How to finance an Airbnb

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What's up guys, it's James here. And in today's video, I'm going to talk about how to finance a short term rental property, I'm going to give a variety of different options from no money down all the way to just purchasing the property and cash. So you can get a full scope of ideas on, you know, the different ways to finance a short term rental property. And I'm going to also give my recommendation for some of my favorite ways out of this whole bunch. So without further ado, let's jump into it. Before we do, I just want to mention, I just want to remind you guys that there is a link in the description down below for a free training, it's completely free on exactly how to invest successfully into short term rental properties. In that training, I break down our three core pillars for how to invest successfully in short term rental properties, number one, two, and three things you absolutely have to know to be successful. So you can maximize your return on investment, minimize and eliminate risk, and make sure that everything is as seamless and as as little time consumption as possible. So as automated as possible. So if you want to get access to that, and you also want to get access to our property analysis spreadsheet, then I highly recommend you check out that training in the link in the description below. Again, it's completely free, so I'd highly recommend that you check it out. So that being said, let's jump into the different ways to finance and let's just go from kind of lowest money down to most money down and talk about it that way just for structure. So let's start with no money down, no money down deals, there's a couple different ways to do this. The best way in my opinion, is to work with a joint venture partner, working with a joint venture partner is typically going to be a setup where you're going to be responsible for finding the deal, and also for then getting the deal to go through and managing the property. So if there's renovation to be done, you're going to be taking care of the renovation, furnishing, and then managing the property ongoing. And then the joint venture partner, they're going to be sort of the money partner, whereas you're going to be the time partner, the active partner, it's a really great way to get started investing in properties if you don't have your own capital to deploy. And so what's going to happen is, someone else is going to partner with you for your expertise. Now generally, to do something like this, you need to have expertise. So that's where working with someone like myself can be really beneficial, because you can get that expertise to be able to then go and leverage to work with someone in a partnership capacity. And that joint venture partner is going to be responsible for the money for the downpayment, renovation, furnishing that sort of thing, as well as for the mortgage capability. So they're going to go and apply with a lender, and they're going to get the mortgage capability to be able to allow you guys to buy the property. So that means that you're going to be able to get into the property without any of your own money down, you're really just earning sweat equity, typically, the split for this is going to look something along lines of 5050, it's gonna be right around there, where for providing the money and the mortgage, the investor, that money partner is going to get 50% equity in the deal and the cash flow, and then for providing the off market deal or a really good deal that you've gotten found. And then also for providing all of the management operation side things, you as the active partner are going to get 50% equity and 50% of the cash flow. Now, obviously, there's a preference to paying back the investors initial capital they put into the deal. So until that investor gets their money back, everything goes to them all of the cash flows go to them. Or the best way to do this, in my experience is to find a property that is in need of substantial renovation so that you can renovate the property, do a cash out refinance, and use that cash out refinance money to get the investor back their money. And then from that point forward, once the investor has their money repaid, now you can just split the cash flow. So you've quickly got a nice, a couple $1,000 with a short term rental in monthly cash flow that's coming your way, another couple 1000 Going to the investor, and you didn't actually have to put any money into the deal. You've also then built up experience so that when you do have the cash deploy in your own deal, you then are going to have some more experience to be able to do that successfully. And then the other big thing is that you now get 50% equity in all of the appreciation all the principal pay down on that property. So as the mortgage gets paid, now, you are you know, building equity every month. And as the property appreciates, appreciates, naturally in value every year, you're also benefiting from that. And without any money, you now get half of the appreciation on let's say a several $100,000 asset. So that's really powerful as well, especially because that compounds year over year. So that's one option, that's your no money down. Now, if you want to go a more traditional route and you've got some money set aside, you can generally get 10 or 20% down, obviously 20% down is pretty standard. If you just go to a lender, you've got decent credit, and you've got some money for a down payment, you've got good income, fall that lines up, then you should be pretty good to go to get financed with a 20% down payment. If you want to be able to get more leverage than you get oftentimes fine properties that you can get for 10% down when it comes to short term rental because you can buy them as a vacation home. You have to obviously buy it for a vacation home and then you also can then use it as a short term rental. So there's different specifications for how you qualify there, but it's a really great because it can allow you to leverage 10% down and get yourself into a larger deal. The important thing here, that's absolutely crucial that I cannot stress enough, though, is you really have to analyze deals in more in more depth with more due diligence, whenever you're putting less down on the deal. If you have less equity position in the deal, it just means that you really need to make sure that your cash flow is going to be strong, that you're never going to be put in a place where you need to sell that property. Because the worst case scenario is something like what happened in 2008. So if you think about what happened in 2008, people got money with a lot of leverage, a lot of times they were doing 5%, down 10% Down even no money down these deals, and they were paying interest only on the loan. So they didn't actually build any any equity over time even. And then suddenly, if they can't afford to carry the property to actually pay that monthly balance, and then the value of the property has gone down. Now they can't afford to hold it, but they sell it, they're going to take a big loss. And that's why people experienced financial ruin when everything came crashing down 2008. So you want to avoid putting yourself in a similar situation, you just need to make sure that you're never biting off more than you can chew. So there's a couple different ways we like to do this. One is by making sure that we have ample room. So if you see any of my past analysis videos where I analyze deals, I always make sure that in a worst case scenario that is truly worst case that I'm still going to be cashflow positive on the property, so it's not going to cost you money out of pocket to purchase that property. I also like to make sure that in a best case scenario, or a more reasonable scenario, we have lots of room so that in one year of good operations, we build up enough cash reserves to be able to carry that property for several years in the future. I also like to make sure on certain deals that it can work as a long term rental so I can transition it over and still make it cashflow nicely if I need to. So I have that as a backup plan. In the event that anything restricts my ability to use that property as a short term rental. So there's a bunch of different ways you can protect yourself. But I just want to stress that it is important that you do protect yourself in whatever way so that if you are utilizing leverage are you doing so safely and in a calculated way. And then the last option is obviously just go and pay for a property in cash use no leverage at all. Now the nice thing about that is you're not paying interest on a mortgage. But the downside there is pretty obvious it's that that money, it's going to take a lot more of it in order to go and actually be able to afford a property. And an argument can be made pretty easily that you could take that same money and invest it into multiple properties where you are going 20% down, and then suddenly you just have more properties. And yes, you're paying more interest. But your properties are really paying that interest your gas or payment interest. So you could use that several $100,000. Let's say let's say it's $200,000, instead of buying one property, that's going to bring you in a $200,000 price point, maybe a couple $1,000 a month in cash flow. And then once you factor in principle, pay down appreciation, you'll earn a little bit more than that. But if you take that same $200,000 and use it as downpayment, money for two, or maybe even three different properties of your doing downpayment, maybe a bit of a bit of renovation, but a furnishing, and you're buying some more expensive properties, those properties together are going to generate more profit on your initial investment than you would with just one. So you just get more leverage, that's a pretty obvious one, you're going to get more benefit from that there is the risk. But again, I recommend mitigating the risk. So my personal preference is to do either a No Money Down deal, if I want to partner with someone, and I want to grow more quickly, which for me, it's not really my main priority right now, I'm not trying to grow super quickly. So as much as there are a lot of people that want to do those types of deals with me, I'm mostly just turning those people down at this point, because I don't have a desire to grow more quickly than my own capital can finance. And that's kind of my position on it. But it is a really great way to get started, I highly recommend it for people who don't have that capital in order to get started and want to get started more quickly. Now, my other preference is to go in at a 5% 10% deal kind of structure down type of structure, because that just allows me to get more properties with my own capital where I then have full control over them full ownership of them. But I'll sometimes do 20% down deals as well. And all just comes to how to make the numbers make sense in a way where I'm maximizing my profit while also minimizing my risk. So I don't want to assume additional risk. And if I'm putting 20% down to a property then that means I'm generally going to be looking for a property that I can go and renovate and then do a cash out refinance to get that money back, get that money moving, because I want to keep that money moving and generate more income for me and Jerry more gains for me over the long term so that I can really reap the rewards of that compounding effect. So those are the different options available to obviously there are a few different options to choose from when you're looking at financing a short term rental deal. I hope this is valuable for you shed some light on the different options you have available. If you want to know more the specifics of how to go about these different deals, how to find partners, how to find lenders, all that different stuff. I highly recommend that trainers link down the description below again is totally free. We're also going to give you a spreadsheet completely free that will allow you to analyze these properties so that you can exactly like I'm talking about make sure that you do have enough room in your property to make sure that you have a good safety net there you're any leverage you are deploying that you're doing so safely. So I highly recommend you check out that training it's linked in the description down below. Lastly, if you did get value from this video, if you liked it, please give it a thumbs up hit that like button it really helps me to grow this channel. If you are new here or you are old here and you're not yet subscribed then please make sure you hit that subscribe button so you can stay up to date with the channel. All that being said hope you had a great day. I hope you have a great rest of your day and I will see you in the next video.