Using a vacation home as an Airbnb

[Jake Miller]

Hey!

I know that you are able to purchase a home as a "second home" using 10% down but was looking for some answers to some more questions in that area.  If you put 10% down it isn't allowed to be a rental but I would imagine you can use it as an Airbnb?  But is that something that you can be upfront about when purchasing the house or if you try to get another property in a different location using that same strategy that would come up on on tax information and was curious how that works.

Seems like a great low down way into the vacation rental market but was curious how that worked. Thanks!

[Joseph Bafia]

The way my lender explained it to me was that I have 2 mortgages to pay (this was when I had a primary home and a second home). I then have my W2 job and income from that. When they run my DTI, they essentially say I make $X in income from my W@ job and from that I owe my expenses (which include the 2 mortgages). In the first year of having that situation, I tried buying a 3rd property. The bank said my DTI would not make me eligible for another traditional mortgage because I owed 2 mortgage payments and couldn't "afford" another mortgage. I shared with the lender that I make rental income on the second home and could prove the revenue it generates. The lender stated that they would NOT count that revenue because it was a STR. If it was a LTR and I had a lease, it would be different.

What they did say was that once I filed my taxes and that STR income was shown on a Schedule E, they would use that to offset my expenses (the debt side of DTI). So basically, I look at the Schedule E as somewhat of a "lease" for STRs.

Now that I've got 2 years under my belt, each STRs Schedule E keeps me above the DTI needed to get another second home. Keep in mind, its only really relevant for me if I'm trying to qualify for more vacation/second homes. I've already been pursuing normal investment loans (like Visio) where they didn't even ask me for a tax return, schedule E, etc. They just want to see that the STR will make money.

Hope that helps and hope I didn't butcher that explanation.  Others in this forum are WAY smarter than me.

I will say having a good CPA that specializes in REI (AND knows STRs) is key. I shared on another post that my accountant in 2019 messed up my Schedule E and it hurt me to start.