Vacation rental platforms like Airbnb have made owning short-term rental properties more accessible than ever before. More than 5 million hosts (and growing) list their properties on Airbnb in 2024, and owning an Airbnb property can be a great way to start investing in real estate and potentially have a vacation home for your family at the same time.
I'm an Airbnb owner and can tell you firsthand that it can be a rewarding and lucrative way to buy your first rental property. But what about financing for an Airbnb?
In most cases, you need 20% down or more to qualify for an investment property mortgage. But Airbnb rentals don't always fit the traditional definition of an investment property. So, if you'd love to own an Airbnb but aren't sure you can afford the down payment, here's what you need to know.
Different types of loans for different types of Airbnb properties
The biggest point to know is that there are different types of loans you can use, depending on the location and nature of your Airbnb rental property.
We'll start with traditional investment property loans. Investment property loans can generally be made for properties with one to four housing units (five or more units typically define a "commercial" property), and while Fannie Mae's guidelines allow for one-unit investment property loans with 15% down payments, in practice, most mortgage lenders want 20% down or more for an investment property.
While this isn't an exhaustive list, here are a few situations where you would likely have to use an investment property mortgage:
- You aren't planning to use the property for personal reasons at all.
- The property is a one-unit residence that is close to your primary home.
- You're planning to make it available through Airbnb 100% of the time.
If these situations don't apply to you, there might be good news. Two types of mortgages can be used to buy short-term rental properties in certain situations.
Second-home loans
To be clear, there is no set-in-stone definition of a second home. But in general, lenders consider a second home to be a single-unit property that isn't near your primary residence, which you plan to personally occupy at least some of the time.
This is important because there is a special type of mortgage designed to be used to buy a second home.
Second-home loans not only have generally lower mortgage interest rates than investment property mortgages, but they also have lower down payment requirements. Fannie Mae's underwriting guidelines allow second-home loans with as little as 10% down (although 20% is required to avoid mortgage insurance).
Different lenders have different definitions of a second home. Some allow you to rent it as much as 90% of the time, while others are more restrictive and have their own guidelines. For example, some lenders don't allow second homeowners to hire a property manager. Be sure to shop around -- not just for the best rate, but for a lender with a second-home definition that works for you.
FHA loans (Airbnb house hacking)
FHA loans only require a 3.5% down payment if you have a credit score of at least 580. And while it's true that you can only get an FHA loan for a property you live in, the property you buy can have as many as four housing units.
For example, you can use an FHA loan to buy a triplex (three-unit property) with a 3.5% down payment. You can live in one unit, and use the other two as rentals, even through short-term rental platforms like Airbnb.
You don't need a massive down payment to own an Airbnb
The bottom line is that while 20% is the typical down payment lenders want to see for investment properties, Airbnb rentals are not the traditional investment properties that the rule is based on. Because you can use short-term rentals yourself, and because multi-unit properties can make excellent Airbnb rentals, it's entirely possible to become a vacation rental owner with a much lower upfront financial commitment.
FAQs
Additionally, the loan programs available to facilitate primary home purchases aren't an option for Airbnbs and other rentals. Many lenders will want a minimum down payment around 20 percent of the property's value, although down payment requirements can range from 15-30 percent depending on the lender.
How much to put down for Airbnb? ›
Additionally, the loan programs available to facilitate primary home purchases aren't an option for Airbnbs and other rentals. Many lenders will want a minimum down payment around 20 percent of the property's value, although down payment requirements can range from 15-30 percent depending on the lender.
How much money do you need to buy your first Airbnb? ›
How much does it cost to start an Airbnb? An Airbnb costs, on average, $6k to start — assuming you already own the property. Putting everything together, Airbnb costs include: Cleaning and maintenance (e.g., supplies, cleaner fees)
How to afford to buy an Airbnb? ›
You do need some sort of financing to purchase any home, but it doesn't have to be cold hard cash. You can use a mortgage to purchase the Airbnb. However, keep in mind there will be upfront costs – like a down payment and closing costs – and a monthly payment on the mortgage.
How to finance your first Airbnb? ›
There are two types of loans you can use to get an Airbnb property, including:
- Conventional loans (for an investment property or to rent out a room)
- Government-backed loans (such as an FHA loan or a VA loan)
You'll pay for part of your reservation upon booking confirmation, and future payments will be deducted automatically on the dates listed on the checkout page.
Can you Airbnb with an FHA loan? ›
FHA loan rules do not permit rentals of living units in the home purchased with an FHA mortgage if those rentals are for less than 30 days. The Airbnb business model is not acceptable under FHA loan rules, which means that if you purchase with an FHA mortgage, Airbnb operations are a violation of the FHA loan rules.
How much deposit does Airbnb require? ›
Asking for a substantial amount as a security deposit and setting a strict cancellation policy is a surefire way to make travelers feel truly unwelcome. Generally, an Airbnb security deposit doesn't exceed 20% of the total cost of the booking. Hosts often set an amount within the range of $100 to $500.
How much money should you save to start an Airbnb? ›
Costs Involved in Starting an Airbnb Business
It takes money to make money! In general, a 1-bedroom home will cost between 6,000 and 7,000 dollars to furnish and make it suitable for renting. A 2-bedroom condo will cost between $8,900 and $9,900 if you're starting from scratch.
Is owning an Airbnb good money? ›
According to AllTheRooms, an Airbnb host in the U.S. earned an annual average of $44,235 in 2021. But running an Airbnb short-term rental takes a lot more work and can be more expensive, with frequent cleanings, inventory restocking and more maintenance.
Starting an Airbnb business requires time, effort and investment just like other business ventures. Before becoming an Airbnb host, you'll want to understand the rules and tax implications, thoughtfully design your space and research listings in your area to make sure your pricing is competitive.
How much do owners have to pay Airbnb? ›
Split fees
The host pays a flat rate of 3% of the total booking cost and the guest pays a percentage of their reservation fee (this is somewhere between 5-20% depending on the length of stay, the location, and the cost of the reservation to start with).
How do I start Airbnb with little money? ›
How to Start an Airbnb with no Money
- The Airbnb Platform is Much More than it May Seem.
- Becoming a Property Manager.
- Using Your Own Vacant Property.
- Take Initiative on Open Rentals in your Area.
- Become an Affiliate.
- Offer Airbnb Experiences.
Bottom line. Buying an Airbnb property can be lucrative, but there are some things to consider before investing. For starters, be sure to research the laws and regulations about short-term rentals in your area, as some cities restrict or even prohibit them.
How to invest in first Airbnb? ›
How to Buy Your First Airbnb Property
- Secure your financing. First, you need to know how much you can buy with the money you have. ...
- Pick your market. Next, find the market that fits your budget and profit goals. ...
- Look for good deals. ...
- Estimate your profits. ...
- Make an offer. ...
- Inspect the property. ...
- Close!
It's Hard Work
Running a successful Airbnb business is like running any other type of small business. Marketing, managing, promoting, and optimizing your vacation rental takes time and effort. It also requires many startup costs to purchase, furnish, and prepare the Airbnb rental for listing.
Does Airbnb take 20%? ›
Unless otherwise agreed to by the host and Airbnb, we charge a 20% service fee for experiences to help cover the costs of the products, services, and support we provide.
Does Airbnb take 15%? ›
No service fee is visible to the guest, so how much does Airbnb take? Hosts usually pay 15% of the total payout.
What percentage of money does Airbnb take? ›
What percentage Airbnb takes can vary, but it's typically around 3% for most hosts. However, Airbnb's commission can go up to 14% or more for hosts who have a Super Strict cancellation policy.
What is an Airbnb security deposit? ›
Security Deposits:
Security deposits, managed either by Airbnb or directly by the host, serve as an immediate measure to cover minor damages. There are two types: Airbnb-Required Security Deposit: This is an authorization hold on the guest's payment method, placed two days before the booking.
