Airbnb and banks

I've finally had an experience that has slightly tainted my rose coloured glasses view of Airbnb.

We applied for an equity release following a couple of our properties going up in value using our broker. Effectively the bank has said our application meets all the criteria however it's against their lending criteria as their searches discovered that two of our IP's are on Airbnb- therefore they excluded any rental potential from both these properties which basically cancelled out our borrowing capacity.

We get 2-3 times per week what we would get through a traditional rental and have solid bookings into the new year but unless we cancel Airbnb and list it traditionally (and it has to be done properly, through a PM), we can't have the equity released. In the past I understand certain lenders would take your borrowing capacity on the rental potential but it seems that's not the case anymore. Even tax returns apparently wouldn't be of any use.

This isn't a complaint as I can understand it (albeit frustrating in our instance with our solid history)-but more an interesting tidbit or consideration for anyone who is thinking of using Airbnb

 

Yeah it does really suck. I knew I would have similar difficulties so my airbnb apartment purchase was the one I did right at the limit of my serviceability.

Although the last I heard that you could go with 2 tax return's worth of airbnb income with a lot of lenders? Is that not the case anymore?

 

@thatbum maybe that is the case still- we are only 6 months in so a bit away from that- hopefully lending has loosened up a bit by then!

 

Try a different bank? I'm interested how did the bank find out, how can they search a certain property is on airbnb? This is not a public available information unless you make a booking, no?

 

@Ouchmyknees we were trying to release equity so no chance of a different bank. I think it's because they would have seen our incoming payments from airbnb..

 

Hey @jodes

It's frustrating. Especially since you can simply revert the property to a standard rental if it's not doing well on Airbnb. It's amazing how banks won't accept that logic though :-(

Banks (in general) are ignorant to the fact that Airbnb can produce some decent yields - however, I have a feeling that they'll be more accepting of it in the future as it continues to grow in popularity.

Don't let it turn you off airbnb - it's more so a bank issue.

Cheers

Jamie

 

"Especially since you can simply revert the property to a standard rental if it's not doing well on Airbnb. It's amazing how banks won't accept that logic though :-( "

@Jamie Moore[/USER] exactly this!!
(updated: it's not letting me quote)

 

Have to “rent” it to a third party for a fixed amount per week, then that third party can list on Air BnB?

 

Which bank is it ?

 

how on earth did the bank find out it was on airbnb???

 

Many lenders are still coming to terms with how they handle Air BnB. I think most will settle on showing 1 years income via a tax return, then they'll take about 50%-60% of that income.

One way around using a tax return has been to give lenders a standard rental appraisal for the property. This doesn't work in every case as lenders are starting to implement policies where they only accept actual rental income and not projected income for properties which you already own. You've got to show them that there's an actual tenant in the property if you already own it.

In essence whilst Air BnB may increase your cash flow, I don't think it will increase serviceability with the banks.

 

a way around it is to just lease it for 6 months, just before applying for finnace, and later put it back on airbnb

 

Interestingly, we recently (~3 months ago) applied for a loan and used rental appraisals with no issues. Now for the equity release they won't accept the rental appraisals.

@CK_Invest I think they saw our airbnb payments coming in (which are way higher than our rent would be...)

 

I've done one where the bank used the valuer's rental appraisal and used that rental figure for serviceability. It was quite conservative even for a standard rental figure but it was enough to get the clients over the line for their next purchase.

 

When banks want to lend you, they will lend against a property owned by your grand mother in rural China but when they don't want to lend you, they will use even the most trivial excuse.

 

I believe the banks have concerns that the income is more transient than a residential tenancy lease. AirBnb can drop a listing like a hot potato too. Sort of like casual employment v's full time.

One way around this I have seen clients do is lease the property on a reasonable arms length rent to Party A. Party A then conducts the AirBnb as a business. eg Dave owns the property and leases to his wife Maria using a resi tenancy lease. Important BOTH of them have LL policies/ get EBM views (one may need Rentcover Ultra and other uses Rentcover Platinum) !! Maria doesnt work. Maria then runs the Airbnb and makes a profit over and above the rent paid to Dave. Important Maria pays the rent every month etc. I have also seen this as a partnership with an external party too. This doesnt offend any tax rules or limit deductibility as its all arms length pricing and maintains as same. Lender sees Dave has a lease.

I have never seen a lender ask who the tenant is or seek a copy of a lease. Get a solicitor to do the lease and review rent at least annual vs market.

 

I heard of a case just a few days ago where a lender rejected all the topup as they found the security properties on AirBNB

 

The problem with this scenario is that the lender will see it's rented to the spouse and generally deny the income, OR count the income at 80% and then count the full liability - sending the scenario backwards. Assessors aren't silly and know why people do things the way they do - if they see something like this they will put it in the category of trying to evade the lenders policy intentions. (not saying its impossible, but you'll be scraping the barrel of trying to find a lender willing to consider this when the intention is clear to use it as airbnb - not the best way to choose lender structures)

Likewise in general these days be careful with just providing a lease agreement without property manager noted - if it's a private lease this will likely result in the lender wanting 6 months evidence of income being evidenced via bank statements.

I can see this scenario working a lot better with a non-spousal lease agreement with on-leasing - but they will still need that additional validation of the income as above.

The traditional way to get around these issues is to be able to use lenders who will validate rental income via means other than lease/statements - ie rental appraisals. This is a ticking clock however as the lender can ask for a higher level of validation at any point so you don't want to build your entire strategy around this.

 

I agree with @Corey Batt, leasing to a partner is probably a bad idea. If you make a mistake, you run the risk of the bank not recognising any rental income at all, yet still taking into account the full liability. It also eliminates the ability to lodge a joint application (which is usually very good for serviceability) as that's a sure-fire way to get caught out.

If you're renting via Air BnB, best to be upfront about it. A regular rental appraisal (on the general market), or your last tax return, whatever is acceptable to the lender is more reliable and probably going to get a better result.