Currently, more than 2.5 million people have listed their properties—or portions of them—on the site, making an average of $20,000-plus a year (or more, depending on the location), according to research by Smart Asset. For Americans specifically, Airbnb director of public affairs Nick Papas says the average host makes about $7,200 a year sharing their home on the site.
But as enticing as that extra cash can be, hosting isn’t right for everyone. And for homeowners with mortgages in tow, there are some serious implications to consider before jumping on the bandwagon.
The Legal Considerations
Fortunately, it’s not likely that Airbnb hosting can put a homeowner in breach of their current mortgage contract. At least, “not that I’ve seen,” said Peter Klose, an attorney at Klose & Associates. Klose’s firm specializes in business, real estate and insurance law, and Klose himself has covered Airbnb legal issues on his blog.
Still, that doesn’t mean there aren’t potential legal ramifications to think about. With many cities pushing back against Airbnb and other short-term rental platforms, as well as potential violations of homeowner association policies or even a homeowner’s insurance agency, there are many ways hosting could equal liability. Some cities even require specific licenses and registration to operate an Airbnb.
Essentially, homeowners just need to do their due diligence, Klose said.
“Check that there’s no short-term occupancy rules or licensing requirements in the city,” he cautioned. “Check that your insurance covers what you’re trying to do, and consider incorporating to add another layer of protection from some sort of crazy situation.”
That might be wise, too. Though Airbnb does offer $1 million “Host Protection Insurance,” according to Airbnb host Alexander Ortiz, relying on only this is a ”grave mistake.” “The Airbnb policy is sometimes hard to get a reimbursement from,” Ortiz said.
Typically, hosts need to take out additional coverage from their existing homeowner’s insurer—and the effort can get pricey. “My home insurance has increased substantially,” Ortiz said. “The cost per month has nearly doubled.”
Legal issues and insurance costs aside, potential Airbnb hosts also need to consider their future financial situation. Though hosting on Airbnb couldn’t preclude someone from refinancing their mortgage loan down the line, it would certainly have an impact on the interest rate they could qualify for—and depending on their lender, that could be good or bad.
For one, not all lenders accept Airbnb-generated income on applications. That means all that extra cash might not count toward a homeowner’s total annual income (or debt to income ratio), and their mortgage rate may be higher as a result.
There’s also the chance that renting out the property—even just a few days a month—could cause a lender to classify it as an investment property, and those, too, equal higher interest rates.
Luckily, thanks to a new initiative from Fannie Mae, three lenders will now count Airbnb income toward refinance applications—Better Mortgage, Citizens Bank and Quicken Loans. According to Vishal Garg, CEO and founder of Better Mortgage, the program has seen big results since launching in February.
“It’s on fire,” Garg said. “We have approved something north of $30 million of loans to Airbnb hosts just since we launched this about a month ago. As more and more Airbnb hosts are understanding that this is possible, we think this thing is gonna become really big.”
Refinancing can have serious benefits for homeowners—Airbnb hosts or not. Not only can it cut down on a loan’s interest rate (and subsequently, the homeowner’s monthly payments), but it can also provide cash to cover tuition, medical bills or, in many cases, renovations and home upgrades.
And for Airbnb hosts, Garg said, renovations are typically the most popular reason for refinancing.
“That's the No. 1 use case,” Garg said. “They’re actually able to do more with their homes, so they can rent out an even bigger part of their home on Airbnb. “
Though you can’t use Airbnb income to qualify on a new home purchase just yet—and the refi initiative is only available with three lenders—that could change, according to Nathan Blecharczyk, co-founder and chief strategy officer at Airbnb. "We’re always looking for new and better ways to empower our hosts and we are hopeful that this initiative could lead to adoption by additional lenders in the future," Blecharczyk said.
Using Airbnb Hosting To Pay Off Your Mortgage Early
Refinancing isn’t the only way homeowners can lower their mortgage payments via Airbnb. Many hosts are also using their income to pay down their loans faster and with less interest.
According to Ortiz, who hosts an Airbnb out of his home in Houston, his property brings in anywhere from $1,100 to $2,000 a month, depending on the season.
“The money generated from our spare bedroom will help us pay down the mortgage substantially faster,” Ortiz said. “Airbnb has essentially allowed us to live for free and then some. Our Airbnb generates one to two times our mortgage.”
The income has also helped Ortiz improve his property—and he didn’t even have to refinance.
“Not only does it cover our mortgage and related expenses, it provides us money to improve the house,” Ortiz said. “We’ve just had new tiles put in our entryway that were paid for completely by Airbnb revenue.”
Ortiz’s story won’t ring true for all homeowners, of course. Total Airbnb income depends on a long list of factors, including market demand, local property valuations and even just the appeal of the city it’s located in.
Plus, even on successful rentals, hosts should be careful not to count on their income for the long haul. Many cities have moved to limit short-term rentals in recent months, and many more have policies in the works.
Buying a Home with Airbnb in Mind
It’s one thing to start renting your extra room years into your mortgage, but buying a home with the intent to rent it from the start? That’s also an option in today’s market.
A new startup out of Seattle is letting potential homebuyers subsidize their mortgage—ahead of time—with Airbnb income. Called Loftium, the company will cover the cost of a buyer’s down payment, and then collect Airbnb income on the property until that debt is paid back.
For the hordes of Millennials struggling to save for a down payment while saddled with student loan debt, it (and the numerous other similar programs out there) could be a game-changer.
Still, at the end of the day, there are risks—both financial and legal. It’s up to the homeowner to do their research, consider the situation from all angles and decide if hosting is the right fit. As Klose put it, “Are you willing to open your home to somebody who you don’t know? That’s the issue.”
Aly J. Yale, CONTRIBUTOR