Are vacation rentals allowed by lenders?

Question

Hello BP community,

Do banks allow for properties to be leased as vacation rentals? If there is already a mortgage agreement in place, what would prohibit owners from entering the short term rental arena vs doing long-term rent? What wording would refer to this in the agreement, which currently mentions "income-producing " and royalties.

Any help is greatly appreciated.

Thank you!

Greg Franck · Answer

@Ana Rodriguez thanks for the clarity Ana, that is an animal of different stripes... Hope that you get an answer. I would be curious as well for my own personal knowledge.

Ana Rodriguez · Answer

@Greg Franck Appreciate your input. This is a 5 unit complex with no HOA. It qualifies as a commercial property and the loan seems to have different requirements (presenting financial statements annually, providing rent roll, and others).

If anyone in the lending industry knows about this, I'd be interested to know how to handle vacation rentals in this case.

Greg Franck · Answer

I would be more concerned about the indentures and HOA restrictions than an existing mortgage. From my understanding this has been the biggest battle for short term rental operators. I would imagine if you have questions about mortgage restrictions contacting the lender directly would be your best bet. In addition I am aware of investors who get conventional mortgages and use the properties as STR's without any issues or recourse from their lenders. If it was me and I wished to place the property in service as a short term rental I would simply move forward with this. Maybe someone with experience in this can speak to it? Figured I would share my perspective.