Complete Guide: How To Finance An Airbnb Rental For Investors
There’s never been a better, cheaper, or easier time to finance an Airbnb rental property!
With so much competition around, including hotels and other properties jumping on the bandwagon in recent years, you might feel like your chances of turning a profit are slim. But don’t fear – with the right strategy your investment could prove to be hugely profitable.
This guide will take you through the steps to financing your next Airbnb property, and provide some tips that could help you to make your investment a success.
What is an Airbnb?
An Airbnb is a type of short-term rental property that people can rent out via a website of the same name. Airbnb is a website that brings together house owners, renters, and property managers. The site allows people looking for accommodation to search for properties to suit their needs, and then book online.
The origins of Airbnb can be traced back to the San Fransisco area, where a number of house owners in the city started renting out spare rooms or entire houses, or even on occasion just their beds!
The company has grown rapidly in recent years, with over 5 million listings worldwide. As the price of real estate in a lot of cities has gone up, many people have been forced to look for alternative ways to make money on their property.
How To Finance An Airbnb Rental For Investors
1. Find a suitable property
In order to determine the best way to fund your new Airbnb rental property, it’s important to first think about exactly what you’re looking for. If you have specific needs and requirements, it can be easier to find a property that meets all of these criteria.
You should think about the location of your next property. You may want to stick around the area you already live in, or you might be interested in seeing what potential lies elsewhere. When you’re looking at properties, don’t just think about the distance to places such as work and school – also consider what amenities are close by.
You should consider whether you want a rental property that is furnished or not or one that will let you redecorate and make it feel more like home.
You should also think about the size and condition of the property you are purchasing. You can find a listing on Airbnb by typing in your preferred location, visiting their website, and inputting a few details.
While you’ll have to prove that you own the property when applying for a mortgage, it can be useful to know exactly what kind of investment you’re making when looking for ways to fund an Airbnb property.
2. Find a suitable mortgage broker
Your next step is to find a suitable mortgage broker who can help you to fund your investment. A lot of people using Airbnb rental properties to generate an income tend to use the home equity from their property, but this isn’t the only way you can fund your investment.
A reason for this might be that if you have a smaller property, or simply have a lower property value than others, it could actually be more difficult to get a loan based on your property equity.
Mortgage brokers can provide you with a number of options for funding your next property. They can help you to get home loan packages that are tailored towards borrowers with lower financial contributions and lower cash positions than other loans would require.
As well as this, they can also advise on the best payment arrangement for you and your household, such as an interest-only or principal-and-interest mortgage plan. This can help you to keep your monthly repayments at a manageable level, as well as help you to budget for the long term.
3. Determine the type of mortgage loan you want
Before choosing a mortgage loan that meets your needs, you should think about what it is that you’re looking for in a mortgage plan.
An interest-only loan could be a good choice if you won’t be in the property long-term, or if you don’t have a high enough cash balance to cover the entire cost of the property. As well as this, it could also make financial sense if you want to generate some income on your property, but don’t want to tie up all of your money in a mortgage.
A principal and interest loan might be more suitable if you want a fixed rate of interest, or if you want to spread the cost of your home over the long term. It could also be ideal if you want to pay off your entire mortgage before the end of the loan period.
As well as this, you should think about whether it would make sense to refinance to a lower rate in the future, especially as interest rates are usually going up as opposed to down.
4. Decide on a suitable payment plan
You should also consider the type of payment plan that you’re going to go for with your next property. If you have interests in other investment properties, for example, you may want to reconsider the amount of money that you’re investing right now. Alternatively, if you don’t have any other investments and only have a personal property loan available, such as a home equity loan, you could save more money by going with an interest-only mortgage.
Mortgage brokers can provide you with a range of mortgage payment options, such as new and used car leases that you could use to pay your mortgage money. As well as this, they can also help you to choose the most suitable interest rates in order to keep your monthly repayments at a manageable level.
It’s also worth thinking about whether you’d prefer to use your equity as a way of funding your new property or whether you want to get a personal loan from a bank or credit union. If you have any existing loans, such as mortgages and credit card debt, it may be more useful to take on a personal loan rather than putting all of your money into the Airbnb property.
5. Decide on a suitable down payment
As well as this, you should think about how much investment you want to put into your property at the outset. The amount of money that you can afford to put down is something that your mortgage broker can help you to determine with the help of a financial calculator. They will also be able to advise on how much equity you should set aside when making an offer on a property in order to get accepted by the seller.
While the most popular way to fund an Airbnb rental property is to use the equity from your house, it’s also possible to get a personal loan in order to cover the cost of your investment.
While mortgage brokers are typically associated with home loans, they can actually help you to get a personal loan that is specifically designed for this kind of investment.