If you own a building with five or more residential units, or a mixed-use property with a residential component, and some of those units are listed on Airbnb, here is the answer before anything else: on our small balance commercial program, units used for short-term rental are deemed vacant. The income from those units does not help you qualify, and the units themselves count against the 75% occupancy the property has to clear.
That treatment is the opposite of what happens on a 1-4 unit investor loan, where short-term rental income is usable. The dividing line is the unit count, not the behaviour. The rest of this page explains how deemed-vacant works mechanically, why it costs you twice rather than once, how it collides with the 90-day stabilisation look-back, and the separate and more serious problem that transient use can make the property an ineligible type altogether.
The rule, stated plainly
Deemed vacant is a stronger position than "not counted". If the guideline simply excluded short-term rental income, you would lose the revenue and the unit would sit neutral. Deemed vacant does something else: it takes the unit out of the income side and puts it into the vacancy side. The unit is treated as empty space you are trying to lease and have not leased.
Why it costs you twice
There are two separate underwriting numbers moving in the wrong direction at the same time.
The income. For an investment property, underwritten DSCR is underwritten net operating income divided by annual debt service. If a unit is deemed vacant, the rent it produces is not in that NOI. Lower NOI means a lower DSCR, and DSCR is a hard floor rather than a scoring factor: 1.15x for investor transactions and 1.20x for owner-occupied. Fall under it and the file does not price worse, it stops.
The occupancy. Separately from the income, the property has to be at least 75% occupied. A unit that is deemed vacant is on the wrong side of that fraction. Enough of them and the property fails the occupancy requirement on its own, even if the remaining long-term tenants pay enough rent to carry the debt comfortably.
Owners consistently underestimate the second one. They run the arithmetic on the income and conclude that losing a few units of revenue is survivable, then find the file declined on occupancy rather than on coverage.
How many short-term units it takes to fail
The occupancy floor is 75%. The following is straightforward arithmetic against that threshold, not a separate rule: in a building where the units are broadly comparable, this is roughly how many units you can have in short-term use before the property stops clearing the floor.
| Total residential units | Units that must be occupied for 75% | Maximum in short-term use |
|---|---|---|
| 5 | 4 | 1 |
| 8 | 6 | 2 |
| 12 | 9 | 3 |
| 20 | 15 | 5 |
Read that table as an orientation rather than a formula. The guideline's own definition of vacancy is expressed on a net rentable area basis, calculated as the net rentable area available for leasing divided by the net rentable area of the building. There is a second defined concept, economic vacancy, calculated as a percentage of the property's potential gross rent rather than a percentage of square footage. Unit counting only approximates either one, and it approximates them badly when the short-term units are the large ones. If your two-bedroom units are the ones on Airbnb and your studios are the ones on annual leases, a unit count flatters you and the area calculation will not.
This is worth being honest about with yourself before you spend money on an appraisal. If you are close to the line on a unit count, you are probably over it on an area basis.
The 90-day stabilisation look-back is the part people cannot fix in time
The occupancy requirement is not measured on the day you apply. It is measured backwards.
That single provision is what turns a fixable problem into a three-month problem. An owner who learns about the deemed-vacant rule while assembling an application cannot delist the units that week and apply the next. The 90 days of history are already written.
There is one piece of good news inside the same provision. Once the property has met the 75% requirement for the preceding 90 days, new leases commencing after the application date are not required to be seasoned for 90 days themselves. So the seasoning burden is on the property's trailing record, not on every individual lease you sign.
There is also a narrow carve-out for recent renovation work. Where a detailed capital expenditure schedule of qualified improvements is provided and confirmed by the appraisal that the property was renovated or rehabbed within the last 30 to 60 days, the 90-day look-back does not apply. That is a renovation provision, not a short-term rental provision. Do not read it as a route around the deemed-vacant treatment.
The larger problem: transient use and property type eligibility
Everything above assumes the property is still an eligible property type. That assumption deserves scrutiny, because the Multi-Family definition contains a requirement that sits upstream of any occupancy or income calculation.
Read those two sentences together with the deemed-vacant line and the picture is clearer than most owners expect. A building where a few units happen to be on Airbnb has a deemed-vacant problem: quantifiable, survivable if the numbers still work, curable with time. A building that is genuinely operating as short-stay accommodation, marketed and run that way, is a different conversation. Hospitality of every kind, flagged, unflagged and bed-and-breakfast, is on the ineligible property type list.
There is no bright-line unit threshold in the guideline that tells you where one becomes the other. On the 1-4 unit investor side there is such a threshold, but the commercial guideline does not carry an equivalent test for 5+ unit properties, and inventing one for you would not help you. What the guideline gives us is the character test in the sentence above: are these tenants who consider the unit their permanent residence, or are they not.
If you are near that line, raise it early rather than late. It is a property type question, and property type questions are answered before an appraisal is ordered, not after.
Why the answer flips at five units
This is the contrast worth internalising, because the same behaviour produces opposite outcomes on either side of the unit count.
| 1-4 unit residential investor | 5+ unit multi-family or mixed-use | |
|---|---|---|
| Guideline that governs | DSCR 1-4 unit investor program | Small balance commercial program |
| Short-term rental income | Usable to qualify, at a discount, with conditions | Not usable |
| The unit itself | Counted as an income-producing unit | Deemed vacant |
| Effect on occupancy | Not the operative test on this program | Counts against the 75% requirement |
| Documentation route | Rental history or bank statements evidencing deposits | Not applicable; the income is out |
On the residential side, a short-term rental is a recognised way to operate the asset. The program has a defined path for it, with its own leverage cap, its own coverage minimum, its own experience requirement and a haircut applied to the gross rent. The mechanics of that discount are covered in [how lenders discount Airbnb income on a DSCR loan](/blog/how-lenders-discount-airbnb-income-on-a-dscr-loan), and the point here is simply that a path exists.
Cross to five units and the same activity is not a discounted income stream, it is an absence. Nothing about the property has changed except how many doors it has.
The logic behind the difference is not mysterious. A 1-4 unit property is underwritten as a residential asset against a payment. A 5+ unit building is underwritten as an operating business, valued off durable net operating income and a rent roll a future buyer or lender can rely on. Bookings that vary by week are not that. The commercial program's answer is to strip them out and treat the space as unleased, which is, from a marketability standpoint, exactly what it is.
What underwriting will actually look at
The deemed-vacant rule is not enforced by asking you a question. It is enforced through the documents.
- Current rent roll. Required for investor properties and multi-tenant owner-occupied properties. Where a purchase seller cannot produce one, reliance is placed on the appraiser's analysis. A rent roll with blank or irregular entries is where short-term units surface.
- Two years of property operating statements or Schedule E, plus year to date. Short-term revenue has a distinctive shape. It does not look like twelve equal monthly deposits.
- Executed leases with addenda for commercial tenants. Residential leases may also be required where we deem it appropriate, and on a multi-family file with an occupancy question, that is exactly the circumstance in which they will be.
- The appraisal. Third-party reports including the appraisal are part of the credit decision, and the appraiser produces their own rent roll analysis.
Presenting a building as fully occupied when several units are being turned over weekly is not a survivable position. It surfaces, and it surfaces late, after you have paid for reports.
The requirements that still apply underneath
None of the above suspends the ordinary program requirements. The ones most relevant to a multi-family or mixed-use owner:
| Requirement | Standard |
|---|---|
| Minimum residential units, multi-family | 5 |
| Kitchens | Every unit must have a full and legal kitchen |
| Minimum occupancy | 75% |
| Stabilisation | 75% occupancy over a 90-day trailing period prior to application |
| Minimum DSCR | 1.15x investor, 1.20x owner-occupied |
| Maximum LTV | 75%, or 80% on purchases where FICO is 725 or greater |
| Loan size | $100,000 to $2,500,000 |
Two further points that catch multi-family owners specifically. Self-management is permitted, but for a Tier I multi-family or Tier I mixed-use property that is self-managed, the borrower or guarantor must live within 50 miles of the property and meet the investor experience requirement. The radius is 200 miles for other commercial property types. We may allow self-management regardless of property type or distance where the borrower can verify five or more years of ownership or investor experience with property of like kind, size and geographic area.
And a multi-family property is classified as an investor property regardless of occupancy. That classification is not something you elect.
What to do if this describes your building
In order, and without wishful thinking:
1. Count honestly, by area rather than by door. Work out what share of net rentable area is in short-term use. That is closer to how vacancy is defined than a unit count is.
2. Decide whether this is a few units or the business model. A handful of units is a timing problem. A building operated as short-stay accommodation is a property type problem, and no amount of restructuring the rent roll changes that.
3. Convert to annual leases and stop listing, then start counting. The trailing 90 days is what gets measured. Nothing you do in the week before application shortens it.
4. Get real leases signed. Residential leases may be required, and a lease you can produce is the difference between an occupied unit and an argument.
5. Bring the situation up at the start. A property type or occupancy question answered in week one costs a conversation. The same question answered after an appraisal costs the appraisal.
The properties commercial lenders will not finance at all are a separate list, covered in [what property types commercial lenders will not finance](/blog/what-property-types-commercial-lenders-will-not-finance).
What this page does not do
This page explains one provision and the requirements immediately around it. It is not an approval, a quote, a rate, or a commitment to lend, and nothing here is a term sheet.
It does not tell you whether short-term rental is legal at your address. Zoning, permitting, local ordinance, condominium and association rules, and any tax consequence of changing how you operate the building are questions for your municipality, your attorney and your accountant.
It does not price your loan. Pricing depends on program, property type, credit score, LTV, amortisation term, loan amount and occupancy status, and any material change to those during underwriting can move it.
It does not cover the appraisal process, environmental review, title, entity formation, reserves and holdbacks, or the closing timeline. It does not restate the discount applied to short-term rental income on the 1-4 unit investor program, or the full ineligible property type list; both have their own pages, linked above.
Where the guideline is silent, this page says so rather than filling the gap. The most important silence is the one noted above: there is no stated unit or revenue threshold at which a 5+ unit building with some short-term units becomes an ineligible hospitality property. That judgment is made on the facts of the specific building, and it is made early.
Guideline SBC 08/03/2026 · Reviewed August 31, 2026
Published September 1, 2026 · Updated September 1, 2026
How to use this guide
This article is educational guidance, not an offer or commitment to lend. Rules, property facts, credit, leverage, documentation, and full underwriting still control any actual scenario.