While the vacation rental (i.e. short-term rental) market is booming, it can easily become an appealing route for investors to take. Beyond finding the ideal market worth investing in, the ultimate goal is for your clients to increase fundings in a way that is efficient, reliable, and scalable. From asset-based loans (ABLs) to traditional loans, there are various long-term financing options that can suit short-term rental investments for your borrowers.
While this type of loan typically comes with a higher down payment, ABLs often have lenders bypass an investor’s debt-to-income ratio, and instead focus on the potential income for the rental property, thus calculating the debt service coverage ratio or DSCR.
While ABLs are perfect for fix-and-flip properties, they can also work well for fix-and-hold investments that can easily be placed on the market as short-term rentals. for investors who may not have a lot of seed funds to kick off a project, ABLs can be an ideal way to secure the necessary funds using outside money.
Much like ABLs, private lenders also offer flexibility in the loan opportunities provided. Unlike traditional bank loans, private lenders are far more interested in an investor’s experience, collateral, and borrower’s performance rather than their credit score or income. Come to the table with a solid action plan of where you’ve been and where you want to go as an investor, and you’ll likely be able to strike a deal with an investor who is willing to collaborate on your next big investment project.
Traditional loans, or traditional financing, are perhaps the most familiar of the options because they come from the most traditional of lending institutions—banks. Unlike the criteria reviewed for obtaining private loans or ABLs, traditional loans primarily look at two main factors for investors: creditworthiness and individual income. While it’s one well-known route to obtaining financing, it can also be the most challenging, particularly for new investors lacking a track record and reliable numbers.
Ultimately, investors want to maximize their annual cash flow; researching and selecting the right lending option could help jumpstart that opportunity. While short-term investments may seem complex, they don’t have to be. If your clients are ready to explore your short-term rental opportunities, contact us today.