30 Proven Ways to Fund Your First Short-Term Rental: From No Money Down to Creative Financing

When we were house hunting for ourselves in 2011, our non-negotiable was having the potential to rent out a portion of our property to generate passive income. Our Realtor found us an amazing property just outside of the Seattle area that consists of a main house (where we live) plus a detached accessory dwelling unit (DADU) that already had long-term renters in it. AND we could afford it with our hourly retail supervising jobs!

Due to our low income, we used an FHA loan (only put about $9k down!), then re-financed in 2016 to a conventional loan that offered us a lower interest rate, eliminated the private mortgage insurance, and cash out for renovations. Our long term renters moved out, and we decided it made the most sense to operate the DADU as an Airbnb. We are so glad we did! You can read more about our early experience in “Why I Started a Short Term Rental Blog“.

Now, here’s a list of the ways a new investor can fund the purchase or rent of a property to operate as a short-term rental (STR), including traditional, creative, and alternative methods.

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PART 1: Buying a Property for STR

Traditional Financing

1. Conventional Mortgage
   • 15%–25% down for investment property
   • W-2 income and good credit required
   • Not ideal if you’re self-employed or scaling
2. FHA Loan (House Hack)
   • 3.5% down, owner-occupant required
   • Can rent part (e.g., ADU, basement, room) as STR
   • Great for first-time buyers
3. VA Loan (for Veterans)
   • 0% down, owner-occupant required
   • Same potential for house hacking
4. USDA Loan
   • 0% down, rural areas only
   • Can STR a portion of the home if you live in it

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Investor-Specific & Alternative Loans

5. DSCR Loan
   • Based on property’s cash flow (not personal income)
   • 20–30% down
   • No tax returns needed
6. Asset-Based Loan
   • Based on your assets/net worth
   • Similar to DSCR but broader qualification criteria
7. Hard Money Loan
   • High interest, short-term (6–18 months)
   • Used for fix-and-flip or bridge to DSCR/refi
   • Good for fast closings and rehabs
8. Commercial Real Estate Loan
   • For large or mixed-use STR projects
   • Lenders evaluate project viability
9. Seller Financing
   • Seller acts as the lender
   • Can negotiate down payment and terms
   • Great for off-market or distressed properties
10. Subject-To Financing

• You take over seller’s mortgage payments
• Title transfers to you, mortgage stays in their name

11. Lease Option (Rent-to-Own)

• Lease property with option to buy later
• Operate as STR while saving to buy

12. Assumption of Mortgage

• Take over someone else’s existing mortgage (must be assumable)

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Creative Capital Sources

13. Private Money Lenders

• Friends, family, other investors
• Terms negotiable
• Fast funding, but risky if relationships go south

14. Partnership / JV (Joint Venture)

• You find the deal; a partner brings the money
• Share profits and responsibilities

15. HELOC (Home Equity Line of Credit)

• Use equity in your home to fund the down payment
• Revolving credit, flexible

16. Home Equity Loan

• Lump sum loan based on your home’s equity

17. Personal Loan

• Unsecured, fast, limited to ~$100k
• Higher interest than mortgages

18. Credit Cards / 0% Intro APR

• Risky, but can cover startup or furnishing costs
• Use cautiously and short-term

19. Retirement Account Loan (401k Loan)

• Borrow up to $50k from your 401(k)
• Must repay within 5 years (or sooner if you leave job)

20. Roth IRA Conversion Strategy

• Invest through a self-directed Roth IRA for long-term tax-free gains

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Government / Institutional Sources

21. Grants or Subsidies (Local Programs)

• Rare, but some cities offer grants to renovate STRs in designated areas

22. Opportunity Zone Investment

• Fund property in OZ with capital gains for tax benefits
• Must improve property and hold long-term

23. Crowdfunding Platforms

• Invest with others in fractional ownership (not sole STR control)

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PART 2: Renting (Master Lease) for STR

Low-Capital Options

24. Rental Arbitrage (Master Lease)

• Lease long-term rental; sublease on Airbnb/VRBO
• Profit is rent minus expenses
• Must get landlord approval

25. Co-Hosting

• Manage someone else’s STR for a percentage of revenue
• No ownership or lease required
• Learn STR operations and build capital

26. Profit-Sharing with Landlord

• Landlord provides property, you manage and split profits
• Often 70/30 or 50/50 split

27. Corporate Lease Agreements

• Negotiate a corporate lease with landlord for use as STR
• Useful in multifamily or boutique hotel models

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Leverage & Stack Methods

28. BRRRR Strategy (Buy, Rehab, Rent, Refinance, Repeat)

• Recycle capital after refi
• Combine with DSCR or conventional financing

29. House Hack into STR

• Buy duplex, triplex, or home with ADU
• Live in one unit, STR the others

30. Syndication (Raise Capital from Investors)

• You structure deal; investors fund purchase
• Good for scaling, requires experience or trust

Final Tips for Beginners

Tip	Why It Matters
Start small	House hack, co-host, or arbitrage first
Use other people’s money (OPM)	Partnering or creative financing reduces risk
Learn local laws	Some areas ban STRs entirely
Focus on cash flow	Profitability is key, not just appreciation

How did you get started with short term rentals? Leave a comment!