In just a few short years, short term rentals (“STRs”) have gone from a niche side hustle to one of the fastest-growing asset classes in real estate. Vacation rental properties have existed in the United States for decades, VRBO was actually founded back in 1995, but for a long time they were constrained to a handful of seasonal destinations: summer homes on the coasts, ski cabins in mountain towns and other limited-use markets, often managed by small local businesses catering to short high-demand seasons.
The game changed with the founding of Airbnb in 2008. Suddenly, technology made it possible for everyday real estate owners in markets all across the country to offer properties for short stays. The platform streamlined operations, delivered a steady stream of vetted and reviewed guests and removed the barriers of entry that once required a professional setup with integrated marketing channels, staff, and infrastructure. For the first time, an investor could buy a single-family home in a desirable market and generate multiples of what a long-term tenant would pay, effectively reproducing hotel-level cash flow with the ease of an app.
Short term rentals are not going away, no matter how many click-hungry pundits keep recycling predictions of an “Airbnb bust.” Those doom-and-gloom headlines may drive traffic, but they miss the real story: an asset class steadily maturing in plain sight. The best way to understand that story is through a classic All-American metaphor: the nine-inning baseball game. Like a ballgame, an industry develops inning by inning: from a funky first pitch to a mature and institutional industry. Over roughly two decades, STRs have advanced from the early innings, when Airbnb burst onto the scene and adventurous first adopters tested the waters by renting out spare bedrooms, to the middle innings, where professional investors built scaled portfolios and turned hosting into a full-fledged business model. By the late innings, likely to occur in a few years in the late 2020s, short-term rentals are on track to look less like a quirky side hustle and more like an institutional-grade real estate sector, standing alongside multifamily and office as a permanent fixture of the investment landscape.
But while opportunities in STRs scaled rapidly, financing options did not. In the early innings of the Airbnb boom, investors were forced to shoehorn these properties into traditional mortgage boxes that were never designed for them. Banks were skeptical of the “Airbnb model.” Fannie Mae and Freddie Mac refused to recognize projected rental income from nightly bookings. And conventional loan officers were quick to remind borrowers: “We don’t finance hotels.” The result: growth was capped, with only cash buyers or the most resourceful investors able to play. Then DSCR Loans arrived, and everything changed for financing short-term rentals.
By focusing on the property’s rental revenue potential rather than the messy details of an owner’s personal tax returns or W-2s, DSCR financing unlocked STR growth in a way no product ever had. Suddenly, an investor didn’t need to prove they had a perfect DTI ratio or a flawless set of pay stubs. If the property itself cash flowed on paper, it could likely qualify. That single shift was rocket fuel for the industry, accelerating the move from the early innings, dominated by hobbyists and accidental hosts, into the middle innings, where professional investors began building scaled portfolios with intention.
Over time, DSCR Loans didn’t just become an option for STRs: they became the option. Today, they are the default financing tool not only for individual investors building “nest egg” short-term rental portfolios to secure financial freedom for themselves and their families, but also for emerging institutional STR platforms assembling multi-million-dollar branded portfolios. Why? Because while true institutional-grade financing options (the kind that exist for SFR portfolios or traditional CRE asset classes like office, industrial, and multifamily) haven’t yet arrived for STRs, DSCR Loans fill that gap perfectly.
And here’s the kicker: even as institutional financing inevitably develops over the next decade, DSCR Loans should remain the go-to choice for the majority of STR investors. They are the perfect loan product that gives everyday investors access to the same growth curve as the pros, allowing small-to-mid-sized operators to qualify, acquire, and, most importantly, scale into the kind of financial independence that makes the entire STR game worth playing.
Think of the pre-2017 period as the first inning of STR investing. The game had just started, and most players weren’t even sure of the rules. Airbnb and Vrbo were growing, but most lenders saw nightly rentals as “too hotel-like” to fit traditional mortgage loan products. Investors who wanted in had to be creative, such as by using cash or private funds to acquire properties, attempting to qualify them as second homes (with dubious legality), despite nightly rental use and the dreams of a full-time Airbnb business to catapult to financial freedom. The only alternative was relying on cautious, conservative and slow-moving traditional lenders like conventional mortgage brokers and local banks and credit unions, which was far from ideal
The result? Growth was slow. The early pioneers were rewarded with incredible cash flow and success, especially those with access to capital and savings, or good local connections with community credit unions or lenders, but scaling was difficult and building national, diversified portfolios was a challenge.
Around 2017, the first wave of DSCR Loan programs began to appear in the non-QM lending market. At first, they weren’t designed with STRs in mind, DSCR Loan qualification to buy a short term rental typically involved calculating DSCR ratio as if the property were leased long-term, generally using an appraiser-determined long-term market rent. This meant a luxury Airbnb in Aspen might be underwritten as if it were a 12-month rental to a single tenant, leaving much of its true earning power invisible, and making STRs in vacation markets underwritten too conservatively and failing to qualify. This treatment precluded many investors from obtaining financing to take advantage of the real and emerging market of airbnbs.
The first DSCR Lenders in this era begin to really pour jet fuel on the potential of Airbnb investing for real estate investors through the use of revenue qualification based not just on property income instead of personal income, but property income based on actual STR earnings, not the potential earnings otherwise if used as a traditional long-term rental. While the DSCR ratio is only one of the many factors that go into loan qualification when using DSCR Loans, it was the main bottleneck for STR investors, as many investors had the other pieces of the puzzle (credit score, reasonable use of leverage (LTV) and experience) locked in, they just couldn’t satisfy the rigid personal income requirements (conventional loan options) or stultifying rental revenue underwriting of even “property-first” and ostensibly flexible DSCR Lenders trying to force airbnbs into the 1007-based long-term market rent box.
Even investors who were able to build portfolios using these financing tools struggled to move quickly enough, as these conservative and inflexible underwriting rules crimped speed and scalability, since personal income generally can’t scale anywhere near the speed of real-life STR cash flows. Even successful investors had to wait months and even years between purchases; heavily hindering a path to financial freedom that felt frustratingly within grasp.
The biggest gamechanger during this period was the emergence of the “TTM Actuals” underwriting methodology for DSCR Loans used as STR Loans. This was a methodology, for DSCR refinances, where the property could be qualified on true STR or airbnb earnings (the revenue or numerator in the DSCR ratio calculation) with 12 months’ worth of Airbnb history. This meant that as long as the investor had 12 months of STR operating history for a property, they could qualify based on that number (overriding conservative long-term market rent projections, typically less than half of the property’s STR earnings potential!), they could use DSCR Loans for refinances, particularly cash-out refinances, unlocking massive amounts of capital to be used to continue plowing into additional portfolios, creating the fabled “snowball effect” that is often the magic behind real estate investing.
DSCR Loans became the go-to financing option for short term rental investors, where relatively early adopters could finally use their STR revenues to qualify and cash-out, and start truly scaling STR portfolios. DSCR Loans became a “secret weapon” for STR investors that were ahead of the curve.
Then came 2020 and COVID-19. The mortgage markets shut down for a brief period, as panicked power-hungry politicians in many areas of the US implemented many draconian and mind-boggling measures to restrict people from traveling or even leaving homes for “non-essential” purposes. Financial markets crashed, mortgage lending paused and some people thought that Airbnb was headed for a complete collapse: the logic being with no travel, no airbnb.
But by mid-year, the opposite happened: demand for STRs exploded. Families avoided hotels and crowded resorts in favor of whole-home rentals. Urban dwellers sought suburban and rural escapes. The Federal Reserve slashed interest rates to zero and the federal government flooded the country with a firehose of stimulus money. And real estate investors saw an unprecedented cash flow opportunity. With rates dropping hard, and millions of Americans embracing “remote work” and the ability to “work from home” at any home, many people tried out becoming “digital nomads” and traveling and working from different spots around the country, staying at airbnbs along the way, shunning crowded urban apartments and COVID hotspot hotels. This combination of factors led to skyrocketing STR demand and many real estate investors took note.
During this period, with rates at historic lows and STR demand at historic highs, plus with billions of dollars of money injected into the American economy from the Fed and federal government, a feeding frenzy was on for real estate investors looking to take advantage of this historic opportunity. As such, prices (values) of residential real estate, especially homes well-suited for STR, exploded upwards.
However, a new problem emerged. With property values pushed up so high, and many smart and savvy STR investors entering scaling mode; DSCR ratio qualification at top leverage and price points (20% down, heavily bid target properties) began to be challenged, since “TTM Actuals” couldn’t be used to qualify on purchases, and properties wouldn’t cash flow “on paper” when forced to qualify on long-term market rent when short-term rental potential was skyrocketing along with the values. Even investors who were using TTM Actuals for cash-out refinances to unlock capital to build portfolios began to get stuck too, as 12 months (needed to build up operating history) was too long a waiting period to move quickly enough in a super-hot market. What changed the game only a couple of years earlier became an anchor in the next stage of the STR ball game.
Some DSCR Lenders experimented with instructing appraisers to complete the 1007 market rent form estimating a market rent based on short term rental usage rather than the traditional long-term rental usage – the so-called “STR 1007.” However, this approach presented many problems. Since STRs are so new in most markets, the typical licensed appraiser lacks knowledge and expertise in projecting short-term rental performance. Additionally, the average appraiser has a reportedly median age around 60 and many have a very real resistance to change and new methods (typical of professionals who may be very competent, but stuck in the “old” ways of doing things from decades of experience resistance to new tech and tools).
A host of DSCR Lenders responded with a different innovative and forward-thinking financing solution for STR Loans in this era. Key to solving the issue was a newly emerging data company called AirDNA, which was built to serve the growing STR ecosystem. It utilized technology and data to produce data-driven and remarkably accurate property level projections of STR income (or median “market rent” if used as an STR or vacation rental) for nearly every property in the country. Part of the gamechanger was that investors – and lenders alike – now could access projected rental income for a property if used as a short-term rental, an alternative to no data at all or the flawed appraiser-driven STR 1007 option.
As such, a handful of DSCR Lenders in late 2020 and 2021, when the STR industry was really gaining steam, pioneered AirDNA projections for DSCR Loans for short term rentals. While a lot of lenders (and their investors; typically stodgy institutional financial firms like insurance companies and pension funds) were skeptical that the new data were accurate and reliable (a typical “fear of the new” found in conservative industries like finance), some DSCR Lenders took advantage. By utilizing AirDNA projections, especially for experienced and successful STR owner operators, many emerging STR professionals unlocked the missing ingredient to scaled STR success: DSCR Loans based on AirDNA.
These investors were now able, much more easily, to qualify for STR purchases with low down payments (i.e. 80.0% LTV purchases with only 20% down) as the DSCR ratio barrier was broken down as DSCR ratios on paper could finally reflect reality, revenue numbers based on the true STR earning potential typically double or triple the potential versus if leasing out long-term. Additionally, some DSCR Lenders even started allowing utilization of AirDNA projections for cash-out refinances without having to wait 12 months for operating history (an eternity in this hot market), sparking the “AirBnBRRRR” phenomenon which supercharged the ability to build life-changing wealth and short term rental portfolios with speed and recycled capital.
Also during this “middle innings” stage, DSCR Lenders split among distinct groups that differed significantly in their guidelines and eligibilities for short term rental loans. While these distinctions have faded somewhat in recent years, treatment towards STRs was and still is a distinct differentiator among DSCR Lenders, notable in an industry in which there are differences, but not much overlap. Even though the vast majority of DSCR Lenders are private lenders with proprietary self-determined guidelines, a good rule of thumb is that ~90% of the loan programs will be the same, with differences at the final 10% edges.
Generally, DSCR Lenders, especially in this era, could be thought of in three groupings when it comes to STR Loans.
“Conservative / STR-Skeptical DSCR Lenders” made up a good chunk of DSCR Lenders, particularly lenders backed by more conservative investment funds and larger non-QM lenders for which the DSCR program was a small portion of overall lending, were very restrictive towards using DSCR Loans for STRs. Generally, these lenders would not provide DSCR loans for short term rentals; or only allow STRs if the property strictly qualified as if it were a long-term rental (i.e. DSCR ratio calculated using LTR market rent). These lenders made up likely around half the market in this era.
The next grouping contains “Somewhat STR-Friendly DSCR Lenders.” Despite the confluence of market conditions and investor need that emerged in late 2020 and 2021, a good portion of DSCR Lenders were fully open to lending on STRs and vacation rentals, however they stuck with the industry standard qualification and underwriting methodologies of the prior years, requiring TTM Actuals to use STR income or otherwise qualified properties as if a long-term rental (1007 long-term market rent). While this didn’t allow these lenders to gain a huge market share of STR lending in this era and qualify the most prolific and leveraged borrowers, these DSCR Lenders were still able to finance many short term rentals, especially since interest rates were so low during this period (generally DSCR Loan interest rate were in “fours” or “fives” – i.e. 4-6%), that many short term rental properties qualified even with conservative rent assumptions. Some of these lenders also reduced maximum leverages as well, such as maximum LTVs on acquisitions for short-term rentals at 75.0% (vs. 80.0% for LTR) and similar restrictions for cash-out refinances too (i.e. 70.0% vs. 75.0% non-STR loans).
Finally, the third grouping can be classified as “STR-Friendly DSCR Lenders.” These describe the portion of the DSCR Lender market that dove in headfirst to become the leaders in STR Loans, aggressively building loan programs to offer the best terms to short term rental investors. What did it mean to be a STR-friendly DSCR lender in this era? Generally, it meant using AirDNA to qualify rents on STR Loans (sometimes with a haircut, although sometimes without, using 100% of projections!) and offering maximum leverages, i.e. 80.0% max LTVs for acquisitions and 75.0% for cash-out refinances for all DSCR Loans, regardless of STR or LTR. These lenders, while a small portion numerically of DSCR Lenders in these years, were able to take an outsized portion of STR Loan volume, as even large scale hospitality companies that would typically be candidates for more traditional business or CRE loans turned to DSCR Loans from these lenders as the only financing option for short term rentals on residential properties.
Another note is that during this period, the industry began to mature from “Airbnb” to “STRs” or “short term rentals” for nomenclature. This was another example of the maturing of the industry from early to “middle innings,” serious investors began to realize that these portfolios could provide real multi-million-dollar businesses and significantly scaled portfolios. And part of that meant that they were not “airbnb investors,” which gave notions of small “side hustles” or a gig app (and more of a notion, an emerging serious dependency risk), but “STR Investors,” owners of short term rental hospitality businesses and assets. Real estate investors building real scaled portfolios also smartly wanted to avoid being dependent on one company, one platform (Airbnb) for their businesses, especially because interests weren’t always aligned (Airbnb needs to make its core users – the guests – happy, sometimes at the expense of owners) and the general risk-management value of diversification of marketing and distribution (ownership and diversified booking sources).
For these reasons, this area of real estate investing began to shift in terminology from “Airbnb investing” to “Short Term Rentals” or “STR investing” (with “vacation rentals” also utilized). A small but important sign of a maturing industry, this was another indicator of the evolution, as real estate investors became Short Term Rental Investors, owner/operators of an emerging investment class, encompassing use of the Airbnb platform, but also independent distribution channels (like websites and social media), other platforms (like Vrbo and Furnished Finder) and integration with traditional hospitality vacation rental mom-and-pops (like those found in touristy towns in seasonal markets).
It is also notable how, in this era, the maturing industry saw not just a subset of DSCR Lenders really embrace STR Loans as the driver of their DSCR Loan programs, but all sorts of companies and vendors emerged around the industry. It was the growth of an “STR ecosystem.” This included not just data companies like AirDNA, but also pricing engines that helped optimize daily rates (i.e. Hostaway, Price Labs), national management companies (like Vacasa, Avantstay) and more.
Unfortunately, this frenzied maturation stage and development of a robust ecosystem around STRs also attracts excesses, including a gaggle of gurus and grifters that grabbed what they saw as an opportunity to capitalize on the growth of a hot industry with flimsy promises of get-rich-quick schemes and promotions of “easy money” through STRs. This began to remind people of the 2008 real estate meltdown, where many people were lured into real estate investing without proper guardrails and investing too much, too quickly, which helped lead to a crash. And since the prior real estate bubble and crash was blamed primarily on lenders and loans, some observers worried about STRs and the loans that financed them would cause a repeat of the 2008 mortgage meltdown fueled by NINJA and No-Doc loans. Predictably, DSCR Loans entered their cross-hairs; an easy target for worriers to point to as history repeating itself and real estate investors headed to the road to ruin.
The first half of 2022 saw a confluence of factors that created a nightmare for DSCR Lenders, especially ones that focused on short term rentals as a significant portion of their loan programs (i.e. the STR-Friendly DSCR lenders mentioned above).
Why did the boom years of 2020 and 2021 turn into a devastating crash out for DSCR Loans? First and foremost was a rapid increase in inflation readings spurred the Federal Reserve to respond (after previously claiming rising inflation was likely to be “transitory”) by rapidly increasing interest rates, which caused mortgage rates, including DSCR Loan rates to follow suit. Additionally, the surprising Russian invasion of Ukraine in late February 2022 and the response by the US government to impose financial sanctions and uncertainty led to a pullback of many holders of MBS (mortgage-backed securities) including MBS with DSCR Loans, creating more pressure on DSCR interest rates and market stability.
These events led to rapidly rising rates in general and struggles as DSCR Lenders and real estate investors alike were hit with violent volatility and an unprecedented massive and speedy rise in interest rates not seen in centuries. It affected DSCR Loans across the spectrum, traditional LTR and STR-alike.
By summer 2022, the landscape for DSCR Lenders was still very rough. The Fed had raised interest rates by 0.75% in March and May 2022 (first time raising rates since 2018 – six years earlier – and off the zero level), and while massive additional pain was still to come, the STR-Friendly DSCR Lenders were actually least affected in this period, as DSCR ratios for short term rentals had much more revenue than traditional LTRs, and could much more easily qualify with higher rates, since the rental revenues could still outpace the elevated PITIA payments.
However, in the middle of this rate-rising nightmare (the Fed would continue to hike rates – raising them by a whopping 375 more basis points between June and December 2022 – an absolutely mind-bogglingly large amount in terms of interest rates). Then a notorious article dropped another massive hammer on DSCR Lenders, especially those focused on STRs.
A piece called “Americans Are Building Vacation-Home Empires With Easy-Money Loans: Selling risky mortgages based on volatile per-night Airbnb income could end badly for communities, borrowers, and investors” was published by Bloomberg on June 14, 2022 - and it sent shockwaves through the industry. Focusing on the rapid growth of STRs and Vacation Rentals in the east Tennessee Smokey Mountains market, it profiled leading mortgage broker Brenna Carles and other members of her newly minted mortgage company “The Mortgage Shop” – making huge amounts of money offering DSCR loans to serve the area’s booming STR market. The article described DSCR Loans as similar to the notorious NINJA and no-doc loans that led to the mortgage crisis decades earlier, and even focused on supposedly unsophisticated local investors (smeared as “grocery clerks turned STR moguls”) and other investors cashing in on the boom. There were unmistakable (and sometimes explicit) insinuations that this echoed the boom and bust of the mid-2000s mortgage market and suggested that these DSCR Loans for STRs were a ticking time bomb about to crash the financial system again.
While it’s surprising that a single article, mostly filled with interviews and anecdotes around this rural area best known for the legendary Dollywood resorts and mediocre football could have such a huge effect on DSCR Loans and the STR industry in general. But sometimes things “go viral,” and this one did, or at least it did so within the institutional bond investor set. Many of the most important decision makers who ultimately drive downstream DSCR Loan guidelines and policy are not the lenders themselves, but the institutional investors who purchase the majority of DSCR loans once they are pooled into non-QM mortgage-backed securitizations. These buyers include large insurance companies, pension funds, and global wealth managers, all traditionally conservative stewards of capital.
When this group encountered the sensationalized reporting, they were already under immense pressure from a rapidly deteriorating mortgage market. Sensitive to any echoes of 2008, they moved swiftly to ensure they were not overly exposed to what was portrayed as shoddily underwritten DSCR loans collateralized by STRs that might trigger systemic losses and financial ruin. The reporting was, in truth, hyperbolic. It grossly exaggerated the risks associated with DSCR loans for short-term rentals, while dramatically understating both the credit quality of the borrowers and the thoroughness of the underwriting. Yet in capital markets, perception often matters as much as reality. Many of these institutional MBS investors demanded an immediate retreat from aggressively qualified DSCR STR loans.
The reaction came in several forms: some DSCR Loan programs for short term rentals were shuttered outright, others were temporarily paused, and many layered on harsh restrictions. These restrictions included eliminating the use of AirDNA projections for underwriting and sharply curbing leverage, for example, requiring 35% down instead of the typical 20%. All of this occurred against the backdrop of relentlessly rising rates and overall horrific market conditions for lenders and real estate investors that relied on DSCR financing for their portfolios.
While the fallout from the Bloomberg article definitely represented a nasty curveball towards the financing side of STRs, the growth of the industry continued. While many pundits and wanna-be prognosticators continued to call for a “crash” in real estate, particularly for short term rentals and airbnbs (i.e. the “airbnbust” narrative), it never came, not even as rates continued to rise and stay at relatively elevated levels for years (into 2025, at time of writing). The “crash” that did come was more in terms of transaction activity rather than falling prices or defaulting hosts leading to DSCR Loan foreclosures.
Most of the investors who had purchased STRs during the boom didn’t face the oft-predicted peril, as they still had relatively low rates (from the 2020-2021 loose monetary era) and most vacation rental markets held up well. This “middle innings” era for STRs may not have lived up to some investors’ dreams of easy and quick riches through Airbnb investing. But the reality of slow and steady real estate returns, which are the historical norm, continued to exist. Although this reality is not headline-grabbing or a sexy source of clicks and views, it’s the best description of actual events, even though it may be unfamiliar to many due to its boring reflection of a mundane market.
Despite the roadblocks and volatility, the STR industry (including the financing side) marched on. One important milestone was a rated securitization launched by Visio Lending named Visio 2022-1 in July of 2022. A securitization is the mechanism in which loans, in this case mortgage loans are bundled up into a Trust and then turned into mortgage-backed securities (“MBS”) at different risk levels to satisfy the risk/return appetites of different buyers. A “rated” securitization means that the issuer, in this case Visio Lending, one of the major DSCR Lenders at the time, uses an independent rating agency (such as S&P – Standard and Poor) to evaluate the pool of loans for risk and issue credit ratings and evaluations. This securitization was notable because not only was it made up of all DSCR Loans (many DSCR loans are securitized alongside other non-QM loans, including mortgage loans on owner-occupied properties), but mostly DSCR Loans secured by short term rentals. Visio Lending, one of the most “STR-friendly” DSCR lenders, included a mammoth two / thirds portion of loans in the pool “underwritten to short-term rental guidelines;” which was unprecedented in terms of a securitization fully reviewed by a rating agency.
While this particular securitization didn’t perform well (investors did not pay as much as hoped for the newly minted mortgage bonds), it did have a positive effect for the industry. For one, it assuaged concerns by institutional investors over some of the exaggerated claims about credit quality on STR loans as S&P is considered a gold standard rating agency and their deep and credible analysis of such a STR Loan heavy DSCR pool legitimized “airbnb loans” as an asset class and eased some concerns.
As the residential real estate market (short term rentals included) moved through the “frozen” transaction period of 2023-2025 where stubbornly high rates and stable values created a distinct lack of transaction activity (people actually buying and selling houses), a crash in STR values never materialized and the DSCR Loans that financed them continued to perform (low delinquency rates and near-zero foreclosures). As this stabilization continued, more and more DSCR Lenders began to move towards being “STR-Friendly” and the portion of the lender market clinging to restrictions on STR Loans continued to decrease. As the major securitization companies of non-QM and DSCR loans continued successful rated securitizations that included STR Loans, an emerging “industry standard” for DSCR STR Loans began to emerge in terms of qualification standards and guidelines.
The emerging consensus on DSCR lenders and STR Loans generally included a consensus treatment among a majority of DSCR Lenders in the area of 1) STR Revenue Calculation, or the use of AirDNA for rental revenue less a “haircut”, 2) Leverage Maximums for STRs that were typically 5% lower than otherwise offered if the property was a long-term rental and 3) Property and Market Standards, also relying on AirDNA’s evaluation of the property’s market, occupancy rate potential and guest counts for short term rental eligibility.
For STR Revenue Calculation, this generally consolidated to a standardized 20% Haircut to AirDNA Projections or the use of the AirDNA “Rentalizer” income projection to underwrite revenue, reduced by 20%. For example, the typical DSCR Lender will now qualify a STR Loan on a property projected by AirDNA to produce $100,000 in revenue with $80,000 underwritten as the rental revenue, or numerator in the DSCR ratio (80% * $100,000).
A general consensus also formed around a 5% LTV Reduction off Program Max for STRs, meaning that while some STR-friendly DSCR Lenders continued to offer maximal leverage for STRs, many newly STR-welcoming lenders used a 5% LTV reduction off of otherwise program maximums if the property was a STR (i.e. if the normal DSCR Loan maximum LTVs were 80.0% for acquisitions and rate-term refinances and 75.0% for cash out-refinances, for STR DSCR Loans these lenders would offer maximums of 75.0% LTVs for acquisitions and rate-term refis and 70.0% maximums for cash-outs.)
Finally, many DSCR Lenders began to incorporate AirDNA Property / Market Standards for their DSCR Loan guidelines around short term rentals. For example, in order to utilize the AirDNA projections (key to qualification of STR Loans), many lenders required a 60 or Better AirDNA Market Score (AirDNA’s proprietary rating for a property’s market including metrics on investability, rental demand, revenue growth, seasonality and regulation) and expected Occupancy 60% or Greater as many lenders were wary of properties that sat vacant too many days of the year. In addition, many lenders placed restrictions on bedroom counts to make sure the STRs were accurate, requiring a maximum of 2 guests per official bedroom when crafting projections.
While these are still far from universal standards for STR DSCR Loans, it’s unmistakable that the industry is trending towards maturity and more uniform standards as the industry enters the later innings. As more and more lenders trust AirDNA, alternatives to its industry-leading data are also dropping off the map in terms of use, particularly STR-based 1007s, which continue to be less reliable than the new technology-powered data. Indeed, in many cases, appraisers putting together STR 1007s would simply look up numbers on AirDNA for their appraisal reports, and some lenders would use that data as “more trustworthy” while continuing to stick their nose up at AirDNA themselves!
While it is anyone’s guess on what the next few years of short term rentals will look like in the United States (including how DSCR Loans will continue to adapt as a key financing tool), here are some predictions:
It’s likely that the STR market will re-accelerate if and when interest rates retreat from the recently elevated levels. Many economic forecasters look at the math of Federal government debt and interest burden and can only conclude that interest rates must come back down and stay at lower levels to continue the US economic and financial system. If these forecasts come true and interest rates drop back down to levels seen in the last STR boom of 2020-2021, it’s likely the real estate investors re-flock back into the space, this time with even more DSCR Lenders friendly to short term rentals, leading to another booming market amid more standardized and reliable loan options.
It’s also likely that institutionalization of STRs will continue, meaning more STR companies built around short term rentals like Wander and Heirloom will emerge, creating real standalone companies and brands of STRs, and individual hobbyists and side-airbnb owners will likely shrink as a portion of the ownership pool. While DSCR Loans are actually still utilized by many of these larger companies, the fit is not as perfect as these properties continue the trend of resembling hospitality and less towards traditional residential real estate. It’s also likely that commercial and business financing will emerge for these growing and larger players, with non-recourse and corporate-level debt as a better choice for these corporate and larger-scale STR borrowers. DSCR Loans will still play a central role in financing short term rentals, but they will be even more consolidated in the “sweet spot” of real estate investors with medium-scale portfolios of around 5-50 doors.
Additionally, DSCR Loan guidelines (eligibility and revenue underwriting methodology) for Short Term Rental Loans will continue to standardize with less separate treatment of STRs by DSCR Lenders and more uniform guidelines, likely a continuation of what has been occurring (AirDNA-friendly, 20% revenue haircuts, market standards, etc.). There will still be some DSCR Lenders that are better equipped to serve STR investors than others, but the large disparities among DSCR Lenders of the “early innings” will likely continue to disappear.
Q: Can I use a DSCR Loan for a short-term rental (Airbnb) property?
A: Yes. DSCR loans have become the go-to financing tool for short-term rentals because they allow qualification based on the property’s income potential, not the borrower’s W-2s or tax returns. Depending on the lender, income can be documented using 12 months of STR operating history or market-based projections (often through tools like AirDNA), making them far more aligned with how vacation rentals actually perform.
Since the standardization and uniformity of loans for STRs and vacation rentals still hasn’t reached an apex, it’s important for every real estate investor looking to invest in airbnbs or vacation rentals to understand the different loan options available and how they compare with each other.
Next, we’ll walk through three key comparisons for STR investors to understand when evaluating loan options for their STRS and how DSCR Loans stack up in each. These comparisons include DSCR Loans versus Conventional Loans for STRs, DSCR Loans versus “Second Home Loans” or “10% Down Loans” for STRs (these are still technically a form of “conventional loan” but an important subset to understand). And finally, we’ll look at DSCR Loans vs. DSCR Loans for STRs, or more specifically, how to evaluate the still differing levels of “STR-friendliness” among DSCR Lenders in 2026.
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