How do I position Airbnb income to a lender?

[Scott Ellis]

Setting: We just had a development project die when our commercial appraisal came back at 50% of what we were expecting.  We were going to build a new triplex on the same lot as an existing 4-plex that has a mix of long term tenants and Airbnb rentals.

Issue: Short term rentals don't have 12-month leases. Even though we could show a year's history of average monthly income, occupancy rates, etc, it was black and white—no long-term lease, no counting the income.  As a result, for example, one studio apartment that has a 12-month rolling average of $1800/month on Airbnb was assigned a market rate rent of $425. 

My Brainstormed Solution: Create a separate Short Term Rental Management LLC. This entity would then lease the apartments from our existing operating entity. Thus, we'd have 12-month leases in place to appease the the appraiser/bank. Now, I immediately see holes in this. We're renting from ourselves. All the income would still flow through to our tax returns that underwriting would review.  I've seen operating entities self-lease from a holding entity, but I believe that's done for asset protection, rather than skirting outdated underwriting guidelines.

Question for BP: Have any of you successfully refinanced properties using short term rental income? Or, for the lenders out there, any thoughts on how to best approach this? Could the multi-entity approach work without landing me in jail?  Any other way to classify the income that would be looked on more favorably by underwriting?

Thanks for your input.  I appreciate it!

[Sasha Mohammed]

I know of two or three lenders off the top of my head that would accept short-term rental income for qualifying purposes. They're definitely not the traditional lenders, but it's possible. It may make more sense spending your time to find a Broker that is aware of these lenders than to call around yourself direct-to-lender. Many of them are wholesale lenders anyway, meaning you wouldn't be able to get a loan direct, and would need a broker to facilitate the transaction. But it is possible. 

*disclaimer: the lenders i'm thinking of may or may not lend in the subject property state. I did not verify this prior-to posting.