By Erika Albert, Broker, E-Rae Realty
Short answer: The common routes are cash or a 1031 exchange, second-home or investment property loans (credit unions are often worth a call), DSCR loans, and sometimes owner financing, where the down payment, balloon term and rate are the levers. Get pre-approved before you start touring. If you plan to hold title in an LLC, tell your lender up front.
Financing shapes the whole search, because it sets your price range, your down payment and sometimes which properties qualify at all. I'm not a lender, so treat this as a map of the options and take the specifics to one.
What are the main ways to finance a short-term rental?
Cash. Simplest and fastest. Some buyers use cash now and refinance later, or borrow against other assets. Each comes with its own costs and risks, and none of them makes a weak property strong.
1031 exchange. If you're selling another investment property, an exchange may let you defer tax on the gain. The timelines are strict. Talk to a qualified intermediary and your CPA before you list the property you're selling.
Second-home loans. Some buyers qualify for second-home financing. Second-home loans come with occupancy and use requirements, so ask your lender exactly how they apply to a property you plan to rent. They're narrower than people think. Fannie Mae's second-home rules require you to occupy the property for some portion of the year and keep exclusive control over it, and the property can't be subject to an agreement that gives a management company control over occupancy. If there's rental income, the loan can still be a second-home loan only if that income isn't used to qualify. If it's really an investment property, don't try to squeeze it into a second-home loan.
Investment property loans. Down payment requirements vary by loan type, so ask your lender. In my experience, credit unions often have competitive rates for these. They're worth pricing next to a DSCR loan, especially if your income is easy to document. Fannie Mae updated its Selling Guide on Sept. 2, 2026 with a section on short-term rental income for one-unit investment properties. In general terms, for a purchase, the lender can use either a long-term rent estimate or validated data from three comparable short-term rentals, then counts 50% of that gross to cover vacancy and maintenance before comparing it to the payment. The property also has to be legally permitted as a short-term rental, including local licensing, which is one more reason to plan your Austin license from day one. The tradeoff is that you still qualify personally, so your debt-to-income ratio matters.
DSCR loans. These qualify the loan mainly on the property's expected income instead of your personal income. They're popular with investors who have complicated tax returns or several properties. More in my post on DSCR loans for Austin STRs.
Owner financing. Less common, but it comes up, especially on land and unusual properties. The three main levers are the down payment, the balloon term (when the remaining balance comes due), and the interest rate. It can be incredibly beneficial if you can negotiate strong terms. It's more negotiable in a slower market, and worth asking about when a seller owns the property free and clear.
Land and acreage loans. If you're buying acreage for casitas, glamping or a retreat, look for lenders who specialize in land. Standard residential lenders may not be the right fit.
What should I do first when financing an STR?
Get pre-approved, and run the deal at the rate you'll actually get, not the rate you hope for. Pre-approval sets your budget, it tells you which loan types you qualify for, and I ask buyers to have it in hand before we make an offer. My lenders page lists people I've worked with.
Can I buy an Airbnb in an LLC with a loan?
You can, but it can complicate financing. Many residential lenders won't lend to a new LLC, so some buyers close in their personal name and talk to an attorney about moving title later. Moving title can technically trigger a due-on-sale clause in some loans, so clear the plan with your lender before you close, not after. Also ask an attorney whether an LLC gives you the protection you're expecting. I cover the trade-offs in my post on the benefits and pitfalls of buying an STR in an LLC. Inside Austin, the 1,000-foot spacing rule looks through qualifying trusts and LLCs (Austin City Code 4-23-31(E), (F), Ordinance No. 20250911-012).
What cash should I plan for beyond the down payment?
Earnest money, usually around 1% of the price.
Option fee for the option period, which is small but non-refundable.
Closing costs such as escrow and lender fees. Who pays for the title policy is negotiable.
Furnishing and setup if the home isn't turnkey.
The City STR license if the property is inside Austin: $736.60 for two years (City of Austin).
Reserves for slow months and repairs.
If you're budgeting for setup, I wrote a guide to furnishing an Austin STR.
Frequently asked questions about STR financing
How do people finance a short-term rental in Texas?
The common routes are cash or a 1031 exchange, second-home or investment property loans, DSCR loans, and sometimes owner financing. With owner financing, the down payment, balloon term and interest rate are the main levers. Get pre-approved before you start touring, and tell your lender up front if you plan to hold title in an LLC.
What is a DSCR loan for an Airbnb?
A DSCR loan qualifies the loan mainly on the property's expected income instead of your personal income. DSCR loans are popular with investors who have complicated tax returns or several properties. If you want to use projected short-term rental income to qualify, ask your lender how they estimate that income before you make an offer.
Can I buy an Airbnb in an LLC?
You can, but it can complicate financing, because many residential lenders will not lend to a new LLC. Some buyers close in their personal name and talk to an attorney about moving title later. Moving title can technically trigger a due-on-sale clause in some loans, so clear the plan with your lender first.
What cash do I need beyond the down payment for an STR?
Plan for earnest money, a small non-refundable option fee, closing costs such as escrow and lender fees, furnishing and setup if the home is not turnkey, and reserves for slow months and repairs. If the property is inside Austin city limits, budget $736.60 for a City STR license that lasts two years.
Can I use short-term rental income to qualify for a conventional loan?
Sometimes. For a one-unit investment property, Fannie Mae lets a lender use a long-term rent estimate or validated data from three comparable short-term rentals, then count 50% of that gross income. The property must be legally permitted as a short-term rental, including local licensing, and you still qualify personally, so your debt-to-income ratio matters.
Can I buy an Austin STR without US credit?
It's harder but possible. Owner financing, larger down payments and specialized lenders are common routes. Talk to a lender early.
How long does closing take?
In my experience, about 30 days from an accepted offer for a financed purchase.
Related reading
Talk it through
If you want help matching a loan type to the kind of property you're after, book a call with me.
This post is general information, not lending, tax or legal advice.
Sources
Austin City Code 4-23-31(E), (F), Ordinance No. 20250911-012: https://services.austintexas.gov/edims/document.cfm?id=459690
City of Austin, Short-Term Rentals (license fee): https://www.austintexas.gov/development-services/short-term-rentals
ATX|STRS, a division of E-Rae Realty
