How to build an Airbnb business: How Much Money Does it Take to Invest?
Financing for a short-term rental? How much does it cost? What do lenders look for and how will it be different from traditional lending? Financing is a critical component for any real estate investor. Let’s take a look at the big picture of lending to give you a brief overview of what to expect in the current lending climate.
- Important things lenders look for
- What kind of lender to use
- The best kinds of loans for first time buyers
- Ideal markets for short-term rentals
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Welcome to short term rental riches will discuss investing in real estate but with a specific focus on short term rentals quick actionable items to acquire manage and scale your portfolio I’m your host Tim Hubbard.
Hello and welcome back to short term rental riches podcast today we’re gonna talk about a question I get all the time. And it’s a fair question and that is how much money does it take to invest in a short term rental or in real estate so that has a lot of answers because there’s a lot of different ways to invest in real estate and there’s a lot of different markets and property sizes but there’s 2 big distinctions I would say if I had to break it down on the amount that you are going to need to invest in one is if your financing which if you’re in the U. S..
I hope that you’re taking advantage of the financing options because they’re better than they’ve ever been we have historically low interest rates right now and fix for a long period of time so let’s assume you’re getting a loan most investment properties are in require 20 to 25 percent down and now that goes for single family homes up to 4 unit which lenders will consider everything up to a 4 unit residential property.
If you’re going above 4 units things will change you will be buying what’s considered a commercial property a multi family property is 5 units or more well I should say at a multi family property that a lender will consider commercial is 5 units or more you’re still gonna have the same down payment requirements but some other things happen when you make that jump from 4 to 5 units and that’s that lenders typically look at it more as a business and so they’re gonna want to see usually you know a little more history and that they might want to see the chat history investing in real estate but not necessarily every lender is different and that’s why I encourage everyone to talk to as many as possible in whichever market you’re looking for if you’re looking for you know single family homes are actually whatever it is that there are national lenders so you can work with wind that can land all across the US but then there’s lots of local vendors to.
And often times I’ve found the local lenders are going to have more flexibility they’re smaller so they can move quicker if they need to and it’s gonna be more of a relationship then it is working with Wells Fargo for example where they fit you into a whole set of guidelines and if you don’t fit you don’t fit and they can’t really tweak that when you’re working with a smaller lender or credit union they have more flexibility so often times I could be a really good way to go now if you’re buying a property in a residential property from one to 4 units.
You can use residential lending a really good way to get into this if you’re a first time buyer is to use an FHA loan 3.5 percent down right now is all that they require you’re gonna have mortgage insurance on top of your mortgage which adds a little bit but you can still really make the numbers work if for example you’re buying let’s let’s say it’s a duplex for $200000 now if you’re in California and New York your Miami or Seattle or Washington DC you’re probably not gonna find a duplex for $200000 but just know that there are lots and lots of markets to day.
That you can find great deals that cash flow and then have lots of available properties so let’s take a duplex example of $200000 let’s say you’re lucky enough to be living in one of these markets right now and so you could buy this property as your personal residence you could live in one unit and rent out the other one and put 3.5 percent down so $7000 on the $200000 purchase price but you also do some things with your contract and ask the seller to pay for closing costs so you can re coop yeah you know if they agree to it you can really probably get into that property for around you know even $10000 if you served in our army rare for sure any any any of the branches are you most likely have a veterans loan that’s available to you as well and that’s actually even a lower down payment but that again is if you’re buying a property to use is your personal residence which could be up to 4 units my first proper data ever bought was a 4 unit place and so that’s a great way to get in if you’re living in a market that makes sense now if you’re living in a market that doesn’t make sense one of the high cost of living places with the housing shortages like San Francisco I would not recommend to buy property there just because you live there you want to invest where it makes sense to invest and you can live where you want to live but those aren’t the same thing let’s say you’re living in San Francisco for example and you want to invest in real estate I highly suggest you look in some of these other markets Texas and Florida in the mid south where property prices are much more affordable and the returns are much higher these properties you’ll likely be putting 20 percent down. Amber that’s going to be on a property prices that’s much lower than maybe you’re used to so that’s sort of the typical down payments you know as low as a couple percent if you’re buying a personal residence up to a normal of 20 to 25 percent you’re buying investment property now what do you do if you don’t have the 20 or 25 percent down.
There’s quite a few other ways around that too one year could find a property that the owner is willing to do owner financing maybe they own it out right you can work out agreement with them for a lower down payment you can also partner with someone I’ve done this a few times and there’s nothing wrong with partnering with someone if it allows you to buy a property that you otherwise could get on your own now you want to make sure of course that you know you have a operating agreement and contract between you and your partners that’s very very clear but as long as you have that and you do your due diligence and you find a good property will cover all the due diligence stuff in future episodes as long as you find a good property you don’t really have too much to worry with that you know everyone’s going to be happy your partners will be happy and so will you so that in a nut shell is a broad overview of financing most lenders are going to want to see 2 years history of of income proof of income the easiest way to do is just talk with your local lenders the last you exactly what they need to know and then when you find a market that you like definitely reach out to the local lenders and see what options and flexibility they have as well thanks for joining me again and until next time I want to get on the fast track to financial freedom through short term rentals little search of the property you want to make sure that you acquired the right.
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