Financing decides the price range you can shop in, whether you can hold title in an entity, and how many properties you can own before the structure has to change. It is the third decision in the sequence, after the tax position and the participation structure, and before the market. This is where it stood in 2023, which was the year the market cooled and underwriting started to matter again.
What 2023 changed
2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.
The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.
Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.
How it works
Financing decides the price range you can shop in, whether you can hold title in an entity, and how many properties you can own before the structure has to change. It is the third decision in the sequence, after the tax position and the participation structure, and before the market.
- Conventional investment financing is cheapest, requires personal title and a cooperating debt-to-income ratio, and is commonly capped around ten financed properties.
- DSCR loans qualify on the property's income rather than the borrower's ratio, permit entity ownership, and price roughly one to two points above conventional.
- How a DSCR lender credits short-term rental income is the single largest variable in whether a deal is financeable: a market estimate, the trailing twelve months, or a long-term rent schedule.
- Most DSCR products carry a prepayment penalty stepping down across three to five years, which is negotiable against rate.
What that meant in 2023 specifically
The spread between well-run and poorly-run properties widened sharply. In a market where everything fills, operational quality is invisible. In 2023 it was the whole difference.
The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.
2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.
Where it goes wrong
The failure modes are consistent across years, which is itself useful information: they are not caused by the market cycle, so a different year does not protect you from them.
- Finding a property and then discovering the lender uses a long-term rent schedule.
- Treating a lender approval as validation of the deal. The lender is protected at roughly 75% of value with a foreclosure remedy; the buyer is not.
- Ignoring reserve requirements at closing, which are real capital and belong in the entry cost.
What a buyer should have done in 2023
2023 rewarded buyers who could underwrite honestly and walk away. Basis mattered more than it had in years, because there was no longer a rising tide to cover an overpay.
The underwriting discipline does not change with the year. Twelve individual monthly revenue figures from a comparable set you assembled, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.
We screen roughly a thousand deals a week and eliminate about 98% of them. That ratio has held across every year on this site, through the boom, the correction and the stabilisation, because it is a function of how listings are selected rather than of the market.
What generalises, and what does not
Reading a year in isolation is the most common analytical error in this business. 2023 had its own conditions, and someone who learned the wrong lesson from it carried that lesson into a market that no longer rewarded it.
What generalises is the mechanics above. The definitions, the tests, the sequence and the failure modes are the same in every year on this site, which is why they are worth learning properly once rather than relearning each cycle.
What does not generalise is the environment: the cost of capital, the depth of supply, the bonus depreciation percentage, and the regulatory posture of a given jurisdiction. Those change, sometimes abruptly, and a model that treats them as fixed is a model that was only ever right about one year.
The practical consequence is to build the analysis so the environment is an input rather than an assumption. A property that only works at one interest rate, one occupancy level and one tax treatment is not an investment thesis, it is a bet that nothing moves.
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Frequently asked questions
What was different about financing a short-term rental in 2023?
2023 was the correction. Rates stayed high, supply that had been added during the boom arrived on the market, and occupancy in several previously unstoppable markets came down. The phrase that circulated was Airbnbust, which was overstated, and the underlying shift was real: revenue per property fell in markets where supply had grown fastest.
What was the main risk in 2023?
The properties that got into trouble in 2023 were bought at peak prices with thin reserves in markets that were absorbing new supply. None of those three alone was fatal. Together they were.
What were financing conditions like in 2023?
Borrowing costs stayed high all year, and the gap between what sellers wanted and what the numbers supported was the defining feature of the market.