I applied for a home equity line of credit on my home so I could do some renovations. I told the loan officer that it was a vacation home used by my family and rented out on airbnb when we weren't using it. I've owned the house for 7 years and never rented it out before last year. I reported about $8000 of airbnb income on my taxes last year. The bank initially approved my loan application but then raised the interest rate and said I would have to pay all sorts of fees because they considered the house an investment property, not a second home. I pointed out that for tax purposes, it is clearly a second/vacation home NOT an investment property. There are IRS guidelines about this. They did not care. This would seem to have implications for many airbnb hosts. Any listed house (or at least any listed house that is not a primary residence) can be considered an investment property. This does not seem right. Maybe airbnb could look into this.
Actually, it's a rule for all sort of secondary/vacation homes. The fact that you rent it out is what makes it an investment property and you no longer get amazing interest rates under 2%, your rate for an investment property will start at 4% and up. The fact that it's rented through airbnb is irrelevant. If your second home was simply rented out to a long-term tenant and you reported that income on your tax returns, then took deductions, etc. you would have received the same result.
thanks for the replies, but I disagree that this is a standard, longstanding bank practice. Every heloc application has 3 options: primary residence, vacation/2nd home, investment property. Before the existence of airbnb, the distinction between a vacation/2nd home and and investment property was clearcut: a vacation home was used mainly by the owner and if it was occasionaly rented out short term, nobody knew about it and it did not change the property's classification as a vacation home. An investment property was rented out continuously to tenants and never ever used by the owner.
The two responders seem not to believe in this distinction: if you rent out your vacation home for even one night out in ten years of ownership, it suddenly turns into an invement property. This makes no sense. One might respond 'oh, one night in 10 years does not turn it from a vacation to investment property" but this is what the banks seem to be saying. They are saying if you EVER rent out your property it is considered an investment property.
There are in fact government/IRS rules about distinguising a vacation home from an investment property. They are a bit complex and relate to whether the home is in a vacation area, how far it is from the owner's primary home, and whether it is used by the owner for at least two weeks per year. The IRS DOES let you rent out your vacation home and still consider it a vacation home. My point is that the banks are ignoring these government rules when distinguishing between these two types of properties. That is there perogative. But this would see to have significant implications for all airBnB users. They could start considering primary residence's to be investment properties if they are listed on airbnb.
I'm not sure the bank classification of "second home" and "investment property" has anything to do with IRS treatment of those properties. From the banks' perspective, you are a borrower at higher risk if you need to rent the property for income than if it is a second vacation home for your use only.
Think... if you are stretching to buy a home that you would like to vacation in from time to time but need the income to make that happen, how likely are you to default? Imagine another 2008/2009 scenario occurs and home prices fall by 30%. This leaves you underwater and paying a potentially higher interest rate with fewer people wanting to rent your home. You would be more inclined to default on your second home than your primary home, especially if the rental income is needed to keep it afloat (and that income no longer exists). Compare this to a person who buys a second home purely for personal enjoyment with no intent to rent it. This person clearly does not need the incremental rental income (or they would be renting it out) and would be less likely to default in the event of a macro decline.
In short, your personal income tax implications have nothing to do with the risk profile assigned to you (the borrower) by lenders. There is also the point of "owner-occupied residences" that you are overlooking which would protect you in a scenario where your primary residence is being rented via Airbnb.
See below for a link to Fannie **'s "Second Home Rider" included in most of these home financing arrangements.
Well, I just spoke to my lender yesterday. It’s my primary residence and I live there full time. I rent rooms, and they are trying to call it an investment property.