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Are you considering a short-term rental investment property? As the year comes to an end, it’s an excellent time to realistically evaluate your goals for the new year. If one of those goals is to get into hosting on AirBnB or any other short-term rental service, you have come to the right place.

Currently, interest rates — including rental property mortgage rates — are on the rise. So, it is understandable to be a little hesitant, especially given how difficult it can be if you are a first-time investor. However, what goes up must come down. Many economists expect interest rates to stabilize in 2024, which is good news for those looking to invest. Interest rates, however, are not the only thing to consider when looking at a short-term rental investment property.

Your short-term rental investment property mortgage options

Platforms like AirBnB have changed the way people travel. Instead of acquiring lodging in a hotel or motel, you can now stay in a local property with all the amenities of home. However, despite their popularity, lenders hesitate to provide mortgages for short-term rental properties. As such, they treat mortgages for short-term rentals differently than long-term ones. Let us take a look at your options.

A second home mortgage

If you already own a home, purchasing a second home or condo usually comes with tighter restrictions and higher qualifying requirements. In many situations, a 20% or more down payment is necessary. You will also have to satisfy many criteria, such as:

  • The property must be a single-family dwelling only
  • It must be suitable for year-round use (heating, water), with year-round access
  • The property must be occupied by the owners or a family member for a portion of the year

If your property meets these conditions, then a second home mortgage might be a great option for your short-term rental investment property. However, not everyone can meet those criteria.

Short-term rental investment property mortgage

If you intend for your short-term rental investment property to be strictly for generating income, then you will need to apply for an investment property mortgage. This type of mortgage has similar restrictions to a second home mortgage, as it also requires at least a 20% down payment to access good rates, a good credit score and a stable income. However, you do not need to reside in the property for a portion of the year.

There is one big caveat to keep in mind with an investment property mortgage: there is a big difference between long-term and short-term rentals. Long-term rentals generally provide a stable source of income, which lenders like. Short-term rentals present a lot more uncertainty in terms of income. They rely on seasonality, reviews and a host of other factors to generate consistent income. Lenders see this instability as a huge risk.

There is the option of a commercial mortgage, but this is typically a lot more expensive and has a lengthy approval process. A Bed and Breakfast type business would benefit from a commercial mortgage more so than an AirBnB-style short-term rental investment property.

Refinance and buy outright

If you have a lot of equity built up in your current home, a great option could be to refinance or get a second mortgage and use the funds to buy your short-term rental investment property outright. Odds are that you’ll receive a much lower interest rate without having to satisfy strict criteria. A second mortgage will also give you the flexibility to essentially do what you want with your second property without having it affect your mortgage agreement.

By refinancing or acquiring a second mortgage on your current home, you can use the income generated from your short-term rental investment property towards paying your new mortgage agreement.

HW Advantage: your short-term rental investment property experts

At HW Advantage, we pride ourselves on providing flexible options for our Burlington-area community. With us, you will gain access to the best rates from over 35 qualified lenders. We work with you to secure the best possible mortgage rates that fit your budget and goals. Ready to see how we can help you achieve your dreams? Contact us today or apply directly for a mortgage online.