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How To Finance Vacation Rental Property

Finding The Right Fit

How to Finance a Vacation Rental

There is much to consider before purchasing a second home or vacation property. While real estate is almost always a good investment, vacation properties are far from a sure bet.

Demand for real estate in core urban markets can remain relatively strong even through recessions because people still need to live near where they work, whereas real estate in getaway markets can be more volatile in down markets.

If you are considering the purchase as a financial investment, it is best to tread carefully and research the property fully before taking on what could be an expensive second mortgage. Be aware that a hot market today, may not remain so tomorrow.

Consider Political Risks – Especially if You Are a Foreign Buyer

Political winds change and in troubling times real estate can be an appealing asset to tax aggressively given its lack of mobility. In 2020 Californias vote on a partial repeal of the 1978 Proposition 13, though initially the repeal would only apply to industrial and commercial properties.

When markets get overheated local politicians may also decide to place additional transaction or vacancy taxes on foreign owners, so it is usually best to invest in your home country unless you are explicitly buying a bug out spot.

That being said, a truly solid second home or rental property makes a secure financial investment provided you have the needed liquidity to survive market turbulence.

Will You Be Using This Residence Regularly

This is an important factor because how you claim the property could have an impact on the type of loan you can qualify for as well as tax implications. If its going to be your primary residence, then standard loan options would apply.

If its a second residence, and you need to take out a loan to purchase it, keep in mind that lenders wont let you rent out the property. If you are using this as an investment property, then the loan options are a little different. Generally not quite as friendly, but with the potential rental income, it could be a solution that works.

Learn About Vacation Rental Lending

Qualifying for two mortgages isnt something that everyone can do or afford. That said, learning about the different types of loans is a crucial part of financing your rental. The following are the loans you can apply for:

Rules and guidelines for lenders in the U.S. are set in place by Fannie Mae and Freddie Mac, two government-sponsored enterprises responsible for expanding the secondary mortgage market by securitizing loans in the form of mortgage-backed securities . The U.S. Congress created these mortgage companies to help boost the market back in the 90s and are now regulated by the FHFA.

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Ready To Finance A Second Home Investment Properties Vs Vacation Homes

Making the decision to purchase a second home is just as life-changing as the decision to purchase your first home. Whether youre looking for an investment property or a vacation home, financing a second home can be a lucrative investment if youre financially prepared.

The demand for investment or vacation properties is definitely on the rise. According to the 2021 NAR Vacation Home Counties Report, The share of vacation homes increased to 5.5% in 2020 and to an average of 6.7% during January-April 2021. Vacation home sales rose by 16.4% to 310,600 in 2020, outpacing the pace of total existing home sale of 5.6%. Sales are up 57.2% yearover-year during January-April 2021 compared to the 20% year-over-year change in total existing home sales.

New technology services are changing the hospitality industry. Companies, like Airbnb, are revolutionizing how homeowners manage their vacation rental properties. In fact, it was announced in February of 2018 that homeowners are now able to count the income they earn from their Airbnb rentals on applications for refinance loans.

What it all comes down to is whether youre ready to finance a second home and what is the best loan option available.

Is It Hard To Get A Loan For A Vacation Home

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Qualifying for a vacation home loan can be more difficult than qualifying for a primary residence mortgage. Most lenders require you to have a high credit score, solid income, reserves, down payment, and more. While you may be able to qualify for a traditional home loan with as little as 3% down you will most likely need much more to qualify for a vacation home loan. You should have at least 10% down before applying for a vacation home loan. You should also review your assets, credit, and income before applying for a vacation home loan. During the approval process, an underwriter should review the same things. Reviewing ahead of time can increase your chance of approval and save time for you and the underwriter. Lenders may require that you have reserves, This means that in the event that your income is interrupted, you should have sufficient funds to keep up with mortgage payments.

Read Also: Best Way To Find Vacation Deals

Our Vrbo Short Term Rental Loans

Our VRBO short term rental loan program is specifically designed for purchasing single-family homes, condos, duplexes, and other VRBO, Airbnb rentals, and vacation rental properties. We offer flexible loan terms that are customized to fit your needs.


No W-2s or tax returns required Flexible loan terms
Loans up to $3 million Fast closings
Low, fixed interest rates

Second Homes Vs Investment Properties: Mortgage Terms And Tax Rules

See Mortgage Rate Quotes for Your Home

A second home is a one-unit property that you intend to live in for at least part of the year or visit on a regular basis. Investment properties are typically purchased for generating rental income and are occupied by tenants for the majority of the year. There are significant differences in the costs and loan qualifying requirements between a second home and an investment property which you should understand before buying another house.

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Youll Be Able To Use Your Vacation Home For Your Personal Getaway

From time to time, you will also be able to use your property for your own getaways or special events like a family reunion. While this should not necessarily be your main goal for owning a vacation rental, it is an attractive advantage nonetheless.

Depending on the location, your vacation property could also possibly become your retirement home down the line, making it a valuable fixed asset for your portfolio.

Buying A Second Home To Rent

BE AWARE Investing In Vacation Rental Property | Airbnb Investing

If you need to rent out your second property to afford it, then it becomes an investment property, not a second home. Your lender will expect an appraisal with a comparable rental schedule. This document tells the underwriter what the property can potentially produce income-wise. Investment property mortgages almost always require at least 20% down because its very difficult to get mortgage insurance for these purchases.

Another idea? Think about buying a second home in another state.

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Vrbo Short Term Rental Financing Made Easy

For short term rental financing that is painless and simplified, look no further than our real estate loan program.

The details:

  • Property types allowed: Single-family homes, condos, townhomes, duplexes, triplexes, quadplexes
  • Locations available: All states except ID, MN, ND, NE, NV, OR, SD, UT, VT
  • Loan term options: 5/1 ARM , 7/1 ARM , 15-year fixed-rate, 30-year fixed-rate, 10-year Interest Only
  • Loan sizes: $200,000 to $3,000,000
  • Interest rates: Starting at 4.500%

Home Equity Lines Of Credit

If you have sufficient equity in your current home, you can take a line of credit and use the money to pay for the down payment or buy the vacation home outright. This means that you will not have to refinance your current mortgage when financing a vacation home. Your first mortgage will remain as is while you add a new mortgage with different terms. In some cases, property owners can even tap into 100% of their propertyâs value with a home equity line of credit. Borrowers can choose between a home equity line with fixed second home mortgage rates or one with variable rates. The former comes with a higher rate, but better stability.

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Is It Wrong To Claim Your Investment Property As A Second Home

It may be tempting to claim youre buying a home as a second home when you intend to rent it out to avoid a higher interest rate and down payment requirements. However, lenders consider this “occupancy fraud” and it could lead to an FBI investigation and hefty fines.

Youll typically sign an “occupancy affidavit” at closing, which gives the lender the right to foreclose on your loan if they discover you intentionally misrepresented the use of your property. Many mortgage companies use high-tech digital verification systems to search for evidence of mortgage fraud. Others schedule random site visits to confirm who is actually living in the home.

How To Afford Your Down Payment

Tax Implications of Vacation Rental Property

Many buyers want to buy a second home with no money down. Unfortunately, while there are zero-down payment options for primary residences, these routes are not available in the U.S. for a second home.

So youll have to make a down payment. But how can you keep it affordable?

First, shop smart. Compare a wide range of lenders to find the best terms for your situation.

Next, figure out where youre going to get the money. The National Association of Realtors® confirms that around one-fifth of buyers use equity from their main residence to finance the down payment on their second home. A HELOC can help you put money down without having to draw from your savings.

You can also consider a Purchase Money Second Mortgage, also sometimes called a piggyback second mortgage. As the name suggests, this is a HELOC or home equity loan taken out at the same time as your initial mortgage. Interest rates on these loans are generally variable, but they will provide that extra cash you need for your down payment.

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How Much Does It Cost To Start An Airbnb

Much like the last question, the answer is: it depends! Any property investment is going to cost you a chunk of change in the initial phase. Between interior design updates, launching a website, and some of the unseen expenses, youll find that the costs add up.

Its essential to account for all of these potential payments before requesting a loan. If youre buying a fixer-upper, for example, be ready for a lot of extra repairs that should be factored into your loan total.

There are expenses associated with the maintenance of your property as well. Property management, cleaning services, and utilities are all ongoing costs that you need to keep in mind when deciding what monthly payment you can afford.

Of course, your Airbnb will bring in income, but be prepared for the cost of vacancy when youre starting out and during the low season.

You might find that, after establishing your business on Airbnb, youre ready to make the switch to a fully independent site of your own. Like any major booking agency, Airbnb comes with its own taxes and fees that ultimately come out of your profits. Find out how much Airbnb is costing you and decide if your new property purchase is better suited to have its own direct booking channel.

Tax Implications Of Buying A Vacation Home

The 2017 tax reform radically changed real estate taxes. In theory, mortgage interest and property taxes remain generally deductible for both primary residences and second homes but in practice, many people take the standard deduction instead of itemizing mortgage interest and property taxes. Without such deductions, the economics of ownership have changed.

To offset costs, vacation property owners may want to consider short-term overnight rentals through platforms such as Airbnb, FlipKey or HomeToGo, as well as in-season rentals through a local real estate broker.

According to the IRS: If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. Youre considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of: 1. 14 days, or 2. 10% of the total days you rent it to others at a fair rental price.

Translation: There are circumstances where rental money is not taxed in fact, it need not be reported. Speak with a tax professional for details.

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Best Methods Of Financing A Vrbo Investment Property

There are a number of ways you can get money to invest in VRBO properties. Some of them take more finesse than others, but the variety of options ensures that you have a fighting chance of receiving financing.

One thing thats important for you to understand is that as a rental venture, most banks will be averse to lending you money. Banks dont like rental investments because of the risks, which means youll most likely have to seek funding elsewhere.

Companies like Vacation Rental Property Loans are in between banks and hard money lenders which is good news for you.The advantage is that you can get financed for VRBO investments and receive a better deal than you would at a bank.

If youre wondering what option to go with, a Short Term Vacation Rental Financing loan is one of the best options available for raising capital on VRBO property acquisitions.

Advertise Your Property On Multiple Platforms

Buying Vacation Rental Investments and Beach Condo Financing

In this industry, a multi-channel strategy works better. By listing your vacation rental on several booking sites, you can increase your exposure. This, in turn, will help to improve your occupancy rate and potential income.

Airbnb, Vrbo, and are the three main platforms where hosts can list their properties. While you will likely find that you have more success with one of these platforms than the others, it is still better and safer to list on multiple platforms to avoid placing your valuable nest egg in only one basket.


Airbnb is arguably the most popular and well-known platform. It is particularly suitable for properties in popular urban areas. Also, compared to other vacation rental sites, Airbnb is better known for offering unique accommodation, making it a firm favorite among millennial travelers.


Vrbo is better suited for more traditional accommodation that is geared towards families and bigger groups looking to book a longer stay. Unlike Airbnb, you may also not list shared accommodation on its platform. remains one of the most popular online travel booking platforms. Boasting more than 28 million listings across the world, it attracts millions of daily visitors.

Generally, it is most popular with more mature travelers who value convenience and location. While the setup process is more intricate, it is still a good platform to expand to, especially when you consider all the site traffic it gets.

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Conventional Loans To Finance A Vacation Home

You can apply for a conventional second mortgage loan from banks and credit unions across the country. The process will be similar to paying a mortgage for a primary residence. You will be asked to put down an initial down payment, and then will set up a payment plan over a span of 15-30 years. These loans can come with either fixed or adjustable interest rates.

If youd like to calculate how much a specific loan is likely to cost you, head over to this second home mortgage calculator.

What are the differences between a conventional loan for a second home and the mortgage for your primary residence? Second home loans require a larger down payment typically between 10 and 30%. They are also harder to acquire. If you want a second home loan, youll need a high credit score, high income, and a strong debt-to-income ratio. Youll also need to prove that the residence will be a vacation home and not an investment property. In other words, if you intend to rent it out, youll be disqualified from a second home mortgage. If this is your plan, look into investment property financing instead.

Lets look at an example:

Buying A Second Home Might Be Your Smartest Move

Hotels are great, but theyre certainly not a good investment for visitors.

Second homes, on the other hand, can potentially yield a return while providing a vacation spot over which you have 100 percent control.

If youre tired of spending your holidays in hotels and vacation rentals, consider joining thousands of Americans who buy second homes each year.

Low mortgage rates make vacation home financing more affordable than ever. But buying a second home is not like purchasing a primary residence.

Heres what you need to know before jumping in.

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Pros Of Vacation Rental Investments

There are several advantages to owning a vacation rental property. In recent years, Airbnb and VRBO continue to grow as more and more properties are being listed on the apps. The convenience of these apps has made finding and marketing vacation rentals as convenient as ever. In turn, those interested in vacation rental investments have skyrocketed. Here are a few of the benefits of vacation rental investments:

  • More Income: The first and most attractive benefits of vacation rental investments is more income. An Airbnb host can earn an average of $900 a month. If you have vacation rental investments in the most populated areas of the world, that income can multiply exponentially.
  • Having Your Own Getaway: Investing in vacation rental properties allows you to have your own ideal getaway whenever you would like. Use the property for any special events you may have, such as birthdays, parties, or family get-togethers. Try investing in an area you want to visit again and again. The convenience speaks for itself.
  • Ensure Finances & Retirement Home: Investing in vacation rentals is great for ensuring you have future expenses for healthcare, future travel plans, emergencies, etc. Or, if everything goes to plan, you can keep it as a retirement home. Either way, investing in vacation rentals can be a reliable asset for the future.
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