Vacatoin Rental Mortgage Company

13 Replies

Someone needs to start a bank that specializes in vacation rentals. I'm looking for a new bank to take my business to starting with a primary cash out refi..... I've called 20 banks and NONE of them have any idea how to handle my AirBnB even though it brings in 3X my other properties. They all said I need to talk to my CPA and I better hope 2 years of schedule E is good enough because I can't prove future occupancy without a written lease. 

It's a million dollar idea. Run with it. I'll be your first customer. 

Well crap it wont let me edit the typo in the subject. Sorry! Just when I was on to a hot topic lol 

Hey @Lucas Carl . That is a cool idea, and hopefully some lenders on here can chime in. My guess is that not only are they going to be worried about future occupancy you can't prove yet, but they're also going to worry about the unstable regulatory environment we're currently in with regards to short-term rentals. I know Nashville is pretty open about it, but it seems like things are changing quick with Airbnb and who knows what the future holds. Can't get money based on rental numbers that might not be possible in the future.

That said, if someone out there is offering this type of product, I want to know. 

Maybe you can qualify for the refinance with the house classified as a second home instead of a vacation rental? 

Originally posted by @John Underwood :

Maybe you can qualify for the refinance with the house classified as a second home instead of a vacation rental? 

Well that's the beauty of a vacation rental you can still get in to one with only 10% down as a vacation home. The problem there is your monthly mortgage is higher and you're paying some PMI so your principal doesn't go down much every month.

Also.... if it's a "second home" why would you be showing them your investment income to lower your DTI to get in to the next one?

This gives you options of only paying 10% and putting he rest of your cash to work some where else. you can of course pay 20% or more down if you wish. 

IF the numbers work with PMI then you may have cash to do another deal that will make more than that 100 a month PMI payment.

Your right you wouldn't need to show them the rental income on this property at all which seems to be your problem with not having a long term lease to show the bank.

The bank would just evaluate that you can pay for the property as a second home. As long as your making the payments after you close the bank doesn't really care if you are renting it long term or short term.

That is how I did my vacation rental. I didn't go into the deal with the intention of renting it at all. But it has turned out that it is paying for it self and making 10k a year plus we get to use it some. All my other rentals are long term and they are less work.

@John Underwood Interesting. I would assume that because you're not entering into a lease that you're not violating the "intent" clause. Thanks for the thought! 

Originally posted by @Ryan Dossey :

@John Underwood Interesting. I would assume that because you're not entering into a lease that you're not violating the "intent" clause. Thanks for the thought! 

If you're intent is to use it as a second home and one month later you decide to rent it to a friend via Airbnb and next thing you know your calendar is full......

Awesome way to get yourself in to a property for 10% but again.... makes it more difficult to get in to the next property. 

Not legal advice 

To play devils advocate here I doubt many lenders will find this appealing since New York just banned short term rentals (less than 30 days). I know thats only one city, albeit a very big one, but if I was a lender I would be hesitant to lend on a deal that was relying on inflated rents that could be taken away. 

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I'm actually working on my first deal for a guy whose only source of income is AirBnB. I'll probably make a post with what I have learned, and what I still need to figure out, once the loan has funded and escrow closed. 

@Micah Copeland

Is your Rental in an LLC? If so, what about pursuing a Business line of Credit? You can probably get some Credit Line for what you currently have. However, if you have 2 years Tax Return, you might be able to have a larger line.

I haven't done it that way with Real Estate, but I can't see why it wouldn't work.

Keep us updated to see if Banks can do a Business Line instead of a Cashout Refi or other secured lien.

Investor Llew

@Lucas Carl There are several lenders I work with that specialize in vacation rentals for investors. We've closed dozens of financed vacation rental properties. If you need some names, feel free to reach out. I'm happy to pass them along. 

@Micah Copeland Cities are struggling right now to figure out how to deal with nightly rentals. That's why it is so important to have a zoned nightly rental home. That is what my group has started to do in Utah, and are expanding nationwide right now. Few cities even have ordinances to deal with nightly rentals. As more see how to deal with future nightly rentals https://buildbevy.com/city-ordinance and how to coexist with the existing users: http://strhelper.com. You will see that dynamic change.

If you're being above board in paying transient occupancy tax you have proof of income stream. So an non QM lender may give you a decent rate. 

Plus not all AirBnB rentals are short term. 90 day travelling nurse contracts are out there. Trying to tweak the system to get lowest mortgage rate is great, but at some point not scalable. What do you do when you get past 10 houses?

Strong yes vote for this rental model. Good for you! Keep it up!

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