For those with an unused bedroom, apartment or beach house, sharing sites like Airbnb are great to make a little extra income.
This extra income has another benefit of boosting your borrowing power when applying for a mortgage.
Lenders are particular about the income they consider in an application, so here’s what you need to know.
Think like a business
For a lender to consider Airbnb income, the applicant’s accounts need to be completed as they would for a business.
Lenders don’t just look at the income from the property, they also consider expenses like cleaning, insurance, power and potential depreciation.
Remember that extra income also means paying more tax, so make sure you get good advice from a qualified accountant.
Lenders could ask for up to two years of financial statements, so it pays to be on top of the paperwork and tax obligations.
Already on Airbnb?
If you’re purchasing a property with a history of Airbnb rental income – even if it wasn’t under your ownership at the time – it can still be used in the mortgage application.
However, it can only be considered if the accounts and paperwork are up-to-date.
If a property appeals to you because it has previously been rented on Airbnb, talk to the real estate agent and make sure you have the necessary paperwork before putting in an offer.
How about potential Airbnb income?
If you’re looking to purchase a property that hasn’t been used as an Airbnb but you intend to use it as an Airbnb, this potential income can’t be included in your mortgage application.
In the same way lenders won’t consider future pay rises or bonuses in an application, you can’t buy a property using potential Airbnb income either.
Why it pays to use an adviser
Using Airbnb income in a mortgage application is not straightforward. Mortgage advisers understand lender requirements and can help compile the strongest application possible.
An adviser can also help you understand the insurance requirements for the property. There are a range of insurance issues for renting your property such as potentially changing your insurance classification from residential to commercial.
To learn more, speak to your nearest Mike Pero Mortgage Adviser today.