Airbnb Financing Made Easy: Your Guide to Business Loans for Airbnb

As travelers seek unique experiences, they increasingly turn to Airbnb, Vrbo, and other vacation rentals for their vacation accommodations. This provides a unique opportunity for homeowners and real estate investors to make money by converting homes into short-term rental properties. Vacation rental platforms allow property owners to monetize their entire house, or a portion of their home, to guests who want an alternative to hotels. Operating a vacation rental is hard work, and investors experience different expenses than those of a traditional rental property. Learn how to get a business loan for Airbnb, what expenses you need to know, and alternative financing for an Airbnb property.

Typical Expenses for an Airbnb Investment Property

Before we jump into how to get a business loan for Airbnb, we need to first understand the costs involved of owning a vacation rental property. There are three primary categories of costs associated with operating an Airbnb: capital expenditures, maintenance, and monthly operations.

Understanding these three categories is important because they will directly impact the types of loans you can and can’t use. Having the right business loan for Airbnb can make you a better vacation rental host and operator.

Capital Expenditures

Capital expenditures are money spent on acquiring or maintaining fixed assets. Examples include land, real estate, and equipment. For an Airbnb rental, capital expenditures are the land, house, furnishings, or value-adds that set your property apart from the competition. For most Airbnb operators, capital expenditure represents the most significant barrier to entry to becoming an Airbnb host.

If you already own the property and it is fully furnished, the property is “turn-key.” This means it is fully functioning and ready for you to rent out immediately. Unless there are significant repairs or improvements necessary before you rent it out, you most likely will not have any capital expenditures.

All other aspiring Airbnb operators may need to evaluate loans for Airbnb business. A business loan for an Airbnb property can help you purchase a property, get an existing home ready for renters, or allow you to add to your portfolio of rentals.

Whether you already have a vacation rental or are looking to buy one, consider value-adds beyond the basic features of a home. These capital expenditures, such as bicycles, children’s toys, and kayaks, can provide additional value to your renters' experience and increase your revenues through higher occupancy or increased nightly rates.

Maintenance

Maintenance expenses vary depending on the type and location of your Airbnb property. Most properties have a common list of maintenance expenses that landlords must include in their budget. However, if you have a unique property (say, a cabin in the Alaskan backcountry or a remodeled shipping container in the Texas desert), you may have special types of maintenance work that you need to account for.

Here are a few examples of common maintenance expenses for an Airbnb operation:

• Anticipated yard care: Mowing the lawn, watering the plants, weeding the garden, spraying insects, lawn irrigation, seeding, mulch, and landscaping.
• Unanticipated yard care: Storm cleanup or damage from animals (i.e., a deer eats all your shrubs, and now you need to replant and protect the garden).
• Home maintenance: Replace the water filters, unclog pipes, repair general wear and tear, repair HVAC units, refrigerators, washers/dryers, and broken chairs or dishes.
• Cleaning costs: Your Airbnb will need to be cleaned after every renter. Some Airbnb hosts clean their own properties to save money. However, investors with multiple properties or in distant locations outsource to third-party cleaning services.
• Supplies: Replace consumable supplies, like toilet paper, paper towels, trash bags, soap, and coffee pods.

When operating an Airbnb, maintenance expenses must be considered. You can cover these recurring expenses from revenues or use a business loan for Airbnb properties if you need extra cash. A thorough understanding of recurring costs can help you budget correctly and learn how to increase profits by controlling expenses.

Operations

Operational costs are recurring expenses whether or not guests stay at your property. Some of these expenses are fixed, while others increase over time.

Here’s a look at operational expenses that you can anticipate paying with your Airbnb operation:

• Monthly mortgage payment: Typically, the largest expense for Airbnb operators is the monthly mortgage payment on their business loan for Airbnb As your mortgage is paid off, you'll dramatically increase your cash flow and profits.
• Property insurance: Property insurance for vacation rentals is more expensive than a policy for your primary residence due to occupancy laws.
• Property taxes: Property taxes are typically built into your monthly mortgage payment (along with your property insurance). If you don't have a mortgage, you'll need to pay this bill on your own.
• Taxes: Your rental income will be taxed. However, depreciation may reduce or eliminate your taxable income even if your rental is cash-flow positive.
• Utilities: Gas, electric, water, internet, and trash are common utilities you'll need to budget for.
• HOA fees: Plan on paying HOA fees monthly, quarterly, or annually. The HOA may restrict short-term rentals, so verify how these rules affect your business before buying the property.
• Airbnb fees: Airbnb takes a percentage of every booking.
• Local taxes and registration fees: Some jurisdictions require additional taxes, fees, and registrations for vacation rentals.
• Property management fees: If you don’t live close to your vacation rental, you will likely need the assistance of a property manager.

Should I Get a Business Loan for Airbnb Property?

Many investors don't have the money available to buy an Airbnb in cash. They need to get a business loan for Airbnb properties to fund the acquisition, repairs, and upgrades necessary to have a profitable vacation rental property.

Mortgages

Conventional mortgages typically require down payments of 25% for rental properties. Investment property mortgages tend to have high interest rates compared to primary residences because short-term rental properties carry more risk.

Some Airbnb investors start with FHA or VA loans because they offer mortgages with down payments as low as 3% and 0%, respectively. However, these government-backed loans are for owner-occupied properties. To use them as a business loan for Airbnb properties, you'll need to live in the home first or purchase a multifamily property (1-4 units) where you can rent out the other units.

Investors refinancing their homes can do a cash-out refinance to pull out money. However, closing costs can reduce available cash and refinancing resets the repayment period on their mortgage loan.

Home Equity Loan or Home Equity Line of Credit

A home equity loan or home equity line of credit (HELOC) allows you to pull equity out of your existing property without selling it or impacting your primary mortgage. The maximum loan amount varies depending on your home's value and the balance on your primary mortgage. Home equity loans typically allow borrowers to tap around 75% to 90% of your home’s equity, minus the balance on the existing mortgage. With a home equity loan, you'll receive a lump sum of money and have fixed monthly payments.

HELOCs have a variable interest rate with interest-only payments during the draw period. There is a maximum credit limit that you can use repeatedly as you withdraw money and pay it back. These Airbnb loan options typically have higher interest rates than a mortgage on your primary residence.

Term Loans

Without the equity in your home to tap into or enough cash on hand for the down payment, you can investigate term loans. A conventional business loan for Airbnb investors may be secured or unsecured. However, interest rates are typically lower if the loan is backed by an asset. Term loans usually have a shorter repayment period than a mortgage, meaning your monthly payment is higher.

SBA Loans

Many might wonder if you can get an SBA loan for Airbnb investors to buy a property or help with the down payment. The answer is no across the board.

• SBA microloan cannot be used to pay existing debts or to purchase real estate.
• An SBA 504 loan cannot be used for investment in rental real estate. SBA 504 loans are usually for commercial real estate purchases, not single-family homes converted to a vacation rental.
• Proceeds from an SBA 7(a) loan can be used to purchase real estate when the business plans on occupying the property. Borrowers are ineligible for an SBA 7(a) loan when the property is held for investment purposes.

However, you can get a business loan for Airbnb investors for other purposes. Airbnb investors who own the property can use an SBA loan for working capital, buy furniture and other equipment, or make capital improvements to their real estate. SBA loan terms are often more favorable than conventional loans because of the government guarantees provided to lenders.

Loan Alternatives to Help Run an Airbnb Operation

A business line of credit might meet your needs instead of – or in addition to – an investment property loan as an Airbnb operator if you only have maintenance and upkeep to worry about.

One of the benefits of a line of credit over a business loan for Airbnb properties is that you can borrow as much money as you need up to the limit. Plus, you'll only pay interest on the amount borrowed. A business line of credit is revolving debt, similar to a credit card. This means the business line of credit is open-ended and can be used and paid down repeatedly. You'll have this option as long as the account remains open. However, some lines of credit convert to a term loan after a period of time.

The Bottom Line About Getting a Business Loan for Airbnb Investors

Whether you are starting your Airbnb rental business or already own multiple properties, you may need an Airbnb small business loan. A small business loan for Airbnb investors can fund the purchase of a property, improvements, working capital, or other financing needs. Many investors use their home equity to finance their vacation rental business. However, there are SBA loans, term loans, and other options to consider. Each loan type has unique pros and cons to consider before applying. Compare your financing options by contacting multiple lenders.

Frequently Asked Questions (FAQs)

Can You Get a Business Loan to Open an Airbnb?

Lenders are willing to lend to borrowers with good credit, cash reserves, solid income, and home equity. You can request a business loan for Airbnb properties from a traditional lender, tap your home equity, or get a term loan from an online lender.

What Kind of Loan Do You Get for an Airbnb?

Many Airbnb hosts start by renting out their primary residence. For your primary residence, you can get a conventional mortgage, FHA loan, or VA loan. To buy an Airbnb property, consider tapping your home equity. Getting a hard money loan or applying for a business loan for Airbnb investors from a traditional lender are also good options.

How to Get Funding to Start an Airbnb

If you don't have savings to start your Airbnb business, tapping your home equity is a popular option instead of getting a business loan for Airbnb investors. Depending on how much equity you have, you may be able to buy the Airbnb property outright. Otherwise, you can pair the down payment with an investment property loan.

Can I Put My Airbnb Under an LLC?

Investors often seek to protect their personal assets by opening a limited liability company (LLC) or a corporation. When you have an Airbnb business with numerous guests each year, there are substantial risks of getting sued. Forming a corporate entity is a wise choice to separate your business and personal life and reduce your risks.

How to Qualify for a Business Loan for Airbnb Properties?

Each lender has different criteria when approving borrower applications. Having good credit, adequate cash reserves, and a strong personal income history can increase your approval odds. When applying for a business loan for Airbnb properties, consider writing a business plan you can share. It should include your marketing strategy, industry research, and financial projections.

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