Becoming an Airbnb host has become a popular income stream for many savvy investors, either as part of your primary home or as an investment property generating additional income.
Keen to explore how you can secure finance for an Airbnb property? In this guide, Associate Director Romit Patel, will help you understand how to leverage property finance to fund the purchase of a property for Airbnb, helping you make smart choices that fit your long-term investment goals.
How can I get a loan for an Airbnb property?
For property with an intended Airbnb use, obtaining finance requires some careful considerations around exact property usage. Some of the most important things to consider are:
- Will you rent the whole house or individual rooms?
- Will you rent whilst living in the property yourself?
- How many days/weeks/months do you want to rent the property on Airbnb for?
Understanding Airbnb Finance
Financing an Airbnb property is very different from getting a mortgage for your main home. Lenders have different criteria because short-term rental properties are deemed as riskier investments to lend against in comparison to standard buy-to-let properties.
It is important to know what differences will affect you when obtaining finance for Airbnb properties. Lenders focus on factors including rental income, occupancy rates and local council restrictions, but with the right financing, properties can be bought or improved to satisfy Airbnb guests looking for the perfect place to stay away from home.
Similar to a residential mortgage, a good credit score will improve the financing choices available to you. That’s because lenders see borrowers with a good history of managing credit as safer risks to lend money to. This may mean you can access better interest rates and loan terms.
Types of Loans for Financing Airbnb Properties
When financing Airbnb properties in the UK, there are a range of loan options to choose from. Each product type is designed for different needs and situations.
Property finance in the UK offers many ways to finance entry into the Airbnb market, but the process of securing the loan can be tricky. That’s where experienced property finance advisers step in. With specialist knowledge and access to whole of market products, an expert adviser will suggest the most suitable option for your situation. Some products you may wish to consider include:
- Holiday Let Mortgage – As Airbnb properties are typically used for short getaways and holidays, investors may look at holiday let mortgages as a viable funding solution, and this is the most popular route. This type of mortgage offers increased flexibility when clients opt to embark on an Airbnb venture as a business generating additional income. So long as investors meet the eligibility criteria, holiday let mortgages may see Airbnb investors borrow up to 75% LTV.
- Buy-to-Let Mortgage – Buy-to-let (BTL) mortgages are made for rental properties and are another common choice for Airbnb investors, but it’s important to note that these mortgages don’t always allow you to let the property on a short term basis, insisting on the property being let on an Assured Shorthold Tenancy basis. This is because of the perceived risks involved including tenant turnover and changing rental income. However, a BTL mortgage may allow borrowers to obtain more money; up to 80% Loan to Value (LTV) for the right scheme.
- Residential Mortgage – some lenders allow you to let your home for a short period, for example 90-150 days. This can potentially suit someone looking to let their home, or second home, for a brief period.
Mortgage lenders that focus on buy-to-let loans for Airbnb properties may specify rules ahead of providing the loan. For example, they may take a view on where the property is located, or the minimum amount of rental income needed. It is important to know these rules before applying for a buy-to-let mortgage for your Airbnb business, but an experienced adviser, like our team at LDN Finance, can help guide you through the process.
Maximising your Airbnb investment
In the busy Airbnb market, having an attractive property listing is important to secure bookings, thereby making your investment profitable. Good photos and clear descriptions are key features to help an advert stand out. A successful Airbnb host will also make sure they study the local Airbnb market, finding out who target guests are, what they like, and what prices to charge.
One successful selling point most Airbnb investors endorse is by sharing positive reviews from past guests. A written positive experience is great for prospective tenants!
Insider Tip: Dynamic pricing strategies for Airbnb hosts
For Airbnb hosts, dynamic pricing is a very useful tool. It can help you make more money and increase your rental property value. This method means changing your nightly or monthly rent depending on things like how busy it is, the time of year, and local events. Using a dynamic pricing model allows you to earn money more during busy times and stay competitive when bookings are slowing down.
If you know market trends, check out what competitors are charging and keep your rates flexible. This will help you to boost your Airbnb income and get a better return on your investment.
LDN Finance: sourcing Airbnb finance for investors
Knowing how to finance Airbnb properties is very important for investment success. Choosing the right type of financing is an important place to start, and receiving professional advice from expert property finance brokers will help to ensure you make good financial decisions for success.
To get started on your Airbnb financing journey today, contact our expert team HERE.