The Ultimate Guide to Financing Your First Short-Term Rental

Kaitlin Pothireddy

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Who wouldn’t want to make more money faster? If you’re looking to achieve financial freedom sooner, rather than later, becoming a short-term rental owner offers the promising first step toward freedom from your day job. In fact, with a ten percent year on year growth history, managing your own short-term rental business offers a steady source of nearly passive income that can be tough to find in other industries.

Despite this promising outlook, many new to the short-term rental world struggle to take the leap because they are anxious about the process of financing their first property. While this is completely understandable, financing is nothing to fear. Read on for in-depth information on the different options available to those looking to begin leasing a short-term rental property for the first time.

So, you’re ready to buy your first rental property.

It seems like there are endless reasons to consider investing in real estate. However, as rentalpreneurs ourselves, we know how steep climbing that first financing mountain can be. Don’t worry, though–there are a variety of options out there that will allow you to make the best financial decision you can given your unique circumstances.

Consider which loan is right for you.

There are four key types of loans for those looking to invest in real estate: conventional bank loans, hard money loans, private money loans, and home equity loans.

The first, and most common option is to take out a conventional loan. Using conventional financing, you can expect to invest a 20% - 30% down payment at the discretion of your lender. Additionally, with these types of loans, your credit score will play a large role in your overall loan eligibility and rate determination.

Second comes hard money loans. These are most suited for investors looking to flip a property, because they use the after repair value to determine loan eligibility. However, buyers beware when it comes to these types of loans. Only use them for properties that you feel confident will sell, because they come bearing steep interest charges of up to 18%.

The third type of loan for real-estate investors are private money loans. These are simple loans from one individual to another. That can mean borrowing from a friend or a fellow investor. However, while these options may seem enticing, it does mean that the terms and conditions can vary wildly, so be sure to collaborate on clear expectations.

The final type of loan to consider is a home equity loan. These loans allow you to borrow up to 80% of your home equity value, but often do come with some gamble, because they come at a variable interest rate.

Think about who you’ll want in your corner.

Whether you’re looking to buy a property that needs a little love, build a brand new property to share with others, or to purchase a well-kept, existing home, there are lending companies with programs tailor-made to meet your needs.

If you’re looking for a solid overall loan, check out Quicken Loans. With an efficient online application option and live agents to chat with, you can get the help you need. However, they are a wholly online business, so if you’re looking for in-person handshakes, they may not be the right option for you.

For those looking to build an investment home from the ground up, consider Nationwide Home Loans Group. Nationwide offers staff seven days a week and full financing to those qualified. However, they do have minimum credit scores of 640 to be mindful of.

Looking to take an alternate route and rehab a property? Consider LendingOne. LendingOne offers nearly instant preapprovals, and low fees. Best of all, it was founded by investors, so they know exactly what entrepreneurs are looking for.

Investors who are looking at a more traditional, single-family option would do well to consider Citibank. With a wide variety of loan options and customizable rates, you’re sure to get a good deal. However, they do charge an application fee, so you’ll want to do some pre approval work in advance, to ensure your money is well spent.

Most lenders are pretty in tune with the short-term rental market, and as such, recognize the value in offering loans to qualified investors. However, there are lenders who have taken this one step further and offer loans specific to those investing in short-term rentals. Consider companies like American Heritage Lending or Host Financial if you’re looking to chat with a lending officer who deals in short-term rental loans all day long.

However, you don’t necessarily have to buy the house.

That’s right, we said it. You do not need a property to get started with property management. There are a variety of options for those looking to lease a property and utilize it as a short-term rental, if you aren’t quite ready for the commitment of buying a property outright.

You can sublet a property as a short-term rental.

As with any other lease, you will need to be approved. This typically means being able to demonstrate a clean rental history and approximately three times the rent in income.

Ensure you check the rental agreement for any information on whether or not subletting is permitted. Generally, no news is good news in this case–if your contract does not specify that you cannot, then you are likely able to.

Despite this, always be sure to check local ordinances for laws about subletting. Some cities or state real estate boards have created policies that you will want to be aware of before you make the jump.

Assuming you do find a property that will allow you to sublet, consider a few key factors. Who is responsible for the utility bills at this property? Does it come with furniture? What about linens, or other conveniences that short-term renters may expect? Whether these items are included may not be a dealbreaker, but you will want to review them to have a more holistic picture of the numbers as they stand.

You can manage someone else’s property.

We get it, not everybody is ready to purchase a property right away. However, someone before you already blazed the trail right into property ownership, and now, many of them are in positions to want help managing their fleet.

Consider joining local real estate investor groups to learn more about open positions managing or co-hosting properties. It’s a great way to get experience with the brass tacks of the operation without as much upfront investment required. Looking for help managing your bookings? We’ve got you covered.

Once you’ve secured your financing, the real fun begins.

Working in the short-term rental industry isn’t for the faint of heart, but the rewards can definitely outweigh the risks if done correctly.

With Futurestay, you’ll get help from fellow rentalpreneurs who have experienced the trials and tribulations of the industry themselves. Get a taste for it with our guide, or dive right in with our client-centered pricing structure.


About Futurestay

Futurestay pioneered the first operating system designed to empower rentalpreneurs with the connectivity and automation previously out of reach for everyday people running short-term rentals. Building on its promise to help rentalpreneurs succeed at any stage, Futurestay is so much more than a platform, offering anyone with an entrepreneurial spirit and a room to rent the chance to learn, earn and grow at every stage of their rentalpreneur journey.

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