Short-Term Rental Loans

Short-term rental loans (STR) are loans on properties that are typically held for a very long period of time, yet rented out for short-term use, such as long term Airbnb rentals. The source of the income stems from clients seeking to either rent at the nightly rate or weekly usage. Since the renters are paying for a short period of time, they must pay a substantially higher rate per night or week, than they would if they rented for 1-2 years straight on a permanent rental basis. This is more feasible as travelers are often staying for short durations as they are on vacation which places them in reward mode that loosens their spending habits and increases the landlord’s income. The increased income often yields 5 times the net income of a single property permanent rental lease would generate. This style of ownership has become quite popular for both investors as well as guests of the property. It is important to keep in mind that like many aspects of life, more reward comes with more responsibility. This tenant style requires much more frequent and active management of the property. The good news is that there are a large number of agencies set up well to help the investor consistently stay on top of the property condition, weekly or nightly maid service, and checking the guests in and out on a super frequent basis. Even after paying a hefty fee to a property manager, it is still very possible to earn a massively increased net profit if the investment property is located in an optimal area with high demand and low supply. Success also requires participation in marketing and online hosting of guests by the property owner or a person on the investor’s team. Getting positive reviews and rankings as well as the investor being studious about their own guest experiences and the competition can yield favorable results.

The Short-Term Rental Loans style of real estate financing is also based upon the DSCR Calculation, but the difference is in the sourcing of the potential rental income or realized income. For a property managed by a third-party company that has a history of being rented out on a short-term basis, 12 months of reporting is required. However, if the property has never been rented on a nightly or weekly basis, there are a few lenders that will base the loan on potential rental income that stems from other like-kind properties within a 2-mile radius of the subject property.