FUNDING
PRIVATE LENDING
Tap into Private LendingWhen Buying a Short-Term Rental AN ARTICLE SERIES ON NAVIGATING THE PRIVATE LENDING WORLD
by Damon Riehl
ntil recently, the private lending world had significant concerns
are considering leasing a portion of their properties on an interim basis, whether they’re located in a hot tour- ist location or not. HURDLES TO OVERCOME Here are the major hurdles to clear when investing in a short-term rental: 1 Greater likelihood of vacancy than annual rentals 2 Inconsistent rental rates during different times of the year 3 Lack of data available for lenders to validate and confirm
the rental estimates provided by the buyer—including both the expected vacancy and the rental rates. For example, a real estate inves- tor would like to purchase property in a Northeast skiing destination. If the property did not have an established history as a short-term rental, the lender would assume the property could be rented for about four to six months a year and would have zero income for the other six to eight months. This risk was something the lenders couldn’t fit into their previous credit
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about the consistency of income from short-term rentals. Lenders are much more comfortable with an annual lease for a defined rental amount, which results in a low risk of significant vacancy. With the explosive growth of Airbnb and VRBO, however, more real estate investors are looking to increase cash flows by renting prop - erties on a short-term basis. In the past, it has made sense to rent this way in coastal towns or vacation des- tinations. But now, savvy investors
16 | think realty magazine :: march – april 2022
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