How to Fund an Airbnb Business

Hosting a listing on Airbnb can be a lucrative venture—even though financing the initial investment may seem daunting. To help you gain a better understanding of Airbnb business financing, we’ll cover the main options for funding, tips to help you finance your business successfully, and answers to some common questions.

Can You Fund an Airbnb Business?

There are several different options for financing an Airbnb business. Keep in mind that it is usually more difficult to obtain funds for an investment property to lease than a property purchased as the borrower’s primary residence. This is because lenders often perceive it as a riskier investment and generally require a higher cash deposit to secure the financing.

From a lender’s point of view, if money is running low, you’re more likely to continue to pay the bills in your primary residence and your second home may become less of a priority. Short-term rentals are also considered riskier than long-term rentals, as they require more attention to keep the space filled on a regular basis. A few weeks without guests can make it difficult to repay borrowed funds.

When evaluating your financing options, consider your risk tolerance, financial status, credit history, and what your goals are for your Airbnb.

Airbnb Financing Options

While launching an Airbnb business can seem like an expensive undertaking, there are several options available to help you finance your business. Here are some common ways you can fund your new investment.

Mortgage

Taking out a mortgage on your rental property can provide you with a reliable loan at favorable interest rates. However, qualifying can be difficult—you may need to make a larger down payment, have a personal credit score of at least 640 to 700, maintain a higher cash reserve, and have a lower loan-to-value ratio.

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Airbnb recently worked with Fannie Mae, among other lenders, to make it easier for hosts to refinance their mortgages. Funds from refinancing can be used to invest in rental accommodation.

Home Equity Loans or Line of Credit

A home equity loan, often known as a second mortgage, can provide you with some cash that you can then put into an investment property. The money is repaid regularly at a set rate. Meanwhile, home equity lines of credit (HELOCs), work like credit cards—borrowers have access to a certain amount of funds. Funds used must be repaid with interest.

Owner-Owned Investment Properties

If you buy a multi-unit property and live on-site, you may qualify for better terms, lower interest rates, and funding that wouldn’t be available otherwise. You’ll need to meet certain criteria with regards to how long you’ll be staying on the premises, how soon you’ll need to move into the property after closing, and more, so make sure you understand all the requirements beforehand.

Small Business Funding

Consider seeking small business funding options from the US Small Business Administration or through Airbnb’s partnership with Fannie Mae, for example, when deciding how to support your Airbnb business. One of the advantages of small business funding is that the money can be used to meet most business needs you may have, whether it’s buying inventory and equipment or covering day-to-day expenses.

Hard Money Loans

Hard money loans are short-term loans from private lenders backed by property or assets. If the borrower defaults on the loan, the lender can take over the collateral. These loans tend to have easier qualifications because the lender is more interested in the value of the asset or property you are buying.

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Hard money loans usually come with higher rates, higher fees, and shorter repayment terms. Borrowers often consider hard money loans after they have been refused a more traditional form of financing, or if they seek a faster route of funding.

Tips for Successfully Financing an Airbnb Business

Financing an Airbnb business doesn’t have to be complicated. Here are a few pointers to keep in mind to ensure a smooth funding process:

  • Understand the investment you are making. Why did you invest, and what do you expect from it? Being clear about your goals will help you identify what type of funding to pursue.
  • Shop and compare offers from different lenders. When considering your financing options, be sure to find the one that best fits your needs.
  • Estimate your estimated expenses. You’ll want to consider any additional maintenance and insurance costs you may need. Also consider the time commitment to cleaning, maintaining, and responding to guests if you will be responsible for these tasks or the costs associated with them if you will be hiring someone else to manage them for you. Cleaning fees have become an important expense item for Aibnb entrepreneurs. Recently, Airbnb added a cleaning fee as a fee for guests to cover this recurring expense item.
  • Do your research. Before buying a home to use as an Airbnb rental, you should familiarize yourself with local laws regarding short-term rentals. Also, check the listings in the area for their vacancy rates and price points.
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Frequently Asked Questions (FAQ)

How does Airbnb work?

Airbnb is an online platform where hosts can list where they are and guests can find accommodation, often in homestays. The site is known for its unique selections—offering housing in castles, tree houses, and tiny houses, among many other options. Airbnb also offers in-person or online experiences, often hosted by locals, that are specific to a particular area.

When will Airbnb go public?

Airbnb went public on December 10, 2020, with the ticker symbol “ABNB.” On its opening day, the company’s public offering price was $68 per share.

What percentage does Airbnb take from hosts?

Airbnb offers several service fee structures for hosting. This includes the option for hosts and guests to pay a service fee as well as a host-only fee where the entire service fee is deducted from the host payment. Sharing the service fee with guests is the most common option, with most hosts paying a 3% fee and guests paying under 14.2% of the booking subtotal. However, fee rates may increase in certain situations.

How do I host an Airbnb?

To host an Airbnb, register on the company website and create a listing for your listing. Then include some basic information, a description, and photos of the rental. When you’re ready to host, you’ll need to set the house rules and set your prices. Airbnb offers detailed resources on its website to help with the hosting process.

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