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  • Writer's pictureVidadi Bakirov

How to finance short-term rental property. Revenue-based loans and other ways to obtain liquidity.


finance short-term rental property, loans, nido


Securing financing for a vacation rental property can feel like navigating a labyrinth. Traditional lenders often view these investments as riskier propositions compared to primary residences or long-term rental properties. The transient nature of vacation rentals, coupled with seasonal demand fluctuations and the potential for property damage, can make lenders hesitant to extend loans.

So, what's a hopeful vacation rental property owner to do? Fear not, as there are several avenues to explore when it comes to finance short-term rental property:

  1. 🏦 Conventional Financing: While conventional mortgages are the go-to option for many property purchases, they can be challenging to obtain for vacation rentals. Lenders typically require higher down payments and impose stricter qualification criteria. However, for those with stellar credit and substantial assets, securing a conventional loan may still be feasible.

  2. 💼 Portfolio Lending: Some banks and credit unions offer portfolio loans, which are not bound by conventional mortgage guidelines. These loans are often tailored to the borrower's financial profile and may be more flexible in terms of property type and use. Portfolio lenders may consider factors beyond just credit score, such as rental income potential and the borrower's overall financial stability.

  3. 👥 Private Lenders: Private lenders, including individuals, investment groups, or private equity firms, can be a source of alternative financing for vacation rental properties. These lenders may offer more lenient terms and quicker approval processes than traditional banks. However, borrowers should be prepared for potentially higher interest rates and fees.

  4. 💰 Revenue-Based Loans: One innovative financing option gaining traction in the vacation rental industry is revenue-based loans. Unlike traditional loans that rely heavily on credit scores and collateral, revenue-based loans evaluate the property's income potential. Lenders assess the property's historical or projected rental income to determine the loan amount and terms. This approach can be advantageous for property owners with strong rental performance but limited access to traditional financing.

Revenue-based loans offer several benefits, including:

  • Flexible Eligibility: Rather than solely focusing on credit scores and assets, revenue-based lenders prioritize the property's revenue-generating potential. This opens up financing opportunities for individuals who may not meet traditional lending criteria but have profitable vacation rental businesses.

  • Tailored Repayment Structures: Revenue-based loans often feature repayment structures aligned with rental income streams. Borrowers may have the option to make monthly payments based on a percentage of rental revenue, making cash flow management more predictable.

  • Fast Approval Process: Traditional loan applications can be lengthy and cumbersome, delaying property acquisition or renovation plans. Revenue-based lenders typically streamline the approval process, allowing borrowers to access funds quickly and capitalize on investment opportunities.

Before pursuing a revenue-based loan or any financing option, it's crucial to conduct thorough due diligence and assess your financial readiness. Evaluate the property's income potential, research market trends, and develop a comprehensive business plan to present to potential lenders. And this is where Nidô can be very helpful. Want to know more about financing vacation rentals or need capital right now? Check our upcoming financing solution!


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