Air BNB Financing Methods

20 Replies

Hey guys! My name is Jordan and I have actually have been doing STR on AirBnB using the rental arbitrage method with great success. I am happy to have done it and I am happy to scale!

Speaking of scaling, I am reaching out to anyone with much knowledge on ways anyone has funded actually buying a property for STR and what worked for you guys. I've had booming success with the rental arbitrage in the Idaho market but would like to peruse options out of state on potentially owning a property.

What funding options is everyone aware of for STR?

@Jordan Davis Congrats on the success! I typically push my investors towards a second home/vacation home loan. 

For requirements:
-They ask that you are at least using it part of the year.
-10% down
- Most lenders require it be 60+ miles from your residence.
- It can be used on some condo's, but much easier for approval on a Townhome/ SFR.

If you cant get lending approval for that, I had recommended Visio lending to some people.

They are 20% down typically & use the projected or actual rental data for the unit to qualify you for the loan.

Feel free to reach out with any other questions.

Best of luck to you!

Hey Jordan! Glad to hear about your STR success!!!

I've been in the STR world for about 4 years now and I think you've got a great question! With still holding something zoned residential I've really only been able to come up with one solution: I've essentially structured my STR property into an LLC and then took out a business loan after showing at least 7 deposits in my business account for three or more months in a row. The bank is essentially looking at my business instead of the house, and they're lending based on the revenue the business is producing. The more deposits and the larger the deposits determine the amount of money they're willing to lend.

I'm not sure if this is quite the answer you're looking for, but its what i've done twice now and it is the only thing i've really been able to put together thus far. Kinda a weird way to go about it, but hey, it works.

@Kyle Momany

Thanks for the response Kyle. I’ll definitely have this in my back pocket for once I qualify! I’m looking to maximize my money and generate passive income as soon as possible.

With that being said. I don’t own my own home at the moment. Definitely will consider this option in the future!

Originally posted by @Joshua Kolnitys :

Hey Jordan! Glad to hear about your STR success!!!

I've been in the STR world for about 4 years now and I think you've got a great question! With still holding something zoned residential I've really only been able to come up with one solution: I've essentially structured my STR property into an LLC and then took out a business loan after showing at least 7 deposits in my business account for three or more months in a row. The bank is essentially looking at my business instead of the house, and they're lending based on the revenue the business is producing. The more deposits and the larger the deposits determine the amount of money they're willing to lend.

I'm not sure if this is quite the answer you're looking for, but its what i've done twice now and it is the only thing i've really been able to put together thus far. Kinda a weird way to go about it, but hey, it works.

What kind rates can you get with LLC route?

@Joshua Kolnitys  Has the best solution I have seen so far.... and I work for a private lending company myself. Unfortunately, MOST private lenders haven't adapted to the AirBnb model and can only lend on market rents. Also to top it off, most of the best income producing AirBnb's are in rural areas that are even harder to lend on from an investment perspective. 

We don't require you to live in property at all, but 80-85% LTV and in a non-rural area is the best you will get unless you decide to do a bridge loan with a local bank refinance 12-16 months down the road (assuming no rehab)

@Edward Wodziak It's technically a Merchant Cash Advance so the rates can vary from like 20%-35%. The biggest contributing factors are your relationship with the lender and the amount/size of deposits being made. Thats the only down side.

The pros are the way it's structured. Since it's a "Cash Advance", what the lender is doing is they're "buying" your future revenue, and in return, you're giving them their money back (with their 30% fee) over the course of the term. Since it's structured as a "Purchase" from you, they don't run any credit which can be helpful for a smaller startup or a new property. Additionally, as you do more deals with a lender, they give you better rates, more money, and typically more favorable terms.

For example, my first one was a 10mo term with a 30% fee on $48k. Then my second one was a 18mo term with a 20% fee on $78k. So these types of "lenders" get better the more you work with them, which can be very valuable down the road. 

@Jordan Davis  

I think the above comments have already covered the conventional financing options available to you to purchase a STR. There are also no doc commercial lenders available if the banks give you a hard time with your self employed income etc.

Something that was not brought up was getting a business loan through your currently successful air bnb arbitrage business. Assuming you are not doing this in your personal name (a few options still exist in personal name) you very linkey have business loan options available to you. Access to this capital could be used for additional down payments and allow you to scale faster and acquire more STR rentals. Food for thought.

Hi Jordan, Congratulations on your success in scaling. I have mixed feelings on the rental arbitrage model. On one hand, scaling is much faster. On the other, you aren't building equity and taking advantage of all the other benefits of ownership. 

A couple options you may consider:

Seller financing - Everything is negotiable, and if qualification or downpayment is your barrier to entry, then you simply have to negotiate terms that fit your need. (I used this strategy on my current deal that will be my first STR)

Cashflow based lending products - I know NorthPointe Bank provides a loan that is based on future cashflow. One caveat is that this loan requires 20% down. 

BRRRR/ Hard money - You could acquire using hard money, rehab, and then refinance. Loan qualification for a traditional 30 yr would be much easier once you are on title. Hard money lenders often don't look at "you" in their underwriting requirements.

Private money - Use your track record to attract others to pool their funds in scaling. Lots of information published on the subject. 

Good luck on ramping up. Keep us posted on what route you take.

Originally posted by @Jillian Dior :

@Jordan Davis

Good afternoon,

How did you begin with STR Airbnb ? I'm looking to make my first real estate investment .

Hey Jillian -

I'd recommend listening to episode #364 with Avery Carl and #476 with Tony Robinson. There are other episodes with STR as the focus, but these are the two that moved the need for me. Once you listen to those, check out content that Avery and Tony have both put out there on their own YouTube channels/podcasts for more in depth info. Both do a great job of giving steps you can take if you're interested in diving into STRs.

I have used the LLC for holding my houses, combined with owner financing. I paid 25% down and I pay the seller 6% interest only for 5 years. No closing fees to speak of (only the cost of a lawyer to close), no credit pull or other documents to present. Because my properties are held in an LLC, I am using a DSCR lender. I can suggest a couple that I've worked with: LendingOne and Visio.