Airbnb & Short Term Rentals - New Financing Restrictions

[Robert O'Keefe]

Investing in an Airbnb or VRBO vacation investment property just became more challenging.

Fannie Mae and Freddie Mac recently announced financing restrictions for condo buildings that have a concentration of units utilized for short term or vacation rentals.

We can assume the reason for this mandate is risk mitigation for banks.

Consider the Following Scenarios:

• Buyers purchase properties as Airbnb investments. The building later outlaws Airbnb. What do you do with the property and mortgage payments?
• Airbnb’s are deceively very management intensive. People buy them and then realize it’s not for them.
• COVID-19 has restricted travel and demand for these types of properties. If they can’t get rented, the buyer and bank are stuck with the investment.
  

From this mandate, we can expect the interest rate to be higher when buying condos in “condotel” buildings. Perhaps financing may not even be possible at all. Each situation will be different and dependent on the building and the individual situation of the qualified buyer.

Real estate professionals and hopeful Airbnb entrepreneurs have pushed back on these mandates.

They argue:

• How can you determine if a condo is used strictly for vacation property income? What if we use it and rent it out once in a while?
• Airbnb is great supplemental income for us. Will my condo board now restrict Airbnb in our building? It’s in a condo board's best interest to make the building as financing friendly as possible.

These are all great questions. There are no definitive answers yet and we will have to monitor as the situation unfolds.

The Fannie and Freddie mandate is obviously relevant to individuals looking to invest in the vacation rental model.

If you have no intention of doing this, the mandate may still affect the value of your property. A heavy concentration of Airbnbs will make financing difficult in your building.

Less Able Buyers → Less Demand → Less Value

Again, each individual situation will be different. Do not be alarmed by this, but be prepared and know your options. If you have further questions, feel free to contact and we can go through your individual situation and gameplan.