Financing your Airbnb

[Mario Mormile]

Good morning fellow BP members-

We are looking to purchase our first STR in Florida. Gathering info and numbers and learning so much.

For those who have STRs, how did you structure your financing? 20-25% Down payment with conventional bank financing? Smaller Down payment with seller financing?

Any recommendations for a lender?

Thanks

Looking forward to hearing your response. 

[Villy Ellinger]

@Mario Mormile all of the above post have some vary true and valuable input, HOWEVER.... if you are looking to buy a vacation rental in Florida, in a condominium complex on or near the beach where Airbnb/STR, etc is allowed and popular with tourist (i.e. guaranteed high occupancy) some of the financing options mentioned above may not be available. Condo properties where a certain % of units are used as short term rentals are often considered "non-warrantable" by lenders. For these usually conventional financing is not readily available, which may limit a buyer to portfolio loans, or various ARM products. Also, if you are considering purchasing in a condo complex, the lender will have to do a "condo review" for the particular complex before deciding on whether or not they will lend. So different lenders will offer different options. Best options are usually available through lenders who specialize in this.

Yes, owner financing is great if you can get it. I have very, very rarely seen that on vacation rental type properties. Usually when the property is in REALLY poor condition and can currently not produce any income OR for properties over $1M and above where financing is really hard to get. The reason that most STR owners do not offer owner financing is that they are already getting installment type payments from the property through renting it out. What they want is CASH TODAY, which is why they are selling usually.

Conventional type financing with 20% down and a 30 year fixed is available for some of the more established developments. (This is a good deal if you can get it!!!) This is usually an "investor-backed" portfolio product that banks may have. What that means is that instead of selling the loan on the secondary market (which they cannot with a non-warrantable property) they are selling it to a private investor. Some lenders offer ARM loans with 10% down for buyers with higher net worth. This is also a good deal. If you can get a 10/1 ARM with 10% down, that is really great. Chances are that in 10 years you will sell the property anyway. More common will be a 5/1 ARM, 20% down, 15 year term.

The availability of financing is one of the main hurdles for purchasing vacation rentals in FL. You can buy a regular house or condo in a non-vacation area with regular financing, but there you run a very high risk that STRs would not be allowed. Also, tourist do not really want to rent in residential areas far from the beach.

I'm in Ft Walton Beach, FL near Destin and FL vacation rentals/STRs is what I do, lol. If you need a lender in the Panhandle I can give you info on several. Message me privately and I will send you contacts for lenders.

Good Luck!