Since its launch in 2008, Airbnb has taken the tourism industry by storm, and despite ups and downs in the market, owning an Airbnb rental property continues to prove itself a worthwhile investment. But, is Airbnb a good investment for you?
Committing to an Airbnb investment is a big decision. Before you dive into this rental market and turn your property into a profitable rental property, you have to take a number of things into account.
Traditional rental property vs. short-term rentals
To understand whether Airbnb investing is a good idea for you, we need to distinguish between traditional and short-term rentals. In a few words, traditional rental properties are long-term rentals that are rented out to tenants with a fixed contract for a fixed rate. In contrast, short-term rentals are properties—including entire houses or portions of your primary residence, such as a room—that are vacation homes offered for short stays of anywhere from one night up to four weeks.
Platforms like Airbnb, Vrbo, and Booking.com help you capitalize on the potential of short-term rentals—and they certainly do have potential! Because you’re able to control your average daily rate on a nightly basis, owning an Airbnb may be more profitable than renting a property with a long-term contract. Using tools like dynamic pricing can further pad monthly income from your investment property.
These tools help you understand how much you’re able to reasonably charge guests based on a variety of factors, including the amenities you offer, time of year, and the pricing of your competitors.
Traditional rental properties offer greater stability in that you can rely on a fixed amount of monthly income for the time period agreed in the rental contract. However, there are ways to creatively boost your short-term rental income relatively easily, such as making your property more attractive. Plus, the property isn’t blocked by renters for long stretches of time. This allows you to take advantage of your space and stay there yourself when the mood strikes.
What if you can’t commit to purchasing an investment property right now?
If owning a property isn’t something you can do right now, you could also try out rental arbitrage, which is one more way of making a profitable airbnb for you whatever your circumstances. Airbnb rental arbitrage is essentially when you rent a property that you then sublet via Airbnb. This is a great way to dip your toes in the water of hosting on Airbnb and deciding if investment property works for you. However, this type of renting requires the permission of the property owner and may be subject to additional rules and regulations, so it is important to become informed about any restrictions in force in your area.
Are Airbnb rentals a good investment?
Owning an Airbnb offers you a wealth of benefits. Aside from the perk of having a vacation rental that you can also take advantage of, Airbnb properties make for a good investment strategy in the long term. In fact, Airbnb CEO Brian Chesky anticipates that the coming years will see a boom in bookings, requiring millions of additional Airbnb hosts. If these predictions transpire, jumping on the wave will make Airbnb a highly profitable investment.
Another benefit to an Airbnb investment is that it serves as an effective form of passive income. While managing a property does involve some legwork, delegating it to a property management company or facilitating it through the use of Hostfully’s own Property Management Platform is a logical option. Once you get into the rhythm of hosting, you can make additional profits of anywhere from a few hundred to thousands of dollars a year through your Airbnb investment. What’s more, if you decide to re-evaluate your business model, you are free to take your property off the market any time, no questions asked.
Factors to consider to make a good Airbnb investment
Real estate investors who decide to dive into Airbnb investment need to consider several important factors.
Purchasing a property for short-term renting requires an immediate investment of funds, so understanding the current real estate market in the location where you’re looking to buy is fundamental. You can choose to either do your own research on this, or you can team up with a real estate agent or company. Housing prices are only increasing year after year which means that real estate investing is in high demand. If you decided that Airbnb rentals are not for you, you won’t be left with an unusable real estate investment either.
Beyond the cost of the property itself, you should also do your homework on other factors that will impact the profitability of the property as an Airbnb rental. Is the property in a desirable location? Is this a place people travel to often? Understanding these trends will help you to forecast how much your average daily rate should be and how profitable your Airbnb rental will be.
As with any big investment, timing is everything. You’ll need to factor in any extenuating circumstances that might impact how much you need to invest upfront and how much you’ll be able to make from your property. Circumstances that may impact your property range from construction to unstable political situations. On the other hand, events like festivals or sports tournaments could mean that a well-placed property will have a recurrent influx of guests.
Owning an Airbnb can be as simple as renting a room in your primary residence to as time-consuming as a regular job depending on the type of property you have and how you choose to manage it. Questions like how close the property is to your primary residence, how many properties you’re juggling, and how present you want to be as an Airbnb host for your guests are important to consider here. Fortunately, tasks like cleaning and even property management can be delegated to keep your schedule under control.
Taking the time to reflect on these factors can guide you in the right direction when it comes to choosing the type of Airbnb investment property for you and your approach to developing and managing your business.
How to approach pricing your Airbnb to maximize your investment property
To make the best Airbnb property and maximize your cash flow, you first need to understand the costs of running an Airbnb rental property. Recurrent costs such as taxes and bills—including any extras you include with your property, like Wifi or TV subscriptions—need to be tallied.
Beyond these relatively stable costs, you also need to bear in mind that anything people touch will inevitably experience wear and tear, particularly if your rental proves popular with Airbnb guests and occupancy rates are high! Maintenance and furniture replacement will add to the total cost of keeping your vacation rental in shape. Using tools like a security deposit helps to defray these costs. There are also a number of useful steps to take to help keep track of your property and stay on top of maintenance and expenses.
Breakdown of potential Airbnb pricing
To determine how to price your rental, you need to look at various aspects of the property on offer. Every element of your property impacts the amount people will be willing to pay. People will be willing to pay more for extra amenities such as wifi, pet friendly, and lower cleaning fee.
Vacation rental size
A larger property obviously holds more guests and therefore can draw in greater profits. However, don’t forget that a larger property also likely carries higher costs for things like utilities, potentially property taxes, and larger cleaning fees.
The more amenities you offer guests, the higher the nightly rate you can charge. Elements like private bathrooms, air conditioning, and access to an equipped kitchen all translate into higher rates. You can also charge additional fees for services such as laundry or late or early check-in. Guests oftentimes appreciate having additional options, and this helps boost your reviews and thus attract more guests.
Again, location is an essential aspect of your property. Having a prime location in a desirable neighborhood or pretty hamlet is something that guests are likely willing to pay a premium for. Things like access to public transportation (subways, bus stops, train stations), accessible parking, and so on are all valuable benefits to factor into how much guests should pay.
Renting rooms vs the whole house
Guests having free reign of an entire property is a luxury that is reflected in the cost they pay per night. If you’re only renting a portion of a property or renting rooms separately with shared communal spaces, the price per room will naturally be expected to be lower. To understand which option makes more sense for you, you should consult Airbnb data on Airbnb occupancy rates in your area.
Know your target market
Finally, you need a clear idea of who you’re aiming to rent to. If your target market is discerning guests with an appreciation for a luxury vacation experience, then you’ll need to furnish your property to appeal to that aesthetic. If you’re targeting families, then your property should probably offer additional bed space and perhaps a few nice touches like games and a TV. Tailoring your space to your target guests involves certain costs, but it also gives you a clearer picture of what to do and how much people will pay for what your vacation home offers.
Use tools and reports to inform your decisions
There are many points to consider when diving into Airbnb investments, but there are also loads of resources to help you navigate the world of short-term renting. Hostfully offers a number of tools to project and manage your short-term rental business. In addition, you can keep track of the expenses, booking, maintenance, taxes, and other aspects of your property through automation tools that will impact your property’s return on investment.
Invest and conquer
While long-term tenants offer a steadier form of income, the disparity in potential profits compared to short-term rentals is significant. It is a big decision to embark on an Airbnb investment, but taking informed steps will gear you toward success as an Airbnb property owner.