Vacation Rental Blog Posts

How to Finance Your Own Airbnb

March 29, 2020

From single rooms to entire vacation homes, operating your very own Airbnb can be a good way to generate income. In fact, Airbnb hosts make an average of around $924 a month, though this can vary based on a number of factors. These include location, services offered, home quality, and the number of times you […]

From single rooms to entire vacation homes, operating your very own Airbnb can be a good way to generate income. In fact, Airbnb hosts make an average of around $924 a month, though this can vary based on a number of factors. These include location, services offered, home quality, and the number of times you are able to rent out your listing. While having your own Airbnb can be a wonderful money-making strategy, it comes with its own costs.

Before you Finance an Airbnb

Before anything else, know that Airbnbs have legal and financial considerations, just like every other investment. These are:

Legality. Statistics provided by Much Needed reveal that Airbnb is already in over 81,000 cities in more than 191 countries all over the world. Despite these impressive numbers, you still have to make sure that Airbnb is legal in your city. Go to the city office and inquire about the renting or licensing regulations for rented properties in your area.

Insurance. While Airbnb offers its own Host Protection Insurance, your own home insurance might not cover rented properties. Take the time to discuss your plans with your insurance company to get all the necessary details and ensure that your property is protected.

Costs. To properly brace for the costs of owning an Airbnb, an estimate should definitely be in place. To get a better approximation of how much running an Airbnb can cost, try to connect with other Airbnb hosts near you. Be sure to consider maintenance, refurbishing (if needed), upkeep, utilities, and even accounting and legal fees, all of which should be factored in when you arrange your finances.

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An Owner-Occupied Investment Property Loan

With how flexible Airbnbs are, having your own Airbnb is possible even if the only free spaces you have are rooms. If you plan on renting out a property and still live in it, consider an owner-occupied investment property loan. These kinds of loans will enable you to get a longer mortgage term on top of a lower down payment. For a smooth-sailing application, US News suggests preparing key documents ahead of time. These include:

• Application Form

• Income Tax Return

• Bank Statements

• Credit Verification

A Personal Loan

One option that you should consider is a personal loan, so that you can finance any renovations you’re planning on your own home or a newly acquired property. Marcus explains that personal loans can come with fixed rates and payment terms, so you have a clear idea of how much you owe over a set period of time.

Depending on your qualifications, getting approved for a personal loan can be relatively simple because you can apply online. And unlike other loan options, your loan will be determined by your credit score and ability to pay. The improvements you make with the loan can help you get better reviews and allow you to increase rent — helping you earn back the principal amount in no time.

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A HELOC or Home Equity Loan

If the only property you have is your home and you want to have a separate one as an Airbnb, you can use your home equity to purchase a new property. You can tap into the value of your home through a home equity line of credit (HELOC) or a home equity loan. A HELOC will give you access to a limited amount of money in a revolving loan, which works kind of like a credit card.

You can borrow up to a certain credit limit, and pay it back once you get your income. Then, you can borrow again as needed. The home equity loan, on the other hand, will give you a lump sum of cash that you’ll have to pay back monthly. While both HELOC and home equity loans have lower rates and better terms, both are secured loans. This means you are using your own home as collateral, and you might lose it if you aren’t able to pay.

With the right planning and preparation, turning one of your properties into an Airbnb can be a very good way to generate income. Once you’ve got your finances in order, check out our previous post on ‘Tips for Starting Your Own Airbnb as an Owner’.

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By Jennifer Birch