Can You Use a Hard Money Loan to Buy an Airbnb?

Are you thinking of creative ways to expand your investment portfolio? Investing in short-term rental properties, like Airbnbs, can be a good way to diversify your portfolio and earn extra income. That said, there are plenty of ways to buy an Airbnb, but today, we’ll discuss how to buy one with a hard money loan. Read along to learn the benefits, risks, and tips for using a hard money loan for your investment. 

Contents of This Article: 

• Can You Buy an Airbnb With Hard Money?
• Is a Hard Money Loan a Good Choice?
• Tips for Using a Hard Money Loan
• Ensure Success With MHML

Can You Buy an Airbnb With Hard Money?

Yes, you can buy an Airbnb with a hard money loan. Airbnbs are solid investment choices for real estate investors who want to generate income from short-term rental properties. That said, hard money loans are often used for these transactions because of their flexibility and fast funding, especially in a competitive real estate market. 

Unlike traditional mortgages, which require extensive financial documentation and weeks of processing, hard money lenders in Baltimore, Maryland, focus more on the property’s value and potential. This makes them a great choice for investors looking to: 

• Secure properties quickly in high-demand areas
• Purchase and renovate fixer-uppers for short-term rentals
• Bypass the strict credit and income requirements of conventional loans
• Scale their investment property portfolio without waiting for traditional financing

That said, using hard money to buy an Airbnb does come with certain challenges, which we’ll discuss more later on. It’s important for investors to carefully evaluate the short-term rental market, local regulations, and potential risks before securing financing. 

Is a Hard Money Loan a Good Choice?

If you want to buy an Airbnb for a short-term rental property, you’ll want to explore different loan options. That said, there are plenty of ways to fund an investment property, whether you choose a traditional mortgage loan, HELOC, or hard money loan. So, which is the best option?

Many people may stick with a conventional mortgage if they qualify. While it may take longer to secure a loan, you can repay it over a long period of time with lower interest rates than other loan options. 

A Home Equity Line of Credit (HELOC) can be a good option if you want to tap into an existing property’s equity. This loan type allows you to borrow against your property’s value and generally comes with lower interest rates than traditional loans. 

Finally, hard money loans are a good choice if you want to secure a loan quickly and efficiently. These loans are secured by the value of the property rather than your personal finances, so it can be easier to qualify. However, this financing method has some pros and cons, which we’ll discuss below. 

Benefits of Using Hard Money

• Fast Funding- One of the biggest perks of using hard money loans is how quickly they’re approved and funded. Traditional lenders may take weeks or months to close, whereas hard money lenders can approve and fund loans within days.
• Flexibility With Loan Terms- Hard money loans also offer more flexibility than traditional loans. For instance, lenders can customize loan terms based on your plan for the property and its potential rather than strict underwriting criteria. 
• Less Focus on Personal Finances- While traditional loans require strong credit scores, proof of income, and low debt-to-income ratios, hard money loans do not. They focus more on the property’s value and potential, making them ideal for anyone–even if you don’t have the best financial history. 
• Refinancing Options- Many investors use hard money loans as a short-term bridge to secure a property, make improvements, and refinance into a traditional mortgage with lower interest rates. So, if you’re using it to buy an Airbnb, you could eventually transition to a more cost-effective loan once you’re generating consistent rental income.
• Short-Term Loan- Hard money loan terms typically range from 6 months to 3 years. This is great if you want to buy an Airbnb, renovate it quickly, and either start generating rental income or refinance into a long-term loan. 

Risks of Using Hard Money

• High Interest Rates- Hard money loans generally have significantly higher interest rates than other loan types. For instance, while a conventional lender may offer rates between 5% and 8%, a hard money loan may range from 10% to 15% or higher. 
• Short Repayment Terms- Since hard money loans are short-term, it’s crucial to have a realistic exit strategy. Repayment terms typically range from one to three years, which means you must be prepared to sell the property or refinance your loan within that time. 
• Additional Fees and Costs- In addition to higher interest rates, hard money loans have origination fees, closing costs, and other expenses like underwriting and inspection fees. These costs can add up quickly, so it’s crucial to factor them into your calculations before securing a loan.
• Risk of Default- Because hard money loans have short repayment terms and high interest rates, investors who can’t generate enough rental income from their Airbnb or refinance on time may struggle to make payments. 
• Market Risks- Short-term rentals, like Airbnbs, are subject to changing regulations, seasonal demand fluctuations, and economic downturns. For instance, when tourism declines, Airbnb owners may struggle to maintain occupancy rates, making it harder to repay the loan with no income. 

Tips for Using a Hard Money Loan

Using a hard money loan to buy an Airbnb definitely has its pros and cons. However, for some people, it’s the better choice. If you’re looking to use a hard money loan for your next investment, here are a few tips to consider. 

1. Choose the Right Property
2. Have a Clear Exit Strategy
3. Budget Wisely
4. Work With a Reputable Lender
5. Research Local Regulations

Choose the Right Property

It’s important to remember that not all properties make good Airbnb investments. That said, you’ll want to find a property with strong income potential to ensure you can repay the loan on time. Some factors to consider include the location, occupancy rates of similar properties, the after-repair value of the property, and local competition. 

Have a Clear Exit Strategy

All hard money lenders will look for a good exit strategy before they fund a loan. So, if you plan on buying an Airbnb with a hard money loan, you’ll need to solidify a plan to repay it within the loan term. Remember, hard money loans are short-term, meaning you’ll have to repay it within 6 months to 3 years. So, some things you can do include refinancing into a traditional mortgage, selling the property, or paying off the loan with Airbnb revenue.

Budget Wisely

As mentioned earlier in this article, hard money loans come with higher interest rates and fees. So, careful budgeting is essential when planning your investment. Don’t forget to account for things such as:

• Your repayment schedule and interest costs
• Renovation expenses (if applicable)
• Airbnb startup costs (such as furniture, decor, supplies, cleaning services, etc.)
• Ongoing operational costs (utilities, property management, insurance, etc.)
• Slow seasons, where occupancy rates may drop

Work With a Reputable Lender

Not all hard money lenders are the same, and choosing the right one can make or break your investment. That said, you’ll want to find one with experience in Airbnb or short-term rental financing. Additionally, look for someone who won’t scam you with hidden fees or unrealistic expenses. Looking at reviews or testimonials from past borrowers can help you find a reputable lender to work with. 

Research Local Regulations

Finally, it’s important to look at the short-term rental laws, as they vary by location. For instance, some cities have strict regulations on Airbnb properties, so you’ll want to check things like zoning laws and restrictions and verify whether you need a permit or license to own and operate a short-term rental. You’ll also want to understand tax obligations and any HOA rules that may apply to your property. 

Ensure Success With MHML

If you’re looking to buy an Airbnb with a hard money loan for your next investment, finding the right lender for your situation is crucial. You’ll want to look for a reputable lender with experience in short-term rental financing. Luckily, if you’re looking at buying an investment property near Baltimore, Maryland, we can help!

Maryland Hard Money Lenders has a great team of experts who can help you get funded quickly and efficiently. Learn more about our lending process or fill out our initial loan application today to get started!