Refinancing with Airbnb Income

14 Replies

Hello Fellow BP Members!

With interest rates hitting historically low levels, I am trying to refinance 2 of my properties. I have 3 homes on Airbnb and need to use that income to offset the mortgages, for my debt to income ratio.  I also have an engineering W2 job.  Any recommendations on lenders in the Nashville or San Diego area that can use 1 year of airbnb income on my tax return to qualify me?  Also, could I switch over to a long term lease to qualify, even though I used my Airbnb income on my 2020 schedule E?

Thanks in advance!

There's a short-term rental refinance company called Kram capital you can look into them and they will allow that Airbnb income to be used to offset your DTI.

In the future lease your Airbnb properties to an LLC and let the LLC run the short-term rental operation. This then opens you up to multiple banks because they are now looking at leases instead of Airbnb income.

Good luck with your investing.

Thanks for the advice! I have an LLC already for a couple rental arbitrage properties, so I can sign the leases for my LLC. Just to confirm, the lender can use the leases rather than the schedule E? I thought for some reason they have to use the schedule E reported income if it is there.

Originally posted by @Craig Gerulski :

Thanks for the advice! I have an LLC already for a couple rental arbitrage properties, so I can sign the leases for my LLC. Just to confirm, the lender can use the leases rather than the schedule E? I thought for some reason they have to use the schedule E reported income if it is there.

The underwriters are not stupid. They will see two years of your tax return. They will see any income from an LLC. They may even ask for copies of the leases if they have questions. I don't see how leasing properties to an LLC accomplishes anything. I am not sure why the bank would care if the income is from a short term rental. There could be other factors, like length of time you have had the property.

@Craig Gerulski Yes. They can use the leases to see that the properties are cash flowing. The problem with Airbnb income is that all banks haven't got to the point of accepting it as rental income as of yet. I refinanced a property with New American Funding and they were fine with it but when I took that income to other lenders I was immediately limited. The new wave of short-term rentals being outside of typical vacation destinations is new to banks and not all of them are on board as of yet. If you already have rental arbitrages within that LLC then that's perfect because the LLC is already structured as corporate housing and will suffice as a lease.

@Zahid Ali Yes sir I just did this. If the deed is in an LLC it's the same concept. You need a 2nd LLC that acts as your short-term rental LLC and you need to create a lease between the two. The advantage of doing two LLCs is you can use DNB to create a tradeline between the two LLC's but you will need to make sure you have a paper trail. This is a great way to get future financing.

Remember to have one LLC running all your short-term rental operations. The bank will look at this as your viable money source for future funding. This is literally how you can build a huge BLOC and get away from HML's on your BRRRR projects.

Hi So I have been running about 6 airbnbs in my personal name, properties owned by me, etc. And then the bank started giving me issues about using Airbnb income for my DTI. So then I (I thought quite brilliantly) came up with this plan to basically have my LLC (just recently formed to try to get a hard money loan and then that fell through so not used for anything yet), lease the properties from me for airbnb, and thus to have a lease available to give to my bank when they ask me for it. So I think that is what you are describing here. So my question is, in a practical, explain like I'm 5 do I transition to having my LLC "run" the airbnbs. Does it have to go to a separate bank account? Do I have to delist my airbnbs and lose all the reviews and restart them in an LLC-owned airbnb account? Can my accountant do most of it? Can I just write and sign a lease and then voila? Should I close the business credit card I usually use for the airbnb expenses and get that to be in the LLC's name?

@Janelle Hicks -- what happened w/ the HML that it fell through? Also, how long have you been operating the Airbnbs that you're looking to refinance? There are HML/non-bank lenders that can use your airbnb income to qualify you and you'd be able to get 70-75% LTV on a cash-out refi at a 4.5% - 5.25% rate or so. You'll be able to keep everything as-is.

@Janelle Hicks Not only do you need a lease but you need a paper trail. Your Airbnb account should be under an LLC. Airbnb should be sending your LLC a 1099. You can set this up by going into your account and changing your taxpayer information. Yes, you will need an LLC bank account (I suggest creating a Paypal account attach it to your LLC and then attach the Paypal account to a bank account that's also linked to LLC. Paypal will give you loads of capital by doing this but that's for a different scenario if you're interested in this.) for the LLC that is running the Airbnb business. If the home is in your personal name then the lease should be between you and the LLC. The LLC then needs to pay you rent every month. The LLC needs to be structured as a corporate housing company. If you study the rental arbitrage model it will help you grasp the lease and LLC structure. Good luck with your investing.

@Craig Gerulski , find a lender that do not have overlays.  

FNMA is okay with short-term rental income (and I think Freddie too, but can't put my hand on their specific guidelines), provided that you do show it on your most recent tax return under Sch E. Now if you have 2 years - even better because FNMA usually requires 2 years Tax Returns with their Automated Underwriting System (AUS).  That said, if you bought the property late 2019 or even early 2020 and your Sch E on 2020 shows when you placed the properties in service (Fair Rental Days), then your underwriter should take that into account.  What I find with many investors is that they let their CPA put on Sch E, 365 Fair Rental Days - and they don't even pay attention and not correct their CPA's before they filed :-(

During COVID-19; additional requirements were put in place regarding rental income and self-employed borrowers, so make sure that you discuss that with whomever the Loan Officer that you decide to work with. 

Anyways, FNMA's guideline is listed below.  Good luck. 

@Janelle Hicks -- if they're all around 12 months of income each, you should be able to do a portfolio loan (or a cross-collateralized loan) with a non-bank lender (aka a HML or DSCR lender). All you will need to provide is a download/print out from airbnb showing the monthly rental income for the most recent 12 months. That's what will be used for the income portion of the loan -- no tax returns or anything else.