Buying your first short-term rental is exciting and, honestly, a little overwhelming — especially the financing part. As someone who has personally owned and operated a short-term rental, I can tell you that getting the loan structure right from the start has a big impact on your cash flow later. Here is what you need to know.
First: understand the local rules
Before you think about a loan, check whether the city or county where you want to buy actually allows short-term rentals. Many areas require a permit, cap the number of nights per year, or ban them entirely in certain neighborhoods. Qualifying for a loan does not guarantee you are permitted to run an Airbnb there. This is the first step, not the last.
Common financing options
1. Second-home loan
If you plan to use the property yourself part of the time and it sits in a vacation area, a second-home loan may come with a lower down payment. But this loan type has strict occupancy rules — if you rent it out year-round, it usually will not fit.
2. Conventional investment loan
This is a common choice. The lender reviews your personal income, tax returns, and DTI. Down payments typically run 15-25%.
3. DSCR loan
This one looks at the property's own cash flow instead of your income. It is a great fit if you are self-employed or want to qualify using rental revenue. Down payments are usually 20-25% or more.
How much cash should you have ready?
Beyond the down payment, budget for:
- Closing costs: typically 2-5% of the purchase price
- Reserves: many lenders want to see several months of payments in the bank
- Furnishing and setup: a short-term rental needs furniture and supplies, unlike a long-term rental — this can run from a few thousand to tens of thousands depending on size
Using short-term rental revenue to qualify
Some programs let you use projected Airbnb revenue to support your loan file. If the property has an operating history, past revenue may be used. For a new property, lenders often rely on a market rent report for the area. Gross revenue gets reduced for vacancy and expenses before it counts.
Common first-time buyer mistakes
- Looking only at gross revenue and forgetting operating costs, management fees, cleaning, and the slow season
- Skipping the check on local short-term rental rules before closing
- Not keeping enough reserves for vacant months
- Choosing the wrong loan type and getting locked into terms that do not fit
A note on taxes
Short-term rentals are treated differently for tax purposes than long-term rentals, and that can affect your financial plan. Talk to your CPA to understand your specific situation before you buy.
Your first short-term rental is a big milestone, and the financing does not have to be complicated. If you want to figure out which option fits your goals and budget, William Trinh (NMLS 2837392) is happy to talk at no cost and help you plan from real numbers.