Banks rejecting my airbnb rental income during loan approval process

Discussion in 'Airbnb & Short Term Letting' started by Dangsta, 7th Feb, 2017.

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  1. Dangsta

    Dangsta Member

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    Hi all,

    I have my granny flat listed on airbnb at my main residence which I am making a decent income out of it for more than 6 months. I am now trying to get a new loan for another property but my mortgage broker says the banks won't accept the airbnb income in their loan approval process.

    Why don't they factor the rental income into their loan approval process? I understand that it may appear unstable but if i continually have a proven track record, wouldn't it be acceptable?

    What is the point of having an airbnb rental if it won't assist me in getting a loan. Yes - it will increase my cashflow but ultimately, I need to be able to get the loan approved!

    Does anyone have the same issue as me? Would be great if you can share your experience and whether there is a way to overcome this.

    Thankss
     
  2. Brady

    Brady Well-Known Member

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    Have a couple of issues.
    - Income is coming from granny flat of PPOR
    - Income has only been coming in for 6 months

    A lot of banks don't like to take income from the PPOR and they usually want to see longer history for this type of income as it's sporadic.
    Would suggest you have a better chance after waiting until EOFY and declaring the income/expense on your tax return and using the tax return as proof of the income.
     
  3. Propertunity

    Propertunity Well-Known Member

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    As with most income from non-job source, like share trading for example, lenders like to see a proven track record of 2 years. Not sure about Air BNB income though. A standard resi lease would be OK I think.
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Air BnB is essentially self employed. Whilst the banks understand some basic rules of thumb for basic rental expenses (they tend to use between 70% and 80% of the rental income for servicing, the rest is holding costs other than the mortgage), this isn't so clear with short term rentals.

    You can kind of prove your income, but with Air BnB you can't prove your expenses very easily, until they're declared on your tax return.

    Once you've got the tax return they should be able to accept the income. At that point they'll likely take the taxable income, subtract the expenses and then only take 80% of what's left. They're essentially double dipping on your expenses so for servicing this sort of thing often isn't a very attractive deal.
     
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  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Ask your broker about getting a rental appraisal letter from an agent. The income may be lower than you actually get but it may be able to be used in servicing.
     
  6. Dangsta

    Dangsta Member

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    Wow. fast response from you all! Makes sense now and thanks for the tips! I will definitely get a rental appraisal letter from an agent and wait a little longer till EOFY. Cheers :)
     
  7. Brady

    Brady Well-Known Member

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    Make sure they will take the income from your PPOR, rental appraisal usually works to show what rent could be achieved as a 'standard rental' - but might still have issues given it's the granny flat of your PPOR.
     
  8. Depreciator

    Depreciator Well-Known Member

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    After I had my Airbnb income in a couple of tax returns, the bank was fine with it.
     
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  9. neK

    neK Well-Known Member

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    6 months is NOT a proven track record as others have mentioned above.
     
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  10. beachgurl

    beachgurl Well-Known Member

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    I recently had a client needing her airbnb income attached to her ppr for servicing. Like the others have said, 2 years min tax returns is required.
    The only way you'd likely get around the 2 yr timeframe would be to rent it out via a PM that specialises in short term rentals so you have independent rental statements and use that data towards your serviceability
     
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  11. Daniela

    Daniela Well-Known Member

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    I too experience with this issue:-(
    I've been banking with one of the 'big 4s' for years. Up until Dec 2016 I had one of the IPs as 'standard rental', with rent evidence over 5 years or so in my account.
    In Dec 2016 I switched it to holiday letting. All good until I went to the bank for additional borrowing. They were not prepared to consider my IP income any more... I was asked to wait 12 months in order to provide evidence of income continuity (due to 'seasonality' of holiday letting arrangements) and copy of the tax return (for expenses).
     
  12. Gockie

    Gockie Life is good ☺️ Premium Member

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    You could still borrow by getting a rental appraisal. Maybe its not at airbnb rates, but you can still borrow using what would be the standard rent.
     
  13. Daniela

    Daniela Well-Known Member

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    No, I could not. The bank was specific in that, so long as I don't have a tenancy agreement in place to demonstrate that I switch back to 'standard rental', they will not consider any income for that IP, for the purpose of lending.
     
  14. teetotal

    teetotal Well-Known Member

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    That's weird. Which bank was that ?
    Usually they are all fine with rental appraisals and don't require tenancy agreements.
     
  15. Gockie

    Gockie Life is good ☺️ Premium Member

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    Talk to a broker.
     
  16. Daniela

    Daniela Well-Known Member

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    NAB. They required current agreements for all IPs that I wish considered in the income stream, for the purpose of lending. Apparently there are new rules that came into place very recently.
     
  17. smokyjoe

    smokyjoe Well-Known Member

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    I'm in a similar boat. I've been renting a Melbourne CBD apartment out for short-stay (not AirBnb, but similar) for 4 years now. Got rejected by CBA a while back; they would only accept a standard long term market appraisal.

    I'm in the process of getting pre-approval currently through NAB, and hoping that they'll count the actual rental income as per my last 2 tax returns. I've consistently made $10k+ profit over the last 4 years; however, due to my depreciation schedule, my tax return indicates a a very small profit. Last year we had around $66,000 in rent, and $64,500 in expenses.

    Are the banks smart enough to work out what is being claimed as depreciation (capital allowances and capital works), and therefore not count it as an actual expense?
     
  18. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    With self employed non cash expenses can be added back. But...
     
  19. teetotal

    teetotal Well-Known Member

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    Might be worth just getting a rental appraisal from a RE agent and showing that to bank saying this is what you intend to do now.
     

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