How To Buy An Airbnb Property With No Money

11 Min Read
Published Nov. 1, 2023
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Exterior of tan house with wood door and two garages.
Written By Dan Rafter

Looking to add another income stream to your monthly cash flow? Renting out an Airbnb property can help. These homes attract tourists and vacationers who aren’t interested in renting a traditional hotel room. If you rent out an Airbnb property in the right location, you could earn a significant amount of rental income each month.

But what if you don’t have enough money to purchase an Airbnb property? Do you know how to buy an Airbnb property with no money? Can you still participate in this income-generating strategy?

Yes. It might take more work, and creativity, but you can start an Airbnb business even if you don’t have enough money to buy a vacation rental on your own or come up with the down payment you need.

Here are some strategies you can follow to invest in an Airbnb property even if you don’t have a pile of cash at your disposal.

Can You Buy An Airbnb Property With No Money?

Homes aren’t free. You do need some sort of financing to purchase any home, but it doesn’t have to be cold hard cash. You can use a mortgage to purchase the Airbnb. However, keep in mind there will be upfront costs – like a down payment and closing costs – and a monthly payment on the mortgage. Also keep in mind that many lenders require higher credit scores and a large down payment when you are buying an investment property, which is what an Airbnb rental is.

Of course, the easiest way to start your own Airbnb business without spending too much money is to list a home, usually a second or vacation home, that you already own.

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How To Start An Airbnb Business With No Money

If your credit score is too low or you can’t scrape together enough money for a down payment you might have to rent out space in your primary residence, enter into a real estate partnership or apply for a cash-out refinance or home equity loan on your current home to help fund the purchase of a rental property that you can list on Airbnb.

Don’t let a lack of cash stop you from starting your own Airbnb business. Here are some strategies that can help you get into the home-sharing business even if your bank account isn’t flush with extra dollars.

House Hacking

One of the easiest ways to start an Airbnb business with little or no money is house hacking.

In house hacking, you rent out a portion of your home to guests. Maybe you have a primary bedroom suite that you don’t use. You can rent that space to tourists. Or maybe you own a two-flat in a big city. You can live on the first floor and rent out the second-floor space. You might even have a small coach house on your property that you can rent to travelers.

Just be aware of the challenges: If you’re renting out space in a single-family home, you might have to share your common areas, such as your kitchen and bathrooms, with your short-term renters. That could be awkward. It will also turn off many potential renters who don’t want to see you as they pour milk into their cereal bowls each morning.

If you want to rent out a floor in a multifamily property or a separate structure on your land, you’ll need to make sure that you aren’t breaking any rules in your community regarding short-term rentals. You might also need to apply for a license.

You also want to make sure that the property you are hacking sits in a neighborhood or community that attracts tourists. If you can’t generate solid rents in the community in which your property sits, house hacking might not create enough monthly income to be worth the work involved.

Financing From A Seller

If you don’t have enough money to cover the down payment required on an Airbnb property, you might consider obtaining financing from the seller of the rental home you plan to buy.

In seller financing, the seller of the property that you’re buying helps finance the purchase, sometimes providing financing to cover the entire sale. Some buyers prefer this because they won’t have to apply for a mortgage from a traditional lender that might require a higher down payment or credit score.

With seller financing, you still make monthly mortgage payments. But instead of making them to a lender, you make them directly to the seller. You might still be required to make a down payment, but you might be able to negotiate a lower amount with the seller.

There are different types of seller financing, but in the simplest arrangement, the seller has already paid off the investment property you’re buying. You’ll then work out the down payment, final purchase price, loan interest rate and size of the monthly payments.

The hope is that you will be able to pay a smaller down payment, nab a lower interest rate and make smaller monthly payments than you would have if you had applied for a mortgage from a traditional bank or lender.

BRRRR Strategy

Are you handy around the house, able to replace drywall, install plumbing or upgrade outdated kitchen cabinets on your own? You might try the BRRRR method of buying, renovating and reselling homes as a way to fund your Airbnb business.

BRRRR is an acronym standing for buy, rehab, rent, refinance and repeat. What this means is that you first buy a distressed home or one that is in foreclosure for a lower-than-market-value price. You then rehab that property and, once the renovations are complete, rent it out to travelers looking for an Airbnb, collecting a regular monthly income stream.

The next step is to refinance with a cash-out refinance. With a cash-out refinance, you refinance your existing mortgage for more than what you owe, taking the extra cash as a lump-sum payment that you can spend however you like. Say you owe $150,000 on a home that you purchased and renovated. You might refinance for $210,000, receiving the extra $60,000 in cash. You’d then repay the entire amount that you borrowed with regular monthly payments, with interest.

Then comes the “repeat” part of the equation: You use the proceeds from your cash-out refinance to cover the down payment on another investment property that you can rent as an Airbnb. Again, the key is to buy a distressed property that is selling for under market value and to purchase properties that you won’t struggle to rent out. The more you can rent your properties for each month, the easier it is for the BRRRR strategy to work.

Assuming A Seller’s Mortgage

Assuming a seller’s mortgage is another strategy that can help you start an Airbnb business even when your funds are low.

When you assume a mortgage, you take over the mortgage loan of owners after you purchase their home. Instead of making payments to a mortgage lender, you make them directly to the seller.

The benefit here is that if the seller’s mortgage comes with a low interest rate, you’ll get that rate instead of today’s rates. When mortgage interest rates are at 7% or higher, taking over a mortgage that comes with an interest rate, say, of 3% can be attractive. It will leave you with a lower monthly mortgage payment, a benefit if you are trying to start an Airbnb business with limited funds.

Be aware, though, that not all mortgages are assumable. You can typically only assume a government-insured mortgage, such as FHA, USDA and VA loans. You’ll also have to find a seller who is willing to enter this arrangement.

Partnerships

New real estate investors might turn to real estate investor partnerships to start an Airbnb business. If you’re working with one or more partners, you can split the costs of purchasing an Airbnb home. You can then get into the Airbnb business without handling all the upfront costs on your own.

In a general partnership, one or more partners purchase an investment property together. All partners are responsible for handling the daily management of any investment properties. Typically, general partners will split the profits from the properties equally.

You can also create a limited partnership, in which one partner serves as the general partner, responsible for managing the partnership and any investment properties, and the others serve as limited partners. Limited partners provide funding and share in the profits, but don’t handle the upkeep or operations of the investment properties.

A partnership requires planning. You’ll have to determine everyone’s role and calculate how much of the investment’s profits each partner earns.

HELOC Or Home Equity Loan

You can tap the equity in your home through a home equity line of credit (HELOC) or home equity loan and use the money from these products to cover the down payment costs of buying a rental property.

With a home equity loan, you can borrow against the equity in your home. If you have $80,000 in equity, you might be able to borrow $70,000 in a home equity loan. You’d receive the $70,000 as a lump payment that you could use to cover the down payment of a new Airbnb property. You’d then repay that money back with regular monthly payments, with interest.

With a HELOC, you take out a line of credit based on the equity in your home. If you have $100,000 in equity, you might qualify for a HELOC of $90,000. You can then borrow up to $90,000 at a time to fund whatever you’d like, including a down payment. With a HELOC, you only pay back what you borrow. If you have a HELOC of $100,000 and you only borrow $50,000, you just pay back that $50,000.

Be careful, though. Both HELOCs and home equity loans use your home as collateral and are second mortgages. That means you’ll have two mortgage payments. If you fail to make your original mortgage payment and HELOC or home equity loan payments on time, you could lose your house. That might not be a risk you’re willing to take to help fund the purchase of an Airbnb property.

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Cash-Out Refinance

In a cash-out refinance you refinance your existing mortgage loan for more than what you owe, using the extra money for whatever you’d like, including the down payment on an Airbnb property.

If you owe $180,000 on your current mortgage, you can refinance for $260,000, receiving the extra $80,000 as a lump-sum payment. You will have to repay the total $260,000 that you borrow, though, in regular monthly payments. But you can use the extra $80,000 as a down payment on an Airbnb property.

Again, your home is used as collateral with a cash-out refinance. If you fall behind on your payments, your lender could start the foreclosure process against you, which could result in you losing your home. Is that a risk you are comfortable taking on to help fund an Airbnb property?

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Are Airbnb Properties A Good Investment?

As with any investment, there is no guarantee that you’ll earn a solid profit by listing an Airbnb property. There is risk: What if the tourists don’t come in the numbers that you expected? What if economic turmoil causes your Airbnb property to lose value? And managing an Airbnb property is not easy work. Your guests might damage your home. You’re also responsible for maintaining your Airbnb property and paying taxes on any income you earn.

On the plus side, though, real estate has long been a solid profit generator for investors. If you purchase an Airbnb property in the right community, you might attract a steady flow of travelers. Ideally, you’ll receive enough monthly income from your Airbnb property to cover your mortgage payments and your property will steadily increase in value. When you eventually sell, you’ll then earn a solid profit.

The Bottom Line

You don’t need a ton of money to build an Airbnb business. There are plenty of creative options that you can explore, everything from renting out spare space in your home to taking out a cash-out refinance to cover down payment costs. If you are ready to buy an Airbnb home, with us.

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