It’s no secret that short-term rentals — those vacation homes around the world booked through companies such as Airbnb and Vrbo — have grown in popularity over the past decade. One way to measure this growth is in available listing nights.
In January 2018, 253 million listing nights were available in the U.S., according to AirDNA, a data and analytics company that specializes in short-term rentals. In January 2023, 376 million nights were available or an increase of nearly 49% in just five years.
Homeowners often can earn more money renting their properties nightly rather than on a long-term basis, especially in trendy vacation spots. That’s why condos and single-family homes have become such an attractive investment opportunity in locations by beaches or near ski slopes.
This has posed problems for mortgage lenders. How do lenders estimate the value of a property that’s planned to be used as a short-term rental?
Some lenders are turning to AirDNA to give them an idea of the earning potential of homes rented through Airbnb or Vrbo. LoanStream Mortgage’s Jerry Tubbs says that short-term rental loans come across his desk daily.
Using AirDNA data, Tubbs can determine the earning potential of a property within seconds by looking at similar properties in the area or region. Tubbs can see the occupancy rate as well as booking costs nightly.
“You can go into it with a lot more confidence that you’re not just grabbing a high number out of the air and lying to yourself,” says Tubbs, LoanStream’s director of credit administration.
These statistics work best for debt-service coverage ratio loans, which are loans that are based on the earning potential of a property, Tubbs says. This is opening up many more properties for LoanStream and other lenders to approve even if the property has never been used as a short-term rental.
“We’re now able to do a lot more units that are viable short-term rentals without having the demand history,” Tubbs says. “We could say, ‘This kind of unit in this ZIP code with these features has a history of being 60% occupied at a $250 daily rate.’”
It also can identify properties that may not have as high an earning potential. Tubbs points to his own condo in San Diego, a car ride away from the beach. At its current location, he wouldn’t make more money renting it nightly compared to monthly. If his home was seven miles west within a block of the beach, the earning potential would skyrocket.
AirDNA started a decade ago to provide insights into earning potential for investors and homeowners as well as property managers. That’s still the bread-and-butter part of their business, but lenders have started using AirDNA statistics for underwriting purposes in the past 24 months.
“We sort of fell really into each other’s hands rather than one looking out for the other,” says James Kinnersly, AirDNA’s sales director, who is based in the company’s Barcelona office. “It was like, ‘OK, well, there was suddenly a need in the market for this type of data.’”
AirDNA gets its data from two sources — scraped data from Airbnb and VRBO and partner data from property managers and individual hosts. The company collects reservation data from every listing on Airbnb and Vrbo, looking at 10 million properties internationally daily.
They also collect information from thousands of host and property manager partners around the world. The statistics are displayed on a dashboard similar to an automated valuation model that provides data drilled down to minute specifications.
Kinnersly says the company hasn’t designed products exclusively for lenders, but the company has put together packages that lenders have found useful. The costs can run as high as $25,000 a year, but the base packages are closer to $12,000 to $15,000 a year.
“Admittedly this is still not a huge part of our business,” Kinnersly says. “But it is really fast growing and it’s one where we can excel quite well.”
AirDNA is accepted industrywide and also from a securitization standpoint, says Raymond Eshaghian, the president of GreenBox Loans. His company started using AirDNA in the past year “once we got wind of this tool being available.”
Appraisers with few exceptions aren’t able to offer this type of data on short-term rentals, Eshaghian says. Although AirDNA has some competitors such as Mashvisor and Rabbu, it’s not clear if any lenders are using any other statistics company other than AirDNA.
The data provided by AirDNA works with new properties being converted to short-term rentals for the first time. The data also works with properties currently used as short-term rentals, Eshaghian says. Sellers of those properties may not disclose how much the property has generated in revenue to buyers and lenders.
He says his company generally accepts short-term rentals that have a 60% occupancy rate and only factors in about 80% of the revenue projected to be earned by a property. That allows his company to incorporate a margin of error in the calculations.
“To do good business, you got to make sure that the numbers you’re presenting are as close to accurate as possible not just some big, inflated number that helps you qualify a loan,” Eshaghian says.
