, and your experience.
Airbnb loans come in all shapes and sizes – 30-year fixed mortgages, adjustables, non-QM loans, interest-only, and more.
You’ll have to talk to lenders to see what’s out there. Here are a few things to keep in mind while you’re shopping around.
Firstly, every loan comes with different down payment requirements. These requirements are based on your situation, credit, income, location, size of property, and more.
Some Airbnb loans will only require 20% down, some up to 30%. If you’re not using BRRRR, you have to expect to put this extra money into the property.
Is that something you can afford? Will you be able to find alternative ways to fund that extra 20-30%?
Secondly, most non-traditional loans and DSCR loans will come with pre-pay penalties.
You’ll agree to keep the loan on the property for, say, five years. So, if something comes up after two years and you sell, you’ll have to pay the lender an up to 5% penalty.
Getting a loan with a pre-pay can get you a better rate. But it becomes an expensive detail if you end up selling early.
Do you know how long you’ll keep the house? Is the rate on the loan with the pre-pay penalty worth it?
How to Get the Best Terms for Airbnb Loans
People get excited to invest in Airbnbs, but they fail to get sorted on the money side. You’ll have to search for the best terms.
The easiest way to improve your terms is to have the income, and, more importantly, the credit score that lenders are looking for.
Good terms on your loans lower your cost of funds and increase your leverage. It leaves more money in your pocket and less to the bank. Good terms are vital if you want to expand your Airbnb and other investments into a business.
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