Since Airbnb’s launch in 2008, the home-sharing service has grown to currently include more than 2 million listings in 191 countries. Because of this, some home builders are developing new plans with the home-sharing industry in mind but for lenders, Airbnb may bring more trouble than anticipated, according to a recent post from The Home Story presented by Fannie Mae.
Dean Wehrli and Aaron Stubblefield, consultants with real estate firm John Burns Consulting, conducted an apartment feasibility study for a developer who considered setting aside space for Airbnb rentals. Fannie Mae reports that they found these units were likely to generate more revenue than those used for conventional long-term leases.
“We sense a trend developing, especially if the apartment markets soften,” Wehrli and Stubblefield write. “Apartment developers — even those building large rental complexes — could set aside a portion of their units as a kind of Airbnb rental pool to maximize revenue and market flexibility.”
Despite the seemingly obvious perks of this service, Airbnb could cause homebuyers potential problems as well. The largest of which comes in the form of violating the terms of the resident’s mortgage agreement. Fannie Mae says that this can be possible when using a property purchased as a residential dwelling for short-term rentals could violate your mortgage agreement. Additionally, if the lender decides regular use as a short-term rental could cause the property’s value to decline, the lender could call the loan due, meaning the owner would need to pay off the balance or lose the house.
Because most conventional single family and condominium Fannie Mae compliant mortgages contain a regulation where the owner agrees that the mortgaged property will remain the borrower’s principal place of residence and not an investment property, homeowners who use Airbnb may unknowingly be violating their mortgage agreements. These homeowners find themselves converting the property into essentially a rental property and usually unbeknownst to the homeowner, investment property mortgages typically carry a higher interest rate and are sold in a different category in the secondary mortgage market.
Fannie Mae says that this also holds true for a standard homeowner’s insurance policy. When an owner turns a home into a bed and breakfast, it increases the likely hood of new risks for both the homeowner and the insurance company underwriting those risks. For example, if there is an unfortunate accident involving an Airbnb guest, the insurance company could deny the claim due to converting the nature of the insured property into a rental property. Because demand has risen for Airbnb, many municipalities have sought to either regulate or limit short-term rentals within their borders.