Brenna Carles drives along a winding country road in the Great Smoky Mountains, a get-rich real estate podcast playing on the speakers of her brand-new Lincoln SUV. Not long ago, Carles was belting out tunes at Nashville honky-tonks as she struggled to make it as a country singer. Now, at 32, she’s one of the region’s most successful mortgage brokers specializing in loans for vacation home rentals.
Carles, who started her company less than a year ago, says she’s embarrassed to admit how much she’s clearing these days: $100,000 a month, give or take, on track to earn $1 million this year. “People ask how much I make a year, I try to lie now, because I think people wouldn’t believe it,” she says.
For as long as the market allows, brokers, lenders, and investors are cashing in on the real estate boom in America’s prime vacation spots. They include Carles’s turf, near Dollywood theme park in Pigeon Forge, Tenn., as well as the areas around Disney parks, Colorado ski resorts, and Gulf of Mexico beaches in Texas and Alabama. It’s a fast-growing and potentially risky business, especially now, as the real estate market cools because of higher interest rates.
Landlords have assembled mini empires, managing them from afar using smartphone apps. Software engineers, middle managers, teachers, military personnel—even TikTok influencers—flood social media with stories of newfound wealth. They’re snapping up properties, often sight unseen from out of state, at once unheard-of prices. Some longtime residents complain that these investors are changing the character of their communities and making their housing unaffordable.
A special kind of business loan is fueling the boom. It lets borrowers, including the self-employed, qualify based not on their salaries but on the projected future income of the property they’re buying. In industry jargon, they’re known as “debt service coverage ratio” loans, referring to the way that rents must be at least enough to cover monthly mortgage payments. Last year investment-property loans without taxpayer backing totaled $9.9 billion, an eightfold increase since 2018, according to industry publication Inside Mortgage Finance’s analysis of mortgage bond offerings. The vast majority qualified because of rental income.
Regular-paying tenants on long-term leases support most of these loans, industry executives and analysts say. But, over the past year, more lenders have started letting borrowers qualify based on what they expect to charge per night for stays booked on sites such as Airbnb and Vrbo, a unit of travel company Expedia Group Inc. Real estate buyers can generate much more income renting a property out for hundreds of dollars a night than they could through a lease to a long-term tenant, at least for now. So would-be owners, some of whom are young and just getting started, can afford increasingly expensive property.
Chelsey Jones, a 29-year-old former grocery store manager in Columbus, Ohio, bought four rentals in the Smokies, three with Carles’s help. In all, Jones has borrowed $1.1 million over the past year for properties such as Big Bear Lookout, a four-bedroom cabin in Gatlinburg, Tenn., with shuffleboard, a hot tub, and an arcade.
At first it’s hard to imagine how Jones could afford Big Bear. The monthly mortgage payment is $2,600; rent from a steady, long-term tenant would barely cover it, let alone repairs and maintenance. But Jones can rent out the property for an average of $350 a night on Airbnb. That way, she can earn about $6,000 a month, more than twice her loan payment.
Jones expects to make a $150,000 profit this year from her rental properties: her Smokies homes, along with one in Ohio and two more under construction in Florida. That’s almost four times more than she earned in her grocery job, which she quit in 2019. “What a dream come true to be able to work from home, be my own boss, and make that kind of money,” says Jones, who now also works as a real estate agent.
Visio Lending in Austin, which call itself the “nation’s leader in rental loans,” financed Jones’s mortgage. One of its rivals is HomeXpress Mortgage Corp., based in Santa Ana, Calif., and owned by New York hedge fund Seer Capital Management. HomeXpress is trawling for more brokers to sell this kind of loan. “No income verification, no job listed,” Christopher Berrey, one of its account executives, posted on his LinkedIn profile. “AirBNB and VRBO are ACCEPTABLE!!!” In an interview, Berrey says the loans’ simplicity makes them popular. “There’s less underwriting,” he says. “Less of pretty much everything.”
Another company, Hometown Equity Mortgage LLC, which does business as TheLender, is promoting its “Non Owner No Income,” or “NONI,” loans to mortgage brokers. Its acronym is also Italian slang for “grandmother.” A Facebook ad features a gray-haired woman in a red bathing suit, a straw hat, and red heart-shaped sunglasses who floats in a pool, a martini glass in hand: “Our NONI likes to Airbnb. The NONI program allows borrowers to use income from vacation rentals, like Airbnb and VRBO … Results without the B.S.”
Over the past year, Wall Street firms such as Credit Suisse Group AG and Barclays Plc have helped package and market hundreds of millions of dollars in mortgage-backed securities sold to institutional investors that included loans from these three companies. Some were rated investment grade; others, below. Credit Suisse and Barclays declined to comment. It’s unclear how many of the Airbnb-style loans are making their way into these offerings—or even how many have been sold overall—because no one has a full accounting. But reports from rating companies note that the securities include mortgages on properties either without leases or with those shorter than 90 days. HomeXpress, TheLender, and Visio, which all securitize their mortgages, say they each expect to do hundreds of millions in the rental-based loans this year. TheLender estimates that 60% will qualify because of income from short-term stays; Visio, half; and HomeExpress, 15%.