Real Estate Investing

One of the most popular ways for homeowners to monetize their homes is by renting them out on short-term rental platforms, such as Airbnb.

However, if you’re thinking about buying a foreclosure for your new Airbnb property, there are some things you need to know before making your purchase.

First, you should be aware that lenders often make it more difficult to secure financing for investment properties. Mortgages for these types of properties tend to require a larger down payment and higher interest rates than loans for your primary residence.

1. Know the Rules

You've probably heard of Airbnb, the online service that lets homeowners rent out their homes for short periods of time to visitors. While it might sound like a great way to monetize your spare room, there are actually some rules of thumb you should follow if you want to get the most out of your venture.

First, it's probably not a good idea to try to use an airbnb as your primary residence, or you could be in for some unpleasant surprises. Similarly, lenders may have some issues with their mortgage calculators and be reticent to offer you a loan if the property is not your primary residence or you don't live onsite.

2. Know the Risks

If you’re considering buying a foreclosure for an airbnb, you should know that there are some risks involved. First, lenders tend to view investment properties differently than they do your primary home, and this means they will likely make you jump through some additional hoops when you apply for a loan for your new rental property.

Also, if you’re looking to buy a bank-owned foreclosure or off-the-market property, you should expect to pay a much lower price than comparable MLS-listed properties, and this can result in a significant higher return on investment (ROI).

If you can find the right location, you might be able to secure a profitable Airbnb business with little effort and very little risk. If you’re not sure how to go about finding the perfect property, start by reading local newspapers and journals, or using a property finder tool online. You can also talk to friends and family who own real estate or work in the area you’re interested in to find out where they recommend you look.

3. Know the Benefits

Buying a foreclosure can be a good investment, especially for Airbnb investors who don't plan on living in the home. However, you should be aware of the risks associated with buying property in foreclosure.

First, you should know that foreclosure is often caused by the borrower's inability to pay their mortgage. This usually happens because of hardships like unemployment, divorce or medical problems that are beyond the borrower's control. Typically, a lender will pursue a deficiency judgment against the borrower to cover the difference between what is owed and what the house is worth.

If you want to buy a foreclosure for an Airbnb, start by doing your research and finding out what the market price is for properties in your area. Search the local newspapers and real estate sections, online listings websites, and other sources for foreclosures and bank-owned homes.

These types of properties are often cheaper than MLS-listed homes and can provide you with a higher ROI for your investment.

4. Know the Costs

While the cost of buying a foreclosure for an Airbnb is on the rise, there are ways to save money by shopping around. For example, you can purchase a foreclosed home with cash rather than a bank loan.

You can also use a home equity line of credit to finance your new endeavor. A home equity loan might be the cheapest way to purchase a foreclosed property, as lenders will typically offer low interest rates on loans up to 80% of the value of the home. Lastly, you should be aware that you may not be able to get the best rate if you have bad credit or no credit at all.