By Matt Allen
Vice President, Portfolio Lending (NMLS #415037)

How to Purchase an Airbnb with a Short-Term Rental DSCR Loan

May 16, 2024

  • DSCR Loans
  • Investment Property Loans
  • Home Loans

As current travel conditions challenge vacationers, alternative accommodations are becoming more desirable. One of the most popular lodging options in recent years is Airbnb. Founded in 2007 by San Francisco residents Joe Gebbia, Brian Chesky, and Nathan Blecharzk to help pay their rent, Airbnb is an online marketplace connecting travelers with people who want to rent their homes. The pricing is often cheaper and can offer more character and options than hotels. Since its launch in 2007, Airbnb has gone from one rental to over 7 million active listings and over 1.5 billion guest arrivals. So, it’s no wonder there is an increase in the number of property purchases for renting it out as an Airbnb. How difficult is it to get a business loan for an Airbnb?

A short-term rental (STR) DSCR loan is one option for purchasing an investment property to list on AirBnB. DSCR stands for debt service coverage ratio. It is calculated by dividing the investment property's net operating income by its debt obligations. Using DSCR calculations, these loans consider the cash flow generated from an investment property instead of personal income to qualify for a mortgage.

The main qualifying factors for securing an investment property loan are:

  • Property cash flow: No personal income documents are required. Qualifying is based on the revenue generated from the subject property.
  • Credit score: Your credit score will determine your down payment, rate, and approval ability. Most lenders require a minimum credit score of 700 to qualify; a credit score of 720 or higher will get you the best rates.
  • Debt Service Coverage Ratio: The usual minimum debt service coverage ratio to qualify is 1.0x.
  • Down payment: You should be prepared to pay 25% of the purchase price for a DSCR loan.
  • Loan amount: Most lenders require a minimum loan amount, usually starting at $175,000.

While there is the potential for a high ROI on purchasing a home for an Airbnb, there are some things you should consider before investing:

  • Are you located in a highly traveled area? Being in a place with a high demand for accommodations is essential to ensure consistent scheduling.
  • Living near the property is essential. If something goes wrong, you need to be there to fix it. You’ll also want to watch over and inspect your property for damage or repairs.
  • Take note of the rules and regulations in your area. Some states and regions don’t allow you to list as an Airbnb rental, and you may need special permits and licenses.
  • Find a realtor and lender with experience in investment properties. They will know what you’re looking for and how to achieve your goals.

If you want more information on purchasing an Airbnb property with a short-term rental DSCR loan, talk to the experts at NASB at 816-465-0753.