Short-term rental financing: Airbnb and vacation rental loans

Financing short-term rentals

Short-term rentals on Airbnb, VRBO, and other platforms have created a new category of real estate investment. When done well, STRs can generate significantly higher returns than traditional long-term rentals.

Financing these properties requires lenders who understand the STR business model.

Why STR financing is different

Traditional rental loans are straightforward: stable monthly rent, annual leases, predictable income. Short-term rentals are more complex:

• Income fluctuates seasonally
• Occupancy rates vary
• Operating expenses are higher (cleaning, furnishing, utilities)
• Revenue depends on management and marketing

Some lenders don't touch STRs. Others specialize in them. We work with lenders who understand and properly evaluate short-term rental income.

Loan options for short-term rentals

DSCR loans for STRs The most popular option for STR investors. These loans:

• Qualify based on property income (not your personal income)
• Can use AirDNA or similar data to project income
• Work for investors with complex tax returns
• Allow scaling without hitting conventional loan limits

The lender looks at whether the property's income covers the payment, typically requiring 1.0-1.25x coverage.

Conventional investment loans If you have strong W-2 income and can qualify traditionally, conventional loans sometimes offer better rates. But:

• Most lenders won't count projected STR income
• Some will use historical STR income if the property has a track record
• Limited to 10 financed properties

Portfolio and bank statement loans For investors with established STR portfolios, some lenders will look at your overall STR business income via bank statements rather than individual property analysis.

Using projected STR income

Unlike long-term rentals where you can use a simple rent comp, STR income projections are more involved.

Lenders typically use services like AirDNA that analyze:

• Comparable STRs in the area
• Occupancy rates
• Average daily rates
• Seasonal patterns
• Market trends

The projection estimates annual gross revenue, then applies conservative haircuts to arrive at qualifying income.

Down payment and requirements

Short-term rental financing typically requires:

• Down payment: 20-25% (some programs allow 15% with strong reserves)
• Credit score: 680+ (720+ for best rates)
• Reserves: 6-12 months PITI
• Experience: Some lenders want to see STR management experience

First-time STR investors can absolutely get financing, but having a clear business plan helps.

Operating considerations

STR operating expenses are higher than long-term rentals. Budget for:

• Furnishing: $10,000-30,000+ to fully furnish
• Cleaning: $100-200+ per turnover
• Utilities: You pay them (not tenants)
• Property management: 20-30% if you're not self-managing
• Platform fees: Airbnb takes 3%, guests pay additional fees
• Maintenance: Higher wear and tear than long-term rentals
• Supplies: Restocking toiletries, linens, etc.

The higher revenue potential offsets these costs, but you need to factor them into your projections.

Regulatory considerations

STR regulations vary widely by location. Before buying, research:

• Local permit requirements
• HOA restrictions
• Zoning rules
• Licensing and registration
• Tax obligations (lodging taxes, etc.)

Some cities have banned or heavily restricted STRs. Others are welcoming. The regulatory environment can change, so factor this risk into your planning.

Markets and property selection

Successful STR investing starts with market selection:

Strong STR markets typically have:

• Tourism or business travel demand
• Limited hotel supply
• STR-friendly regulations
• Year-round or strong seasonal demand

Property features that perform well:

• Unique character or views
• Walkable to attractions or beaches
• Outdoor space
• Hot tubs (seriously, these boost bookings)
• Quality furnishing and photos

The same property can generate wildly different returns depending on how it's positioned and managed.

Exit strategy considerations

Think about your exit before buying:

• What if STR regulations change? Would the property work as a long-term rental?
• What if occupancy drops? Can you cover the mortgage during slow periods?
• What if you want to sell? Will the next buyer want it as an STR, and will they be able to finance it?

Having multiple exit options reduces your risk.

Getting started with STR investing

1. Research markets that interest you
2. Understand local regulations
3. Run projections using AirDNA or similar tools
4. Get pre-qualified to know your budget
5. Make offers on properties that pencil
6. Set up and launch your STR business

We work with STR investors from first property through portfolio growth.

See your financing options

Let's look at what you qualify for and which loan product makes sense for your STR investment. Get pre-qualified to see your numbers, or schedule a call to discuss your strategy.