How to Finance a Short-Term Rental Property That Brings in $10K+/Month

Financing a short-term rental (STR) that generates $10K or more per month can be a powerful way to build wealth and achieve financial freedom. With the right strategy and financing, you can turn a vacation home into a highly profitable asset. In this guide, we’ll explore the best financing options for short-term rental properties, including DSCR loans, bank statement loans, and other creative strategies.

Understanding the Potential of Short-Term Rentals

Short-term rentals, like those listed on Airbnb or VRBO, can produce significantly higher monthly revenue compared to traditional long-term rentals. The key is choosing the right property in a high-demand area, setting the right rates, and maintaining excellent guest experiences. However, financing these properties can be more challenging, as they are often considered higher risk by traditional lenders.

Why STRs Can Earn $10K+/Month

• High nightly rates: Popular vacation destinations can command hundreds or even thousands per night.
• Seasonal demand surges: High occupancy during peak travel seasons can significantly boost annual revenue.
• Diversified income streams: Potential to generate extra income through add-ons like cleaning fees, concierge services, or event hosting.

Best Financing Options for High-Income Short-Term Rentals

1. DSCR (Debt Service Coverage Ratio) Loans

A popular choice for STR investors, DSCR loans allow you to qualify based on the property’s income rather than your personal finances. This is a game-changer for investors with significant rental income but lower documented personal income.

• Key Benefits:
  • No personal income verification required
  • Quick closings
  • Can be used for LLC-owned properties
  • Flexible terms, including interest-only options
• Example Scenario: If your STR property generates $10,000 in monthly rent and the mortgage payment is $6,500 (including taxes and insurance), the DSCR is 1.54 ($10,000 / $6,500), making it a strong candidate for this type of loan.

For more on how DSCR loans work, check out our comprehensive guide to DSCR loans.

2. Bank Statement Loans

If you’re self-employed or have significant write-offs, bank statement loans are an excellent alternative. These loans assess income based on bank deposits rather than tax returns, making them ideal for investors who don’t show high taxable income.

• Key Benefits:
  • Use 12-24 months of bank statements to qualify
  • Higher DTI limits than traditional loans
  • Flexible income documentation

For more details, visit our Bank Statement Loan guide.

3. HELOC or Cash-Out Refinance

Tapping into your existing home equity can be a smart way to finance your next STR without taking on a full mortgage.

• Key Benefits:
  • Flexibility to access funds as needed
  • Lower closing costs compared to full mortgages
  • Interest may be tax-deductible if used for business purposes

Explore our HELOC lender guide to find the best options.

4. Other Creative Financing Options

• Private Money or Hard Money Loans: Fast funding for experienced investors.
• Partnerships or Joint Ventures: Share costs and profits with a partner.
• Seller Financing: Negotiate directly with the seller for favorable terms.

Tips for Maximizing STR Profitability

• Location is everything: Choose a property in a high-demand area.
• Optimize your listing: Professional photos and a polished listing can boost bookings.
• Automate operations: Use tools like automated pricing and keyless entry to reduce operational overhead.

Frequently Asked Questions (FAQs)

Read Next

• DSCR Loans: A Complete Guide for Investors
• How to Build a Real Estate Empire Using HELOCs
• Best First-Time Buyer Programs by State

Ready to finance your first short-term rental? Start today with our free loan comparison calculator and find the best option for your investment goals.