Short Term Rental Investment Loans: Fund Your Airbnb

The demand for short term rentals remains strong in 2025. Many real estate investors see Airbnb-style properties as more profitable than a long term rental. However, securing the right financing requires more than a traditional loan.

Banks often struggle to judge short-term rental income, but specialty lenders can fill that gap. Unlike mortgage loans for a primary residence, these investment property loans focus on the income potential of a vacation rental property. 

This article explains how short-term rental loans work, what lenders look for, and how to qualify for them.

What Are Short Term Rental Investment Loans?

Short-term rental (STR) loans are designed primarily for vacation properties. Approval is based on projected nightly income, which can exceed standard monthly rent. Traditional banks often view these homes as risky, but STR lenders use more flexible criteria.

How Short Term Rental Loans Differ From Traditional Investment Loans

Traditional and STR loans look similar on the surface, yet their underwriting priorities are very different.

Traditional Investment Loans:

• Focus on borrower income and credit
• Require full tax returns and pay stubs
• Consider rental income as a secondary criterion

Short Term Rental Loans:

• Focus on property income potential
• Consider market demand and nightly rates
• Require less documentation
• Consider rental income as a primary factor

Types of Short Term Rental Financing Available

Investors can match loan types to project goals and timelines.

• Fix-and-flip loans: fund the purchase and renovation
• Bridge loans: provide short-term capital while switching properties
• DSCR loans: use rental income instead of personal income
• Portfolio loans: offer flexible terms held in-house by lenders

Short Term Rental Loan Requirements

Credit and Financial Requirements

Lenders begin by evaluating your credit profile and cash position to assess risk. Their terms typically include the following:

• A minimum credit score of 640 (though 660 or higher is preferred)
• A down payment of 20%
• A debt service coverage ratio of 1.1 or higher

Experience Requirements

Your track record matters, and more real estate experience typically earns better terms.

More specifically, a lender might look for the following:

• Real estate experience (again, preferred but not required)
• STR experience, which might help lower your interest rates
• An LLC structure
• A property management background

Property Qualification Criteria

Before issuing a loan, lenders confirm that the home itself can generate strong short-term rental income. For example:

• Single-family homes and condos are typically preferred
• Popular travel areas or high-demand areas that generate more demand
• Properties in “move-in-ready” condition, which are easier to finance

Documentation Needed for STR Financing

Provide lenders with organized paperwork to speed approvals and prevent last-minute surprises. That paperwork might include the following:

Financial Documents

Show lenders that you have stable funds and a clear financial picture.

• Bank statements (if required)
• Profit-and-loss statements for the self-employed
• Schedule of other investments
• Rental income history or projections

Property Documents

These items prove the property’s value and short-term rental potential.

• Purchase contract
• Appraisal or valuation report
• Market analysis
• Property photos

Legal Documents

Legal paperwork protects both you and the lender.

• LLC formation papers
• Insurance coverage
• Local permits and licenses

How Lenders Evaluate Short Term Rental Income

Lenders use conservative numbers. Even in strong markets, they may assume 60–70% occupancy. They also study local competition and seasonal demand.

Seasonal Cash-Flow Considerations

Vacation-rental income changes with the season. Peak months can bring in two to three times more than off-season months. Lenders want proof that you can cover payments during slower periods.

Short Term Rental Loan Terms and Rates

• DSCR loan rates: usually 6.50% to 8.50%, though they might be slightly higher for STR
• Fix-and-flip rates: often start at 9.99%
• Loan terms: 6–18 months for DSCR and bridge loans
• Loan amounts: $75,000 to $2.5 million or higher

Loan-to-Value Ratios for STR Loans

Most STR lenders allow 70–80% loan-to-value (LTV). Strong borrowers or standout properties may qualify for more.

Best Short Term Rental Markets for Investment

Tourist hubs provide steady demand, while emerging markets can offer higher returns, along with higher risk. Aim for areas ranked among the best short-term rental markets when possible.

Local Regulations and STR Compliance

Every city sets its own rules, so review local laws before you buy. Factors to always keep in mind include:

• Zoning: can restrict or block STRs
• Licensing: may be required to operate
• Occupancy taxes: add ongoing costs
• HOA rules: may limit or ban rentals

Short Term Rental Loan Application Process

A clear process helps you move from idea to funded deal quickly.

1. Research and prepare: compare lenders and gather documents
2. Pre-qualify: submit basic information and confirm budget
3. Apply: provide a full loan file with income and property data
4. Underwriting: lender verifies credit, income, and appraisal

Common Approval Challenges and Solutions

Here are typical hurdles borrowers face and possible quick fixes for each:

• If you have credit issues, pay down high balances and fix late payments.
• If the lender requires proof of income and you’re self-employed, organize your records.
• If you receive a low appraisal on your property, supply comparables to support the value.

Short Term Rental Investment Strategies

BRRRR Method for STR Properties

One common strategy is the BRRRR method, which stands for Buy, Rehab, Rent, Refinance, Repeat. This process involves purchasing a home with STR potential, improving it, building rental history, and then refinancing to extract equity, allowing for the process to be repeated.

Risks and Considerations for STR Financing

Market Volatility and Income Fluctuations

STR income can swing with travel trends, seasons, and competition.

• Seasonal dips: peak months cannot fund the entire year
• Travel trends: downturns can slow bookings
• Competition: new listings can push nightly rates down

Regulatory Changes and Zoning Issues

Local rules can change quickly (affecting your bottom line), so always check laws before closing.

Frequently Asked Questions

What is a short term rental investment loan?

A loan for vacation rentals like Airbnb is approved primarily on the property’s rental income.

Who qualifies for a short term rental loan?

Most lenders want a credit score of 660 or higher. Some real estate experience is preferred, but not a requirement.

How much do I need for a down payment?

Expect to put at least 20% down to secure funding.

How much can I borrow for a vacation rental?

Loan amounts typically range from $75,000 to $2.5 million, with potential higher amounts available for seasoned investors.

What types of loans can I use for a short term rental?

Common choices include DSCR loans, bridge loans, fix-and-flip loans, and portfolio loans.

How is an STR loan different from a traditional rental loan?

STR loans rely on property income and require less paperwork. Traditional loans, on the other hand, rely on personal income and standard documents.

What are the typical interest rates and terms?

DSCR rates are around 6.50% to 8.50%, with loan terms from 6 to 18 months. However, rates for STRs might be higher, given the income uncertainty compared to long-term rentals. 

How fast can I close?

Many specialty STR lenders can close in about two weeks, depending on experience, deal complexity, and documentation.

Why Choose Groundfloor Lending for Rental Financing

Groundfloor specializes in funding vacation rental property deals quickly and flexibly.

Key Benefits:

• Close in about two weeks; faster for existing customers
• Loan terms: 6–18 months
• Loans from $75,000 to $2.5 million
• No tax returns required
• Approval is based primarily on property income

Competitive Advantages:

• One point of contact
• Real estate experience
• Flexible underwriting
• Relationship-based approach

Ready to Fund Your Short Term Rental?

Short-term rentals can deliver strong returns, but success starts with the right loan. Understand the differences between STR and traditional financing options, know your property’s income potential, and gather solid documentation. Always select a loan type that matches your strategy, whether that is a fix-and-flip, bridge, DSCR, or portfolio loan.

Markets with strong demand and friendly regulations offer the best chance for steady cash flow. With proper preparation, you can close quickly and grow a profitable portfolio of vacation homes.

Have questions about your next move? 

Let's connect.