Can You Use Loans to Run Your Airbnb Operation
August 12, 2022 | Last Updated on: February 1, 2023
August 12, 2022 | Last Updated on: February 1, 2023
In this article we cover:
We are in the golden age of the gig economy. Almost every asset we own can be monetized. From cars to pools to large backyards with room for a tent to rooms in our house to our entire house to a beach house, as the saying goes, there’s an app for that. Airbnb provides a platform to those looking to monetize their entire home, or a portion of their home, to guests who want to use the space as a de facto hotel. However, operating an Airbnb rental is hard work and expenses come up. In this article, we will explore if you can use loans to run your Airbnb business.
Before we jump into what loans can and can’t be used to run your Airbnb operation, we need to first understand the costs that are involved and categorize those costs. There are three categories of costs associated with operating an Airbnb: capital expenditures, maintenance, and monthly operations. It’s important to understand these three categories because they will directly impact the types of loans you can and can’t use, and ultimately lead to you being a better Airbnb host and operator.
Capital expenditures are money spent on acquiring or maintaining fixed assets, such as land, real estate, and equipment. For our purpose, this is the land, house, furnishings, or value-adds for your Airbnb rental. For most Airbnb operators, capital expenditure represents the biggest barrier to entry to becoming an Airbnb host.
If you already own the property that you plan on using for your Airbnb operation, and it is fully furnished, in other words, the property is “turn-key”, it is fully functioning and ready for you to rent out immediately, then you most likely will not have any capital expenditures.
However, if you are an aspiring Airbnb operator and looking to purchase a new property, have a property but it’s not ready to host renters, or looking to add another property to your portfolio of rentals, then you will need to understand the loan options below for this category.
The above reference to value-adds means any non-critical home furnishing that can add additional value to your renter’s experience such as bicycles, children’s toys, kayaks, etc.
Maintenance expenses can vary depending on the type and location of your Airbnb property. Let’s review a general list of maintenance expenses now; but realize that if you have a unique property (say a cabin in Alaska back-country, or a remodeled shipping container in the Texas desert), it is up to you to do additional due diligence on the special types of maintenance work that might pop up and which we might not cover or be aware of in this article.
Generally speaking, you will have the following maintenance expenses for your Airbnb operation, including but not limited to:
There are a lot of maintenance expenses to consider when operating an Airbnb. But it is good to go into it with eyes wide open.
Operational costs are unavoidable expenses. Some of which will have slight increases in cost over time. Here’s a look at operational expenses that you can anticipate paying with your Airbnb operation:
Now that we have thought through and categorized typical expenses for an Airbnb operation, let’s look at Airbnb financing options to assist with running your operation.
For acquiring the actual property, the primary loan options are:
These four loan types listed above are not the only options (cash-out refinance is another option not explored in this article) but are the most straightforward when it comes to acquiring a rental property. As a borrower on each of the options above, be prepared to have your credit score pulled.
Without the equity in your home to tap into, or without enough cash on hand for the down payment, you can investigate Term loans via biz2credit and other online lends. When starting the application process via Biz2credit, make sure you select “real estate” when asked what you need the funds for.
Alternatively, you can seek a personal loan from traditional financial institutions like banks and credit unions. However, these typically carry very high-interest rates and are limited in what you can use the funds for.
Many might wonder if you can use proceeds from an SBA loan to help fund your Airbnb rental purchase or downpayment. The answer is no across the board: proceeds from an SBA microloan cannot be used to pay existing debts or to purchase real estate, and proceeds from an SBA 504 loan cannot be used for investment in rental real estate (SBA 504 loans are usually for commercial real estate purchases, not single-family homes converted to a vacation rental), proceeds from an SBA 7(a) loan can be used to purchase real estate but when the property will be held for investment purposes you become ineligible for the loan as it is intended for small business that plans on occupying the real estate being acquired.
For more information on SBA loans, review our quick checklist to understand SBA loans in 2022.
For home furnishing and value-adds, the loan options are:
For maintenance expenses for your Airbnb operation:
For maintenance expenses for your Airbnb operation:
A business line of credit might meet your needs instead of – or in addition to – an investment property loan as an Airbnb operator if you only have maintenance and upkeep to worry about. One of the benefits is you can tap as much money as you need up to the limit, but only pay interest on the amount that is borrowed. A business line of credit can be revolving, similar to a credit card. This means the business line of credit is open-ended and can be used and paid down repeatedly as long as the account remains open.
For additional information, please read our blog post titled Why Should a Small Business Open a Business Line of Credit?
Whether you are after a loan to start your Airbnb rental business, VRBO vacation rental property business or you have a rental property that needs funds for operating, Biz2Credit is a great place to start. Our helpful staff will provide you with exceptional customer service and will work hard to understand the needs of your business, the intended uses for your loan, and the best terms that can be offered. Get in touch today to find out how small business financing can help you.