This guide provides essential steps and tips for financing a short-term rental property, from assessing the economic climate to choosing the right lender and loan type.

A Quick Guide to Short-Term Rental Financing

Understanding the economic climate and using data are essential steps in successfully financing a short-term rental.

Clearly define your investment goals and long-term strategy to guide your decisions and help secure the right loan.

Choosing a reputable lender with flexible terms tailored to STRs can bolster the success of your investment.

Let’s cut to the chase: There’s no one correct way to finance your vacation rental. There are a handful of options and your success as a rentalpreneur depends on understanding which option makes the most sense for your goals, finances, and the current economic climate.

This step-by-step guide is meant to demystify the short-term rental (STR) financing process and arm you with the tips and tricks you need to confidently finance new STR properties anytime, anywhere.

Short-term rental financing refers to the various ways of obtaining funds to purchase or refinance a property intended for use as a short-term rental. Short-term vacation rental financing is specifically tailored to the unique characteristics and challenges of the STR market.

Unlike traditional long-term rental properties, short-term rentals often have more variable income streams and may be subject to different regulations. As a result, lenders typically have different criteria and terms for financing short-term rentals compared to long-term rentals or primary residences.

Financing a vacation rental property requires research and due diligence. Before diving into securing a loan, you’ll want to set yourself up for success by assessing current economic conditions, defining your investment goals, and establishing a long-term game plan for your short-term vacation rental business. 

Let’s walk through the four key steps to securing STR financing:

There are two key expenses to consider when assessing the economic climate for STR investment: property prices and mortgage rates.

The rollercoaster ride that is the American housing market has taken some particularly dramatic turns throughout history, particularly during the COVID-19 era. The 30-year fixed rate mortgage average dropped to a historic low in December 2020 (2.6%), only to begin climbing throughout 2022 and 2023 (8.29% in October 2023) before finally dropping again by the end of 2023.

Here's what you need to know about the current economic climate as of July 2024:

Interest Rate Trends: After a period of rate hikes that began in March 2022, Oxford Economics predicts that rate cuts will begin in September 2024. This could lead to more favorable borrowing conditions for investors.

Mortgage Rate Trends: The current mortgage 30-year fixed mortgage rate is 6.78% as of July 25th, 2024. The anticipated interest rate cuts could lead to more favorable borrowing conditions for investors.

Home Prices: As mortgage rates rise, home prices typically decline. This is the yin and yang of American real estate. Despite high interest rates, however, house prices have remained relatively stable. They declined only slightly by 0.18% in Q2 of 2023.

Future Outlook: Once the Federal Reserve begins to lower rates, lending uncertainty should ease. Home price appreciation is expected to stabilize at around 2.5% by 2025, which is slightly above inflation but lower than pre-pandemic levels.

Specific rental property financing options may seem more or less attractive during times of economic uncertainty. Again, there’s no right or wrong answer here—all rentalpreneurs will have a unique take. Where one person sees risk, another person will see opportunity.

There’s no such thing as a risk-proof business, and that includes short-term rentals. However, data tools can go a long way toward mitigating potential risk.

If a given property isn’t expected to appreciate in value like it has in years past, it’s more important than ever that you closely monitor your cash flow. 

What are current trends around occupancy and average daily rates (ADRs)? 

What are your local competitors charging? 

What’s your overall earnings potential?

Data holds the answers to these questions and more, so do your homework before financing any new properties. Consider building a custom comp set with AirDNA to see what listings are charging in your area of investing interest, and how those nightly rates differ depending on property size or amenities. You can use the Rentalizer tool to calculate the earning potential of any address. If you don’t have a particular property in mind, the short-term rental market search feature in the AirDNA dashboard can show you for-sale properties in any given market, along with their projected performance.

Real estate, in good times and bad, remains one of the smartest investments on planet earth. The differences between owning a second home and operating a financially successful vacation rental, though, cannot be understated.

Understand the investment potential of any address in the world.

If you’re ready to get started, your first step toward financing is to clearly define your investment thesis. Ask yourself:

This is another case of no right or wrong answer—it all depends on what you want to achieve by investing in STRs. 

For example, some investors are primarily looking to purchase rentals for personal use in areas they enjoy visiting. They're less concerned about turning a significant profit. For them, the goals are proximity, flexibility, and the prospect of leveraging short-term rental income to offset a mortgage.

On the flip side, other investors' main objective is maximizing their annual cash flow and cash-on-cash returns. For them, the location of the property is less important so long as the revenue potential is high. Our annual Best Places to Invest report might be a good starting point for investors that want to follow the money. 

Lucky for you, we have a comprehensive guide on Airbnb investing that’s a great starting point for potential STR entrepreneurs who want to know the nuts and bolts of what they’re signing up for before exploring financing.

Step 3: Determine Your Long-Term Game Plan

Once you’re satisfied with your investment thesis, this next step is all about due diligence. 

Investing in real estate is likely one of the most significant financial commitments you’ll make in your lifetime, with potentially hundreds of thousands or millions of dollars at risk. Make sure you fully understand what you’re signing up for.

First, understand your risk tolerance. Some investors are perfectly fine making large investments with high risk and high reward potential, while others are not. Per usual, this all goes back to your attitude and preferences as an investor.

Second, you need to understand the markets you are investing in, which you’ll have touched on while developing your investment thesis. More specifically, you need to self-educate on the key metrics for your target markets:

How seasonality influences your monthly and annual revenue

How local or state regulations can help or hinder your Airbnb operation

This is the time to evaluate micro and macro trends that could impact your investment. We have a guide to short-term rental market analysis dedicated to this very topic.

Lastly, once you’ve made the decision to invest, start using a data tool (if you aren’t already) to stay on top of those key metrics and see how trends change over time. 

Not only is real estate a serious commitment, but it’s also long-term. The metrics that make the initial investment attractive could improve or worsen over time. This is precisely why a data tool is one of your best insurance policies. When it comes to vacation rentals, data isn’t a nice-to-have; it’s essential.

AirDNA’s powerful yet easy-to-use tools make hosting and investing a breeze. This means having every insight you need, all in one place, always up-to-date.

There’s a variety of options when it comes to financing your vacation rental mortgage. Below, we highlight your best bets for short-term rental loans.

The most familiar option is the traditional or conventional loan, particularly if you’re buying your first vacation rental property.

A traditional loan is pretty straightforward and offers some of the most competitive interest rates on the market. They typically offer lower rates than typical vacation rental financing routes. Plus, traditional financing has little to no restrictions on locations or property types. 

However, traditional financing also has some of the most restrictive lending requirements and is the least scalable option for STR investors looking to grow a property portfolio. 

Unlike a traditional loan, asset-based loans for investment properties (also called commercial rental-specific loans or debt service coverage ratio/DSCR loans) are evaluated by looking at the actual or potential income of a given property (e.g. rental income). This is in contrast to traditional loans that look at an individual borrower’s W2 income and debt-to-income ratio.

Lenders look at the income of the property and calculate the debt service coverage ratio—the property income divided by the principal, interest, taxes, insurance, and HOA fees (if applicable)—to qualify the loan.

This type of loan is a significant advantage to an STR investor because borrowing power is not constrained by individual income. The investor can scale a portfolio and add new properties by simply providing sufficient evidence that the properties are cash-flowing and that there is sufficient equity for the down payments and associated fees.

Potential downsides include higher down payments, typically 20-25%, and higher rates than traditional loans. 

Gain insights into the revenue and occupancy trends in your market.

A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of last resort or short-term bridge loans. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies, not banks. Hard money loans are generally short-term, 1-3 years, and have higher interest rates and associated loan fees.

The financing options listed above are some of the more common approaches, but there are multiple ways to creatively finance STRs:

Home Equity Line of Credit: Investors with existing home equity may want to explore using a home equity line of credit (HELOC) or cash-out refinance on their existing primary home or other investment properties. These options allow the investor to tap into the equity they have accumulated in a given property and use that equity toward acquiring a new rental property.

Private Financing: Other STR investors find success with private financing. This often takes the shape of an individual or individuals funding part or all of the purchase. The beauty of private financing is that you can work out your own terms between parties for loan payback or equity in the purchase.

House Hacking: House hacking is the practice of getting a loan for a primary residence, which often has more favorable terms than an investment loan, and living there while you rent out part of the home as a vacation rental. This can be a room in your main home or a private space, like a basement unit.

Finally, it never hurts to talk to your bank. During the meeting, don’t talk about the loan terms you’re looking for. Instead, tell them about the investment you’re looking to make and what you intend to do with the property. 

For instance, let’s say you’re buying a rundown property in a popular neighborhood with the intention of rehabbing it and thus raising its value. The bank may have a specific loan product that fits your needs that you never knew existed.

Our article on the Best Loans for Investment Properties covers the options outlined above, and more, in greater detail.

Picking the ideal lender can be the key to unlocking your investment’s full potential.

Reputation and Experience: Look for lenders with a strong track record in STR financing and positive customer reviews.

Loan Options: Ensure they offer various loan types, such as conventional, asset-based, and hard money loans.

Interest Rates and Terms: Compare interest rates, loan terms, and repayment options to find the most favorable conditions.

Customer Service: Evaluate their customer support and willingness to provide guidance throughout the financing process.

Flexibility: Check for flexible loan requirements and terms that align with your financial situation and investment goals.

Host Financial is a top choice for STR financing. They specialize in vacation rental financing, offering tailored loan options with flexible terms for STR investors.

Exclusive Offer: Get $500 processing fee waived using AIRDNA500 discount code (include it in the “how did you hear about us?” section) 

Get Qualified Financing with Host Financial

Don’t just consider the purchase price and loan terms when financing a short-term rental property—you also have to maintain adequate cash reserves. 

Cash reserves are funds set aside to cover unexpected expenses, periods of low occupancy, or major repairs. 

Financial Buffer: Cash reserves provide a safety net during periods of low occupancy or unexpected market downturns. This can help you meet mortgage payments and other obligations even when rental income is lower than anticipated.

Emergency Repairs: Short-term rentals typically experience more wear and tear than long-term rentals. Cash reserves ensure you can quickly address any maintenance issues or necessary upgrades without disrupting your rental schedule.

Seasonal Fluctuations: Many short-term rental markets experience significant seasonal variations in demand. Cash reserves can help you manage cash flow during off-peak seasons.

Regulatory Changes: The short-term rental landscape is constantly evolving. Cash reserves can help you adapt to new regulations that may require property modifications or changes to your business model.

Marketing and Upgrades: Having cash on hand allows you to invest in marketing efforts or property improvements that can boost your rental's appeal and income potential.

Lender Requirements: Many lenders require borrowers to demonstrate cash reserves as part of the loan approval process. This shows you have the financial stability to manage the property effectively.

So, how much should you keep in cash reserves? While this can vary based on your specific situation, a general rule of thumb is to maintain at least 3-6 months of operating expenses and mortgage payments in easily accessible funds. Some investors prefer to keep even more on hand, especially for properties in highly seasonal markets or areas prone to natural disasters.

Remember, adequate cash reserves are not just a safety measure—they're a crucial component of successful short-term rental investing. They provide the financial flexibility to weather challenges and capitalize on opportunities, ensuring the long-term sustainability and profitability of your investment

"Is this a good investment?” That’s the fundamental question of real estate investing, and it all starts with finding the perfect place to invest. Answer that question in seconds and find high-value locations with AirDNA’s Market Score.

Identify top investment markets at a glance.

How to Use Data to Protect Your Investment

Below are some of the key metrics that any investor should review when considering a potential STR investment:

Rental Income: One of the most important factors in securing an STR mortgage for rental property lenders is short-term rental revenue. How much will your rental property earn per month and per year? This is the most basic metric to calculate a property’s future return on investment (ROI). 

Occupancy Rate: Occupancy Rate = Total Booked Days / (Total Booked Days + Total Available Days). Occupancy is the percentage of available nights an STR is booked in a given month. The higher the occupancy, the more revenue the property will generate.

Capitalization Rate: Cap rate = the ratio of net operating income (NOI) to property asset value. For example, if a property recently sold for $1,000,000 and had an NOI of $100,000, then the cap rate would be 10% ($100,000/$1,000,000).

FICO Score: Your FICO Score is by far one of the most important factors impacting your ability to obtain affordable short-term rental financing. A FICO credit score tells lenders about your creditworthiness, or how likely you are to pay back a loan based on your credit history. It’s calculated using the information in your credit reports. FICO scores are the standard for credit scores and are used by 90% of top lenders.

Debt-to-Income (DTI): DTI is calculated by dividing your monthly debt payments by your monthly gross income. Lenders use it to determine your riskiness as a borrower. It helps determine how well you manage monthly debt obligations and if you can afford to repay the loan.

Debt Service Coverage Ratio: The debt service coverage ratio (DSCR) measures the viability of a real estate deal. It measures your ability to use cash flow to pay current debt obligations. It’s calculated by dividing income by PITIA (Principal, Interest, Taxes, Insurance, and HOA Fees) to get a ratio of income to cost.

What is the bridge method of short-term rental?

The bridge method in short-term rental investing refers to using a short-term loan (a "bridge loan") to quickly purchase a property, with the intention of refinancing to a long-term mortgage later. 

You need to act fast to secure a property in a competitive market.

You plan to renovate the property before refinancing.

You don't currently qualify for a traditional mortgage but expect to in the near future.

Bridge loans typically have higher interest rates and shorter terms (6-18 months) compared to traditional mortgages. The goal is to "bridge" the gap between the property purchase and long-term financing. While this method can provide flexibility, it also carries risks, particularly if you're unable to refinance as planned.

Can you really make money with short-term rentals?

Yes! Short-term rentals can be a lucrative business venture. Success is not guaranteed, though, and depends on various factors:

Location: Properties in high-demand tourist areas or business hubs often perform better.

Property Management: Effectively managing bookings, cleaning, and maintenance is crucial.

Pricing Strategy: Dynamically adjusting prices based on demand can maximize revenue.

Guest Experience: Positive reviews and repeat guests can boost occupancy rates.

Seasonality: You’ll need to understand and plan for seasonal fluctuations in demand.

Regulatory Environment: Compliance with local short-term rental regulations will protect your business.

Financial Management: Properly account for all expenses, including mortgage, taxes, and maintenance.

While some investors report higher returns from short-term rentals compared to long-term rentals, it's important to note that short-term rentals often require more active management and can have more variable income streams. Careful market research and financial planning are crucial for success.

Yes, you can use a debt service coverage ratio (DSCR) loan for an Airbnb or other short-term rental property. 

DSCR loans are becoming increasingly popular for short-term rental investors because:

They focus on the property's income potential rather than the borrower's personal income.

They often have less stringent qualification requirements compared to traditional mortgages.

They can be used for non-owner occupied properties, which is common for short-term rentals.

With a DSCR loan, the lender calculates the ratio of the property's net operating income to its debt obligations. If this ratio is high enough (typically 1.25 or higher), you may qualify for the loan even if you wouldn't meet the income requirements for a traditional mortgage.

However, keep in mind that DSCR loans often come with higher interest rates and may require larger down payments compared to conventional mortgages. Additionally, lenders may use more conservative estimates of short-term rental income when calculating the DSCR, given the potential volatility of this market.

How do I avoid 20% down payment on investment property?

While many lenders require a 20% down payment for investment properties, including short-term rentals, there are several strategies you can use to potentially reduce this requirement:

FHA Loans: If you plan to live in one unit of a multi-unit property and rent out the others, you might qualify for an FHA loan with as little as 3.5% down.

House Hacking: Similar to the FHA strategy, you could purchase a property as your primary residence (which often requires a lower down payment) and rent out rooms or a portion of the property.

VA Loans: If you're a veteran or active-duty military, you might qualify for a VA loan with 0% down, even on multi-unit properties if you live in one unit.

Portfolio Lenders: Some portfolio lenders offer investment property loans with lower down payment requirements, especially if you have a strong credit profile or other assets.

Private Money or Hard Money Lenders: These lenders may offer more flexible terms, including lower down payments, though often at higher interest rates.

Home Equity: If you have significant equity in your primary residence, you could potentially use a home equity loan or HELOC to fund the down payment.

Seller Financing: In some cases, the property seller might be willing to finance part of the purchase price, reducing your out-of-pocket down payment.

Partnership or Syndication: Partnering with other investors can help you pool resources for the down payment.

This blog was written with assistance from Host Financial’s Adam Windham and AirDNA’s Kellen Kruse.

Adam Windham is the co-founder and CEO of Host Financial, an industry leader in lending and capital advisory services for the STR space. Adam has over 15 years of experience in the real estate industry, both as a developer and investor, and he leverages that experience to help clients structure and finance their investments for the highest possible degree of success. Adam holds an MBA in Real Estate Finance and a Bachelor’s degree in Construction Management from California Polytechnic State University in San Luis Obispo, California.

Kellen Kruse is Head of Real Estate at AirDNA. He uses 15 years of experience in finance, data analytics, and business development to help enterprise clients in the Real Estate and Tourism sectors scale data operations and achieve results. Kellen is an Airbnb Superhost and holds an MBA from UCLA Anderson School of Management and a degree in Finance and Accounting from the University of Kansas.

This step-by-step guide demystifies short-term rental financing and arms you with the tips and tricks you need to confidently invest in a new Airbnb property.

How to Finance Your Vacation Rental: A Step-by-Step Guide

Let’s cut to the chase: There’s no one correct way to finance your vacation rental. The truth is there are a handful of options, and your success as a rentalpreneur is dependent on understanding which option makes the most sense for your goals, finances, and the current economic climate.

This step-by-step guide is meant to demystify the whole financing process and arm you with the tips and tricks you need to confidently finance new short-term rental properties anytime, anywhere.

Keep reading to learn:

How to assess the economy
How to start the financing process
How to create a financing roadmap
How to choose a loan
How to use data to protect your investment
1. What is short-term rental financing?

Short-term rental financing refers to loans that can help you cover the costs of purchasing a short-term rental property and getting your short-term rental business set up.

In this guide, we'll explain the ins and outs of financing and explain the main kinds of loans available to rentalpreneurs in the United States.

2. How to assess the economic climate: Is now the right time to finance?

The rollercoaster ride that is the American housing market has taken some particularly dramatic turns during the COVID-19 era. The 30-year fixed rate mortgage average dropped to a historic low in December 2020 (2.6%), only to begin climbing throughout 2022 and 2023 (8.29% as of October 23) without a clear end in sight.

Many homebuyers—including rental hosts and property managers—went from feeling bullish to bearish, assuming mortgage rates are a clear indicator of the risk associated with new investment. However, history tells us it’s not quite that simple.

As mortgage rates rise, home prices typically decline. This is the yin and yang of American real estate.

Whether you’re an aspiring host looking to acquire a second home or a seasoned property manager wanting to expand your portfolio, you must ask yourself: What am I more comfortable with? A higher mortgage rate or a lower sticker price?

And remember that no two markets are the same, and trends will also differ across location types. (Think coastal towns versus mountain towns.)

Specific rental property financing options (which we’ll cover in a moment) may seem more or less attractive during times of economic uncertainty. Again, there’s no right or wrong answer here; all rentalpreneurs will have a unique take. Where one person sees risk, another person will see opportunity.

“While home prices have come down from their peak, they have stopped falling. Meanwhile, interest rates are still keeping new mortgages much less affordable than in early 2022,” explains AirDNA Economist Bram Gallagher. “With the Fed contemplating high rates for a longer period, significant appreciation may be a few years off. This puts emphasis on a careful analysis of the potential cash flows.”

There’s no such thing as a risk-proof business, and that includes short-term rentals (STRs). But data tools can go a long way toward mitigating potential risk.

If a given property isn’t expected to appreciate in value like it has in years past, it’s more important than ever that you closely monitor your cash flow. What are current trends around occupancy and average daily rates (ADRs)? What are your local competitors charging? What should you be charging? What’s your overall earnings potential? Data holds the answers to these questions and more, so be sure to do your homework before financing any new properties.

You can, of course, always wait for mortgage rates to drop again before financing your next rental. But what if rates hold steady or even continue climbing for years to come? Will you regret not locking in at 8% if they eventually reach 10%?

And what about inflation? If the Federal Reserve continues accelerating interest rates in the months or years ahead, will that play a role in your decision to finance a new rental? These are the practical, albeit slightly uncomfortable, questions you must consider.

Real estate, in times good and bad, remains one of the smartest investments on planet earth. But the differences between owning a second home and operating a financially successful vacation rental cannot be understated.

3. How to get started: What’s the first step in financing my vacation rental?

If you’re ready to get started, your first step toward financing is to clearly define your investment thesis.

“Why do I want to invest? What do I want to invest in? And where do I want to invest?” 

This is another case of no right or wrong answer; it all depends on what you are trying to achieve by investing in STRs. For example, some investors are primarily looking to purchase rentals for personal use in areas they enjoy visiting. They're less concerned about turning a significant profit. For them, the goals are proximity, flexibility, and the prospect of leveraging short-term rental income to offset a mortgage.

On the flip side, other investors' main objective is maximizing their annual cash flow and cash-on-cash returns. For them, the location of the property is less important so long as the revenue potential is high.

4. How to create a financing roadmap: What’s my long-term game plan?

Once you’re satisfied with your investment thesis, this next step is all about due diligence. Investing in real estate is likely one of the most significant financial commitments you’ll make in your lifetime, with potentially hundreds of thousands or millions of dollars at risk. Making sure you fully understand what you’re signing up for is critical, to say the very least.

First, it’s necessary to understand your risk tolerance. Some investors are perfectly fine making large investments with high risk and high reward potential, while others are not. Per usual, this all goes back to your attitude and preferences as an investor.

Second, you need to understand the markets you are investing in, which you’ve previously determined based on your investment thesis. More specifically, you need to self-educate on the key metrics for your target markets. What are the ADRs? What are the occupancy percentages—which can be calculated by dividing a property’s total number of booked nights by the total number of available nights? What about the general cost of homes in the area? Or the influence of seasonality on your monthly and annual revenue?

This is the time to evaluate micro and macro trends that could impact your investment. 

Lastly, once you’ve made the decision to invest, start using a data tool (if you aren’t already) to stay on top of those key metrics and see how trends change over time. Not only is real estate a serious commitment, but it’s also long-term, and the metrics that make the initial investment attractive could improve or worsen over time. This is precisely why a data tool is one of your best insurance policies. When it comes to vacation rentals, data isn’t a nice-to-have; it’s essential.

5. How to choose a loan: What’s the best loan option for my vacation rental?

There’s a variety of options when it comes to financing your second home mortgage. Below, we highlight your best bets for short-term rental loans.

Traditional financing

Particularly if you’re buying your first vacation rental property, the most familiar option is the traditional or conventional loan. A traditional loan is pretty straightforward and offers some of the most competitive interest rates on the market (lower than typical vacation rental financing rates). However, traditional financing also has some of the most restrictive lending requirements and is the least scalable option for STR investors looking to grow a property portfolio. 

Asset-based loan (AKA commercial rental-specific loans)

Unlike a traditional loan, asset-based loans for investment properties (also called commercial rental-specific loans or Debt Service Coverage Ratio/DSCR loans) are evaluated by looking at the actual or potential income of a given property (e.g., rental income) rather than an individual borrower’s W2 income and Debt-to-Income ratio.

Lenders will look at the income of the property and calculate the Debt Service Coverage Ratio—the property income divided by the principal, interest, taxes, insurance, and HOA fees (if applicable)—to qualify the loan.

This type of loan is a significant advantage to an STR investor because borrowing power is not constrained by individual income. The investor is able to scale a property portfolio and add new properties by simply providing sufficient evidence that the properties are cash-flowing and that there is sufficient equity for the down payments and associated fees.

Hard money loan

A hard money loan is a type of loan that is secured by real property. Hard money loans are considered loans of last resort or short-term bridge loans. These loans are primarily used in real estate transactions, with the lender generally being individuals or companies and not banks.

Other financing options

The financing options listed above are some of the more common approaches, but there are multiple ways to creatively finance STRs.

Investors with existing home equity may want to explore using a Home Equity Line of Credit (HELOC) or Cash-Out Refinance on their existing primary home or other investment properties. These options allow the investor to tap into the equity they have accumulated in a given property and use that equity toward the acquisition of a new rental property. 

Other STR investors find success with private financing. This often takes the shape of an individual or individuals funding part or all of the purchase. The beauty of private financing is that you can work out your own terms between parties for loan payback or equity in the purchase.

Many others are turning to house hacking. This is the practice of getting a loan for a primary residence (which often has more favorable terms than an investment loan) and living there while you rent out part of the home as a vacation rental. This can be a room in your main home or a private space, like a basement unit.

Finally, it never hurts to talk to your bank. During the meeting, don’t talk about the loan terms you’re looking for. Instead, tell them about the investment you’re looking to make and what you intend to do with the property. For instance, are you buying a rundown property in a popular neighborhood with the intention of rehabbing it (and thus raising its value)? The bank may have a specific loan product that fits your needs that you never knew existed.

6. How to use data to protect your investment: Which STR metrics matter?


Below are some of the key metrics that any investor should be looking at when considering a potential STR investment:

Airbnb Rental Income: One of the most important factors in securing an STR mortgage for rental property lenders is short-term rental revenue. How much will your rental property earn per month and per year? This is the most basic metric to calculate the future ROI of a property. Use Rentalizer to see what any house in the world could earn as a short-term rental. 
Airbnb Occupancy: Occupancy Rate = Total Booked Days / (Total Booked Days + Total Available Days). Occupancy is the percentage of available nights an STR is booked in a given month, and thus, the higher the occupancy, the more revenue the property will generate.
Capitalization Rate: The ratio of Net Operating Income (NOI) to property asset value. For example, if a property recently sold for $1,000,000 and had an NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%.
FICO Score: By far one of the most important factors impacting your ability to obtain affordable short-term rental financing. A FICO credit score tells lenders about your creditworthiness (how likely you are to pay back a loan based on your credit history). It is calculated using the information in your credit reports. FICO scores are the standard for credit scores—used by 90% of top lenders.
Debt-to-Income (DTI): DTI is calculated by dividing your monthly debt payments by your monthly gross income. Lenders use it to determine the riskiness of you as a borrower. It helps determine how well you manage monthly debt obligations and if you can afford to repay the loan.
Debt Service Coverage Ratio: The Debt Service Coverage Ratio (DSCR) measures the viability of a real estate deal by measuring the ability to use cash flow to pay current debt obligations. It is calculated by dividing income by PITIA (Principal, Interest, Taxes, Insurance, and HOA Fees) to get a ratio of income to cost.
The bottom line


Investing in STRs may seem complex, but it doesn’t have to be. As long as you identify your investment goals, understand your market, and carefully measure the key metrics of success, you can invest with confidence.

For more tips on where to make your next investment, check out our latest Best Places to Invest Report.

And for insight on which trends are shaping the STR industry right now, review our newest U.S. Market Review.

This blog was written with assistance from Host Financial’s Adam Windham and AirDNA’s Kellen Kruse.

Adam Windham is the co-founder and CEO of Host Financial, an industry leader in lending and capital advisory services for the STR space. Adam has over 15 years of experience in the real estate industry, both as a developer and investor, and he leverages that experience to help clients structure and finance their investments for the highest possible degree of success. Adam holds an MBA in Real Estate Finance and a Bachelor’s degree in Construction Management from California Polytechnic State University in San Luis Obispo, California.

Kellen Kruse is Head of Real Estate at AirDNA. He uses 15 years of experience in finance, data analytics, and business development to help enterprise clients in the Real Estate and Tourism sectors scale data operations and achieve results. Kellen is an Airbnb Superhost and holds an MBA from UCLA Anderson School of Management and a degree in Finance and Accounting from the University of Kansas.



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