Short-Term Rental Property Financing: DSCR Loan Guide

Short-term rentals have transformed real estate investing. Properties on Airbnb, VRBO, and similar platforms can generate significantly higher income than traditional long-term rentals. A beach house that might rent for $2,500 monthly to a long-term tenant could generate $6,000 or more per month through nightly rentals.

But financing these properties presents unique challenges. Lenders have historically struggled to evaluate short-term rental income, and many conventional programs exclude vacation rentals entirely.

The good news? DSCR loans have emerged as the primary financing solution for short-term rental investors. Here is everything you need to know about getting a loan for your STR investment.

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Why Is Short-Term Rental Financing Different from Traditional Rentals?

Short-term rental financing differs from traditional rental property loans because the income profile is fundamentally different. Lenders must account for higher income variability, seasonal fluctuations, and operational complexity.

Income variability presents the primary challenge. Long-term rentals generate consistent monthly rent. Short-term rentals can swing dramatically based on season, local events, and market conditions. A ski property might earn $15,000 in January and $2,000 in May.

Operational expenses run higher for STRs. Cleaning between guests, furnishing, utilities, platform fees, and property management all cut into gross revenue. While a long-term rental might have 35% expense ratio, STRs often run 50-60%.

Regulatory uncertainty concerns lenders. Cities and HOAs increasingly restrict short-term rentals. A property that generates STR income today might face restrictions tomorrow.

Track record questions arise for new STR investors. Without operating history on a specific property, lenders must estimate income based on market data and comparables.

Despite these challenges, DSCR lenders have developed programs specifically designed for short-term rental properties. They understand the business model and have methods to evaluate STR income appropriately.

How Do DSCR Loans Work for Short-Term Rental Properties?

DSCR loans for short-term rentals follow the same basic principle as traditional DSCR loans: qualify based on property cash flow rather than personal income. However, the income calculation receives special treatment.

Standard DSCR calculation: Monthly Rent / Monthly Debt Service = DSCR

STR DSCR calculation: Adjusted Monthly Income / Monthly Debt Service = DSCR

The "adjustment" is where STR financing gets nuanced. Lenders use various methods to determine the income figure they will use for qualification.

Method 1: Haircut on projected income. Lenders take the projected STR income and reduce it by 10-25%. If AirDNA or similar services project $6,000 monthly income, the lender might use $4,500-$5,400 for DSCR calculation.

Method 2: Long-term rental comparison. Some lenders use the higher of STR projections (with haircut) or long-term rental market rent. This provides a floor based on traditional rental value.

Method 3: Actual operating history. For refinances or purchases of operating STRs, lenders may use trailing 12-month income from tax returns or platform reports, often with vacancy adjustments.

Understanding which method your lender uses helps you evaluate properties accurately. Calculate DSCR using our calculator tool with appropriate income assumptions.

What DSCR Ratio Do Lenders Require for Short-Term Rentals?

DSCR requirements for short-term rentals typically exceed those for traditional rentals. The income variability and operational complexity justify higher coverage requirements.

Minimum DSCR requirements for STR properties generally range from 1.0 to 1.25, matching or slightly exceeding traditional rental requirements. However, the income haircuts effectively require higher actual DSCR.

Example: A property with $6,000 projected monthly STR income and $4,000 monthly debt service would calculate as follows:

• Actual DSCR: $6,000 / $4,000 = 1.50
• Lender-adjusted DSCR (25% haircut): $4,500 / $4,000 = 1.125

To achieve a 1.25 lender-calculated DSCR with a 25% income haircut, your actual property income needs to generate approximately 1.67 DSCR before adjustment.

Understanding what constitutes a good DSCR ratio helps you evaluate properties before making offers. For STRs, target properties that generate significantly more income than the minimum required.

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What Types of Short-Term Rental Properties Can Get DSCR Loans?

DSCR financing works for various short-term rental property types, though each has specific considerations.

Vacation homes in destination markets represent the classic STR investment. Beach houses, mountain cabins, lake properties, and resort-area condos all qualify for DSCR financing. Strong vacation markets like coastal Florida, mountain Colorado, and island Hawaii have established STR lending precedents.

Urban Airbnbs in major cities can qualify, though regulatory concerns receive more scrutiny. Lenders want to verify that local regulations permit short-term rentals before funding.

Unique properties like treehouses, converted barns, or architectural gems that attract STR guests may qualify but require additional explanation. Unusual properties need comparable support.

Multi-family STR conversions where multiple units operate as short-term rentals involve commercial underwriting considerations. Smaller properties (2-4 units) may qualify with residential DSCR programs.

Properties in HOA communities can qualify if the HOA permits short-term rentals. Lenders will require HOA documentation confirming STR allowance.

Properties that typically do not qualify include those in areas where STRs are prohibited, properties requiring significant renovation, and properties without comparable STR income data.

What Documentation Do Short-Term Rental DSCR Loans Require?

While DSCR loans skip personal income verification, short-term rental properties require specific documentation to support the income projections.

Market rent analysis from an appraiser showing both long-term rental value and short-term rental potential. Some lenders require specific STR addendums to standard appraisals.

Third-party STR income projections from services like AirDNA, Rabbu, or Mashvisor that analyze market data to estimate property income. These reports show occupancy rates, average daily rates, and seasonal patterns.

Platform listing verification for operating STRs showing the property is active on Airbnb, VRBO, or similar platforms with booking history.

Trailing 12-month income documentation for refinances, including platform earnings summaries, 1099s, or tax returns showing STR income.

Regulatory compliance documentation demonstrating the property can legally operate as a short-term rental. This may include business licenses, TOT (transient occupancy tax) registrations, or HOA approval letters.

Entity documentation if purchasing through an LLC, including articles of organization and operating agreements.

The documentation requirements are more extensive than traditional rental DSCR loans, reflecting the additional complexity of STR income verification.

How Do Interest Rates for STR Loans Compare to Traditional Rentals?

Short-term rental DSCR loans typically carry rate premiums compared to traditional rental DSCR loans. This reflects the additional risk lenders perceive with STR income variability.

As of 2025, expect:

• Traditional rental DSCR loans: 7.25% - 8.75%
• Short-term rental DSCR loans: 7.75% - 9.25%

The 0.25% to 0.50% premium may seem modest, but it compounds over the life of the loan. On a $500,000 loan, a 0.50% rate difference equals $2,500 annually or $75,000 over 30 years.

Factors that influence your specific STR rate include:

Credit score remains the largest rate driver. A 760+ score can achieve rates 1% or more lower than a 660 score.

DSCR ratio after income adjustment affects pricing. Stronger coverage ratios earn better rates.

Property location matters. Established STR markets with consistent demand receive better pricing than emerging or seasonal markets.

Down payment influences rates. Higher down payments (30%+) demonstrate commitment and reduce lender risk.

Loan-to-value directly affects pricing. Lower LTV means less lender exposure and better rates.

What Down Payment Is Required for Short-Term Rental Loans?

Down payment requirements for STR properties typically match or slightly exceed traditional investment property DSCR loans. Lenders want meaningful borrower equity given income variability.

Standard down payments range from 20% to 30% for most STR DSCR loans. The most common requirement is 25%.

Lower down payments (20%) may be available with:

• Excellent credit (740+)
• Strong DSCR ratio (1.25+ after adjustment)
• Established STR market with stable demand
• Experienced STR investor with track record

Higher down payments (30%+) may be required for:

• Seasonal markets with concentrated demand
• New STR investors without operational history
• Markets with regulatory uncertainty
• Properties with lower DSCR ratios

The down payment plus closing costs and property setup (furnishing, supplies, photography) means STR investments require significant capital. Budget 30-35% of purchase price for total cash needed.

What Are the Biggest Challenges in STR Financing?

Short-term rental financing presents unique obstacles. Understanding these challenges helps you prepare effectively and avoid surprises.

Regulatory risk tops the list. Cities from Miami to San Francisco have restricted or banned short-term rentals. Lenders worry about loans secured by properties that may lose their income-generating ability. Verify regulations thoroughly before purchasing.

Income documentation for new acquisitions lacks the certainty of existing long-term leases. Projections are estimates, not contracts. Lenders handle this uncertainty through income haircuts and higher DSCR requirements.

Seasonal variation means some months generate substantial income while others may barely cover expenses. Lenders need confidence you can weather slow periods without defaulting.

Operating complexity differentiates STRs from passive rentals. Guest communications, cleaning coordination, maintenance response, and platform management require active involvement or property management fees.

Expense underestimation trips up many first-time STR investors. Platform fees (15-20%), cleaning costs, furnishing depreciation, higher utility costs, and management fees significantly reduce net income compared to gross bookings.

For additional context on rental property financing challenges, see our guide on short-term rental loan difficulties.

How Should You Calculate STR Property Cash Flow Before Buying?

Accurate cash flow projection separates successful STR investments from disappointing ones. Conservative analysis protects you from overpaying.

Step 1: Research gross income potential. Use multiple sources: AirDNA, Mashvisor, local property manager estimates, and comparable listing research. Look at occupancy rates and average daily rates separately.

Step 2: Apply realistic occupancy assumptions. National STR occupancy averages around 48-55%. Strong markets may hit 65-75%. Do not assume 80%+ without extensive data support.

Step 3: Account for all platform fees. Airbnb charges hosts 3-5%. VRBO charges 5%. If you use dynamic pricing tools or channel managers, add those costs.

Step 4: Include operational expenses.

• Cleaning: $75-$200 per turnover
• Supplies and consumables: $50-$100 per month
• Utilities: Higher than traditional rental
• Internet, streaming, amenities: $100-$200 per month
• Professional photography: One-time, amortized
• Furnishing depreciation: 5-7 year replacement cycle

Step 5: Add property management if applicable. STR management typically runs 20-30% of gross revenue, significantly higher than long-term rental management (8-10%).

Step 6: Calculate net operating income. Gross revenue minus all expenses equals NOI.

Step 7: Run DSCR calculation. Compare NOI to annual debt service. Apply the haircut your lender will use to see qualified DSCR.

What Mistakes Should STR Investors Avoid When Financing?

Common errors can derail STR financing or result in disappointing investment returns. Learning from others' mistakes improves your outcomes.

Overestimating income based on best-case scenarios rather than realistic averages. Use conservative projections that account for seasonal variation, market competition, and regulatory changes.

Underestimating expenses by focusing only on mortgage payment. STR expenses run significantly higher than traditional rentals. Budget 50-60% expense ratios until you have operating history proving otherwise.

Ignoring regulatory research can lead to purchasing properties where STRs become restricted. Research city, county, and HOA rules thoroughly. Consult local attorneys if regulations are unclear.

Choosing wrong property type for STR success. Not every property makes a good vacation rental. Location, amenities, and competitive positioning matter enormously.

Insufficient cash reserves leave you vulnerable during slow seasons or unexpected repairs. Maintain 6-12 months of expenses in liquid reserves.

Skipping professional projections to save money. AirDNA and similar reports cost $100-$200 but provide data-driven income estimates that lenders accept. The cost is negligible compared to the investment.

Assuming management is passive leads to burnout or hiring expensive management later. STRs require active involvement. Plan for either your time or management expense.

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How Do You Find the Right Lender for STR Financing?

Not all DSCR lenders have STR programs. Finding one with experience and competitive terms requires targeted searching.

STR-experienced lenders understand the income model and have established evaluation methods. Ask specifically about their STR volume and whether they use internal or third-party income projections.

Program comparison points:

• Income adjustment methodology (haircut percentage)
• Minimum DSCR requirement after adjustment
• Accepted income documentation sources
• Rate premium for STR vs traditional rental
• Maximum LTV
• Experience requirements for borrowers

Questions to ask potential lenders:

• How do you calculate STR income for DSCR purposes?
• What third-party projection sources do you accept?
• Do you have minimum borrower experience requirements?
• What regulatory documentation do you require?
• Are there property type restrictions (condos, unique properties)?

Red flags to avoid:

• Lenders who seem unfamiliar with STR terminology
• Unusually aggressive income projections
• No clear regulatory verification process
• Rates significantly below market (may indicate future issues)

For general DSCR program information, explore our DSCR loan options.

Is STR DSCR Financing Right for Your Investment?

Short-term rental investing can be highly profitable, but it requires more capital, expertise, and active management than traditional rentals. DSCR financing makes these investments accessible without income documentation, but you must evaluate fit carefully.

STR DSCR loans make sense when:

• You have identified a strong STR market with consistent demand
• The property has clear STR income potential supported by data
• Regulatory environment permits and supports short-term rentals
• You have sufficient capital for down payment, reserves, and setup
• You are prepared for active management or management expense
• Traditional income documentation is difficult or impossible

Consider traditional rentals or other options when:

• STR regulations are uncertain or restrictive
• Market data does not support strong income projections
• You prefer truly passive income with minimal involvement
• You lack capital for the higher cash requirements
• The property would perform well as either STR or traditional rental (traditional may offer simpler financing)

Understanding no income verification loan options broadly helps you choose the right approach for each investment. Some investors maintain portfolios with both traditional and short-term rentals, using different financing strategies for each.

What Steps Should You Take to Get Started?

If short-term rental investing fits your strategy, these steps position you for successful financing and profitable operations.

Step 1: Research markets thoroughly. Identify locations with strong STR demand, favorable regulations, and reasonable property prices. Use AirDNA market overviews to compare opportunities.

Step 2: Verify regulations completely. Contact city planning, review municipal codes, and check HOA documents. Consider consulting a local real estate attorney for clarity.

Step 3: Analyze multiple properties. Run cash flow projections on numerous properties using conservative assumptions. Compare purchase price to income potential.

Step 4: Get pre-qualified. Work with an STR-experienced DSCR lender to understand your terms before making offers.

Step 5: Make data-supported offers. Include financing contingencies and ensure contract terms allow for proper due diligence.

Step 6: Order third-party income projections. AirDNA reports satisfy most lender requirements and provide independent verification of income assumptions.

Step 7: Prepare for operations. Plan furnishing, photography, listing creation, pricing strategy, and management approach before closing.

Short-term rental property financing through DSCR loans opens opportunities for investors who cannot document income traditionally. The key is matching strong properties in favorable markets with appropriate preparation and realistic expectations.

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