Short-term rentals flipped the script on real estate. Sourced through platforms like Airbnb and Vrbo, it’s never been easier to turn a property into a high-yielding investment, pulling in more revenue than long-term rentals. For that, however, it needs quick funding for securing the property, renovating, and getting it guest-ready to stay competitive.
That’s where hard money loans come in. An ideal financing tool for those looking to maximize returns on short-term rentals, these short-term, asset-based loans provide real estate investors with quick access to capital.
Let’s dive deep into how to use hard money loans to scale an STR portfolio and increase the ROI.
Why Short-Term Rentals Are a Profitable Investment
Higher Income Potential
Compared to traditional long-term leases, the revenues from short-term rentals could be as high as 30-50%, depending on the location and occupation rate. Well-located STRs command a higher nightly rate, hence more annual income.
For example, a property that is worth $400,000, if rented for $3,000/month on a long-term lease, could yield $36,000 per year in rent. But that same property, if rented for $200/night at 75% occupancy, could rake in $54,750 annually, which is quite a jump.
Flexibility in Pricing & Usage
Unlike traditional rentals, owners can command higher prices depending on demand and seasons for STRs, allowing them to maximize their earnings. Investors can block out dates for personal use, allowing flexibility.
Demand is Growing for STRs
Demand for STRs is increasing. According to reports, vacation rental bookings are up 15% year-over-year as travelers seek out unique, home-like accommodations. This makes STRs a very attractive long-term investment.
The Challenges in Financing STR Investments
Being lucrative, however, short-term rentals come with financing challenges. Most banks and conservative lenders are skeptical about lending out money for STRs because:
- There is higher perceived risk: compared to long-term rentals, STR income fluctuates with the season and occupancy rate.
- Tougher DTI-the traditional lenders usually use W-2 income, which makes self-employed investors qualify for less.
- Slow approval processes: while waiting for bank approvals, a deal can slip through your fingers.
That is why many investors resort to hard money loans and avoid the bottlenecks to snatch up properties quickly.
How Hard Money Loans Help Investors Maximize ROI on STRs
- Fast Closings Mean More Profitable Deals
Timing is everything in real estate, and investors have to close swiftly in order to lock in great deals before the competition does. Hard money lenders approve loans in days, not weeks, which gives investors their speed to secure properties sooner.
For example, Lending Bee can fund a deal as quickly as 3–7 days to give an investor the speed needed to move fast in competitive markets.
- Financing Renovations for Higher Rental Income
But STRs must differentiate to command higher rates. The best investors usually buy undervalued properties, renovate, and then make them high-earning rentals.
Hard money loans not only finance purchases but also renovations, ensuring that investors will be able to upgrade interiors and add modern amenities to improve curb appeal-all enhancing nightly rates and occupancy.
- No Income Verification, Just Property Value
In addition, the traditional lender is hung up on borrower income and credit score, whereas a hard money lender concerns himself with the property’s value and its potential cash flow.
This reference means that even an investor without W-2 income or a very high credit score may get approved based on the strength of the deal.
- Cash-Out Refinancing for Scaling Faster
Once an STR is operational, one can refinance into a hard money loan to pull the equity out and buy more properties. This is how investors scale without tying up their own capital.
For example,
Investor purchases a $300,000 fixer-upper with a hard money loan
$50,000 spent on renovations
New valuation for the STR = $450,000
Refinances at 70% LTV, pulling out $315,000
Takes that to buy another property
This accelerates portfolio growth and maximizes cash-on-cash returns.
- Bridge Loans to Hold Properties While Refinancing
Investors looking to transition from a hard money loan into long-term financing have bridge loans as an option. They provide temporary financing until a permanent loan is secured, and keep deals moving smoothly.
Lending Bee offers bridge loans specifically tailored for STR investors to ensure that no opportunities are lost while they secure long-term financing.
Key Things to Consider Before Using Hard Money for STRs
- Location is Everything
The best STR investments are in high-demand areas—think major cities, tourist destinations, and business hubs. Investors should research local regulations regarding short-term rentals to make sure STRs are legally allowed. - Operating Costs & Management Fees
STRs demand more active management than long-term rentals. Investors should also consider:
- Cleaning & maintenance costs
- Property management fees, if the service of a company is utilized
- Marketing & booking platform fees
- Pre-Exit Strategy
Hard money loans are short-term; thus, most of them run for a period of 6–24 months. As a real estate investor in rental properties, you will need to have an exit strategy, which includes:
- Refinancing to a long-term loan
- Selling for profit
- Cash flow paying off the loan
- A defined strategy that prevents extra interest costs and maximizes your profit.
Why Deal with Lending Bee?
Lending Bee understands the urgency and flexibility needed for short-term rental investment. We have:
Quick Approvals & Funding: Get financed in as little as 3-7 days.
Flexibility in Loan Structure: These loan structures will fit fix-and-hold, value-add, and cash-out strategies.
Experienced Lending Team: We work with complex investors specializing in STRs. The goal is to help investors scale faster, secure better properties, and maximize cash flow by providing strategic financing.
Short-term rentals are a very lucrative but highly capital-intensive investment strategy. Hard money loans help investors move fast, finance renovations, refinance equity, and scale their portfolio without delays.
In this way, Lending Bee offers real estate investors the required speed and flexibility to stay competitive in the most competitive STR markets for maximum ROI.