3 Ways to Finance an Airbnb
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We all need money for our real estate investments. But did you know it doesn’t have to be YOUR money? Most people buying half a million dollar vacation homes aren’t paying cash. Watch today’s video to see how they do it.
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Getting money is a reality for all real estate investors.
And there’s only so much money in your own bank account. At some point you run out.
In most cases, it’s best to leverage your cash by using loans. Maybe it’s a bank loan or private loan.
“Other People’s Money” as they call it.
One of the great thing about real estate is there seems to be no shortage of Other People’s Money. They always have way, way more than you do.
But how do you turn it into real estate?
Some out there are using what’s called hard money – high interest (sometimes interest only) loans. Some are just plain using high interest loans.
But there’s no need to be paying 12% interest. We need to find alternatives for a great return on investment.
I’ve outlined the three top ways to finance your first or next Airbnb.
First, we discuss what it’s like to use traditional financing. Things like debt-to-income ratios apply here, as well as down payment restrictions.
Next is a way that is available only in the US. Commercial lenders are getting into the Airbnb game, and I’ll share why this is so important. Plus, how you can take advantage.
Finally is how you can completely use other people’s money. I explain how this works and what kind of returns you can expect.
Watch the video now for my three favorite ways to fund your Airbnb.
What's up guys, it's James here and in today's video, I'm gonna be talking to you about three different ways that you can finance purchasing your Airbnb, your short term rental property. Now, this is gonna be a really cool video, because I know a lot of you guys are wondering about ways to finance your first purchase and how to also just how to finance things as you scale. Because for any of us, at some point, we are going to get maxed out in terms of just traditional lending options, traditional financing options by either the amount of money that we have for a down payment for a property, or from the amount of a loan that we qualify for based on our income. And so in order to get around that, as you keep scaling and growing your portfolio, you might need to access some different creative financing solutions that are going to still keep your ROI is really high, they're not going to cost you an arm and a leg, obviously, and that are actually going to allow you to scale. Now I see a lot of people out there that are using some really really sketchy methods to finance their short term rentals, I was even watching a video from someone not too long ago that managed to get a loan for 80% of the value of the property at 8% interest, which is absolutely crazy when you know when we're in a market where that's not priced in, right, if the going rate for interest was 8%. And fine, I could understand that because that would be priced into the properties that property values would go down because interest rates were going up so high. But in a market where you can literally get a loan for 3%, this guy was out there getting 8% money. And that is absolute insanity, especially when he combined with the fact that his 20% downpayment, he was financing through debt that was also being charged an extremely high rate of interest, I think somewhere in the neighborhood of 10 to 12%. That is absolute insanity, you should never do that. That is crazy. That is just dumb. To be honest, I don't want to be too rude. But that is just a crazy thing to do. Because that person actually ended up having to sell off that property, it wasn't performing the way you wanted it to not as a crazy, crazy, stupid move to make to take on that kind of debt at that kind of an interest rate and have that kind of debt obligation liability looming over your head. So I want to show you how you can scale your portfolio the smart way without getting into those kind of mistakes, to make sure that you have all the tools available, because there are some really, really great ways to be able to scale without paying crazy interest rates like that. So that's what we're gonna be talking about in this video. Again, if you are interested in actually purchasing properties and growing an Airbnb investing portfolio, you want to build up cash flow from investing in short term rental properties, whether you want to replace your income, or you just want to have really great cash flowing investment properties, then I highly recommend that you check out the free training that's going to be linked in the description down below, that's going to walk you through step by step by step exactly how we invest successfully and intelligently into short term rental properties. So I highly recommend you check that out, it's gonna be completely free, it's linked in the description. And we're also going to give you a free analysis spreadsheet. So you can analyze deals, taking into account any of the different financing options that I'm going to talk about in this video, and make sure the deals actually make sense. And at the cash on cash ROI is really, really strong. And the overall return on your investment is also really strong. So make sure you check those out. Again, link is in the description down below. So let's talk about now option number one pretty straightforward, traditional financing, right, you just go to a bank, you get a mortgage on the property, that's pretty straightforward. And that works really well. If you have the the qualification as far as your debt to income, and you have the downpayment might be putting 20% down now a lot of people don't realize is there are some different options as well, with traditional financing to get as little as 10, sometimes even 5% down on the property, there's a few different ways to do that, with vacation rentals or short term rentals, there tend to be some more options available to you because the property isn't necessarily a pure investment, it may be a vacation home, you may decide to qualify as a vacation home that you're also then going to use as a short term rental property. So depending on where you're located, depending on what lending you have available to you, you may be able to get as low as 5% to 10% down again, if you want to kind of talk to us and learn more about exactly how to do that. And when that might be available to you. Then if you check out the free trainings, LinkedIn description down below, you can also set up a free strategy call with our team, where we're going to then walk you through and kind of walk you through some of that specific to your situation. That's option number one, a lot of people already know about that. Option number two is where it starts to get pretty interesting. So this is really specifically right now in the United States. But it is going to be available throughout the rest of the world over time as lenders get more and more comfortable with short term rentals. But in the United States, you can actually get lending specifically for short term rental properties that doesn't actually qualify you based on your income. In fact, they don't even look at it a lot of the time. A lot of time they're just looking at how well the property can perform and will perform as a short term rental and then qualifying it based on that. So for anyone that's done more traditional multifamily residential investing, you'd be really familiar with that with the property qualifying itself. And the qualification for the mortgage being based on the income potential of the property. So it's sort of the property is qualifying itself with based on its income, as opposed to you qualifying for the property based on your income. And so in a lot of countries, that's not available for short term rentals, because the financing industry has hasn't evolved to that point yet where they are familiar with and comfortable enough with short term rentals to be able to lend based on that projected income. But in the United States, there are a few different options where they are lending based on that. And they can actually use, they'll use on their end tools, like for example, air DNA, to be able to see what the projected annual revenue is on that property, and figure out exactly how much they can lend on that property. So that's a really cool option, if you aren't going to be able to if you're kind of maxed out in what you can qualify for personally, that allows you to then use a sort of more traditional lending source that's going to see still have a reasonable rate of interest, and be able to still finance your property, again, that is going to require you to put a down payment, but it is not going to require you to qualify for the mortgage with your own personal debt to income ratio. So That's option number two really cool option if it's applicable to you based on the location you're in, or that you're investing in. Option number three is probably one of my favorite options, there's a really fantastic way to scale longer term is through joint ventures. Now, joint ventures are basically when you work with a private individual. So think about Joe down the road, who has some money saved up, they've got money for a downpayment, and they've got income qualification, right, they have a mortgage capacity, they can go into a bank, work with a traditional lender and qualify for a conventional mortgage. But Joe down the street, doesn't know what he's doing, when it comes to real estate investing, it may not even be on his radar, he doesn't have the time, if you work for really a really, you know, strenuous full time job, it's just not on his radar, it's not something you want to do to actually go and do the legwork. So what's he doing, he's just sitting on a pile of cash. And he's you he's not utilizing his mortgage capability. And so as a result, he's got this really big opportunity where if he could find someone, if Joe down the road with the money in the mortgage capability could find someone he could partner with, who would do the actual legwork of finding the property, getting it set up managing it, everything like that, then he could actually put that money and that mortgage capability that otherwise is just sitting there decaying to inflation, and he could put it to work without him actually having to be actively involved. So you can be very passive, very hands off. And then for someone like yourself, that's a really great position to be in, because then you can partner up with Joe, he then goes and qualifies for the mortgage based on his income, he provides the money for the down payment, renovation costs, all that sort of stuff. And you actually then get an infinite ROI on your investment because you own equity in the property and equity in the cash flow. So typically, that's going to be anywhere upwards of 50% that you would have as being the active partner, which is really fantastic that you would have in the actual equity of the property and in the cash flow from the property. Now, Joe is then going to get a preferred return on his initial investment so that Joe gets his initial capital back, typically, that's going to be through refinance that can also be done through the cash flow of the property, or it can be done later down the road through the sale of the property. But then everything else all the additional appreciation of the property that you get 50% of all the cash flow from the property, you then get 50% of or sometimes even more depending on how the deal is structured, how it's laid out. And so that really means that you're getting an infinite ROI, because you're not putting any of your own money into the deal. And it allows you to scale infinitely, because you can partner with more people like Joe and you're never going to be limited by your ability to finance or get lending on any of the deals that you do. That's a really great way to grow, it's a really great way to work with other people partner up with them. And a lot of times you find that one high net worth individual has money and has mortgage capability, you can then rinse and repeat and do multiple deals with them. So that really simplifies things, it's a really great strategy, I highly recommend that for anyone that is looking to scale their portfolio. So again, if you want to learn more about exactly how to actually structure those deals, how to line up all the agreements, and actually get one of those deals into fruition. And even just how to find those people like Joe down the street that have the money and have the mortgage and how to have them actually be confident and willing to partner with you and do this kind of a deal. Then again, just check out the link in the description down below, we're gonna walk through step by step by step exactly how to invest successfully in short term rental properties. And then at the end, you will have an opportunity to set up a free one on one strategy call with a member of our team or that's myself, my business partner Riley, or one of the other members of our team that helps us with our portfolio and everything we do. And then on that strategy call, they'll be able to guide you through exactly how this is going to work, how we can structure it for you, and it's gonna be really specifically tailored to your unique situation. So again, if you're interested in that the link is in description down below. It's all completely free. So make sure you take advantage because it's not going to be a will forever I can promise you that. And then the other thing is just make sure that if you did like this video If you did get value from it, make sure you hit that like button. It really does help me out tremendously with growing this channel so even just taking half a second and clicking that like button doesn't mean a really huge favor. So really appreciate for any of those of you who do that. Also, make sure you hit that subscribe button because I do post two new videos every single week on this channel trying to bring you as much value as possible when it comes to Airbnb and short term rentals. So make sure you hit that subscribe button to stay up to date with the channel. And also just let me know if you have any comments, questions thoughts, just drop them in the comments section down below. Other than that, I hope you have a great rest of your day and I'll see you in the next video.Expand