Using a vacation home as an Airbnb

21 Replies

Hey!

I know that you are able to purchase a home as a "second home" using 10% down but was looking for some answers to some more questions in that area.  If you put 10% down it isn't allowed to be a rental but I would imagine you can use it as an Airbnb?  But is that something that you can be upfront about when purchasing the house or if you try to get another property in a different location using that same strategy that would come up on on tax information and was curious how that works.

Seems like a great low down way into the vacation rental market but was curious how that worked. Thanks!

The lowest I've seen for a second home is 20% down. Some require 25% if they know it's for STR, but not all.

Not sure how much I'd try to hide though. It's still a great strategy, even doing everything legit.

@Jake Miller

Yes, you can buy in multiple locations a vacation home. You can't use the vacation mortgage twice in the same area. You could buy in Destin Florida and then in Gulf Shores Alabama. They have to be in different markets. You'll need to check with your lender. When I bought mine I was not able to rent it with a lease (30 days or more). STR is ok. You are suppose to use it at lease 14 days a year. I don't think it's enforced very strictly. Read your documents thoroughly and be up front about it.

A vacation Home and an Airbnb are the same thing.

Don’t forget VRBO their guests are better.

As for lending talk to your lender. Shouldn’t be much if a problem if you’ve got the W2 to support it. If the lender says no call another one.

@Jake Miller

I’ve done mine at 10% down. Traditional financing on a vacation home and fully allowed to rent out on VRBO (or Airbnb). Some stipulations as to personally using it as well.

Already pursuing another under same terms in another state.

Happy to share info and lender referral depending on where you’re investing.

Vrbo, Airbnb, vacation rental are all rentals.

I got a 10% down loan on a 2nd home and made it to a vacation rental years later.

You will run into mortgage issues if you try to purchase a duplex, triplex, or quad as a vacation home. (We bought duplex as an STR, and that automatically qualified it as a rental vs vacation home.)

As long as it's a SFH, you should be fine finding a bank to offer you a vacation home mortgage.

Glad to hear it's been done with 10% down @Jake Miller , @John Underwood . Did your lender let you use the potential short term rents to help you qualify for the loan? That's the issue i'm running into as my W2 is not too high to help me qualify. I found a few hard/private lenders (Visio) that lend based off only financials of the property and not your DTI but they required 20% down.

Originally posted by @Keith Shadle :

Glad to hear it's been done with 10% down @Jake Miller , @John Underwood. Did your lender let you use the potential short term rents to help you qualify for the loan? That's the issue i'm running into as my W2 is not too high to help me qualify. I found a few hard/private lenders (Visio) that lend based off only financials of the property and not your DTI but they required 20% down.

As I said I didn't do the STR thing till years later. I qualified for the loan without any STR income.

Our lender allowed us to use potential STR rental income on our 2nd through 5th cabins in the Smokies. It was part of the appraisal. But we couldn't use all of it. I want to say it was 50% of the projected rental income on the appraisal.

I should clarify that we could not use potential income on our first cabin. We bought it as a vacation home with 10% down then pre-paid PMI. Potential rental income could only be used if buying as an investment property.

Thanks so much! All my questions were answered in knowing that lenders are okay with it being a STR but they don't use all the income, just a projection of maybe half to cover a mortgage. You can do 10% down and they can't be in the same area.

@Jake Miller I did exactly what you are talking about. Purchased a beach house, and rent it out on Airbnb, but also use it a little for family fun. 10% down second home is one of the coolest “hacks” out there. It’s still a good chunk of change, but totally worth it.

Let the lender know you plan on doing some Airbnb to help with costs, and they don’t mind. They just don’t want this to be a sole investment property. At least for the first couple of years.

@Keith Shadle

I qualified for my first one solely on My personal DTI, but after that my lender would allow the use of STR income but only once it hit a Schedule E on my tax return.

When we bought our vacation home, we didn't really think about doing a STR. Then I found BiggerPockets...
10 percent down and the mortgage was sold almost immediately. 4 years later and it hasn't been an issue.

Originally posted by @Keith Shadle :

Glad to hear it's been done with 10% down @Jake Miller , @John Underwood . Did your lender let you use the potential short term rents to help you qualify for the loan? That's the issue i'm running into as my W2 is not too high to help me qualify. I found a few hard/private lenders (Visio) that lend based off only financials of the property and not your DTI but they required 20% down.

Doesn’t work like that. You need an investment loan if you’re trying to count income. Why would the bank count income on a second home? At that point it’s an investment and 20% down  

In other words you need to be able to pay the mortgage without any rent. They use DTI to determine their comfort level. Sounds like you're outside their comfort level right now. But that's ok just keep asking questions until you find a solution.

Originally posted by @Joseph Bafia :

@Jake Miller

I’ve done mine at 10% down. Traditional financing on a vacation home and fully allowed to rent out on VRBO (or Airbnb). Some stipulations as to personally using it as well.

Already pursuing another under same terms in another state.

Happy to share info and lender referral depending on where you’re investing.

Hi Joseph, 

Any chance you could fill me in with a little more info on what you have going on regarding the previous quoted message?  I am curious how this has worked for you!  Very much appreciated.


Tony 

 

@Joseph Bafia

I just want to clarify that this income is basically used to increase the "income" portion of your DTI correct? That is. When it hits the schedule E.

It would be calculated differently if using an investment loan on a STR where you can factor in comp rental incomes to further help you qualify?

So in theory... the income generated from a STR under a vacation home loan is not as heavily weighted as potential earnings from comparable listings within an investment loan?

Or am I off on this? I currently own 2 vacation home both in airbnb but am within my first year so this question is one I'll be asking my "hopeful" cpa next week during my first meeting with him.

Best,

Alan

The way my lender explained it to me was that I have 2 mortgages to pay (this was when I had a primary home and a second home). I then have my W2 job and income from that. When they run my DTI, they essentially say I make $X in income from my [email protected] job and from that I owe my expenses (which include the 2 mortgages). In the first year of having that situation, I tried buying a 3rd property. The bank said my DTI would not make me eligible for another traditional mortgage because I owed 2 mortgage payments and couldn't "afford" another mortgage. I shared with the lender that I make rental income on the second home and could prove the revenue it generates. The lender stated that they would NOT count that revenue because it was a STR. If it was a LTR and I had a lease, it would be different.

What they did say was that once I filed my taxes and that STR income was shown on a Schedule E, they would use that to offset my expenses (the debt side of DTI). So basically, I look at the Schedule E as somewhat of a "lease" for STRs.

Now that I've got 2 years under my belt, each STRs Schedule E keeps me above the DTI needed to get another second home. Keep in mind, its only really relevant for me if I'm trying to qualify for more vacation/second homes. I've already been pursuing normal investment loans (like Visio) where they didn't even ask me for a tax return, schedule E, etc. They just want to see that the STR will make money.

Hope that helps and hope I didn't butcher that explanation.  Others in this forum are WAY smarter than me.

I will say having a good CPA that specializes in REI (AND knows STRs) is key. I shared on another post that my accountant in 2019 messed up my Schedule E and it hurt me to start.