"How much money do I need to start investing in short-term rentals?" This is one of the questions I hear most. The honest answer is: more than just the down payment. Many new investors save only enough for the down payment and then hit a cash crunch after buying. This article breaks down the real money you need to prepare.
1. Down Payment
For an investment property, the down payment is typically higher than for a primary residence. Lenders view this as a riskier loan and require you to contribute more capital. The exact percentage depends on the loan type and your file — there is no fixed number for everyone.
2. Closing Costs
Beyond the down payment, you also pay closing costs: appraisal fees, title insurance, processing fees, and prepaid items. This is a meaningful amount that many people forget to include.
3. Furnishing and Equipping
This is a major difference between STRs and long-term rentals. An Airbnb must be fully furnished: beds, sofa, dining table, kitchen tools, linens, towels, decor, wifi, even coffee cups. The initial furnishing cost can be large, and you must spend it before your first guest arrives.
4. Operating Reserve Fund
This is the most important part that beginners often skip. You need a cash reserve large enough to cover loan payments and expenses during the early months when bookings are light, as well as for unexpected issues. Without reserves, a few slow months can push you into a dangerous position.
In fact, many investment loans actually require you to show several months of reserves in your account as a condition of borrowing.
5. A Buffer for a Slow Start
A new STR usually takes time to build reviews, ranking, and steady bookings. Do not assume you will be fully booked from month one. Prepare mentally and financially for a slow ramp-up period.
So How Much Total?
There is no single right number for everyone, because it depends on home price, loan type, and area. But the principle is clear: add up all the items above — down payment, closing costs, furnishing, and reserves — instead of looking only at the down payment. The real figure is usually much higher than the initial estimate.
Financing Options
Depending on the file, STR investors may consider several loan types: a conventional investment loan, a DSCR loan (based on the property's cash flow), or using built-up equity from a current home through a cash-out refinance or HELOC to fund the down payment. Each option has its own requirements and nothing is guaranteed in advance; everything depends on your specific file.
Do Not Forget Taxes and Regulations
Before you start, speak with a CPA about the tax side, and carefully check the short-term rental regulations in the city where you plan to buy — because STR laws vary by location, and qualifying for a loan does not mean the locality permits short-term renting.
If you want to know how much money to prepare and which loan type fits your goals, reach out to William for a free consultation. We can build a realistic financial plan together before you begin.