Since its launch, Airbnb has provided millions of people with accommodation. Landlords and tenants have resorted to Airbnb given its accessibility and ease of doing business. In fact, owning an Airbnb makes a great rental strategy.
When you are investing in an Airbnb property investment, you have the option of living in your property and also making a profit without having to buy an additional property. But it is important to note that owning any real estate investment has its own risks.
Does owning an Airbnb property investment have risks associated? Certainly. Now you may be wondering how to start an Airbnb business while accounting for the risks that will accompany this investment.
Today, we will present to you the risks that your Airbnb property investment might face. We will also present ways to overcome such risks so as to generate a high return on investment for your Airbnb investment.
Airbnb Property Investment Risk #1: Forgoing Personal Safety
When you are renting your property on Airbnb and living on site, you are giving up your freedom and personal space to complete strangers. If you are renting one room of your property, chances are you will be spending the night with them. It is then your duty to learn of their intentions.
Although Airbnb provides profiles for potential tenants allowing you to assess renters prior to booking, you still do not know of their actual intentions.
To avoid any bad intentions, we recommend that you thoroughly scan tenants before offering accommodation. You can do so by requesting an interview or survey for them to fill. If they make you comfortable, select them. If they do not, move on to the next potential renter.
Alternatively, you can buy an investment property to rent out on Airbnb. While it will cost you, you can always finance the real estate investment with a loan and therefore, enjoy your personal space in your residential property while making money in real estate with your Airbnb rental property. Still, make sure to be selective with Airbnb guests to avoid property damage.
Airbnb Property Investment Risk #2: Fierce Competition
Making money with Airbnb is not assiduous, but be wary of the fierce competition. In fact, Airbnb today operates in over 65,000 cities with more than 3,000,000 listings. The risk of not competing in the market can leave your Airbnb investment non-operational. Therefore, you must differentiate your Airbnb property investment from others within your location.
How do you do that? Offer slightly lower prices and/or spend extra money on amenities to impress tenants. Happy tenants will leave good Airbnb reviews and these are essential for the success of your investment. So, buy good quality bedding and bath accessories, welcome your guests with a gift basket, and provide brochures and a list of local amenities.
Airbnb Property Investment Risk #3: Vacancy Risk
When renting your Airbnb property investment, you know for a fact that you won’t have tenants living in your property all year round. The possibility of having a high vacancy is actually a risk that you should account for and overcome.
A low occupancy rate can certainly affect and reduce your rental income, therefore, leading to a negative cash flow. This risk can be major if you are relying on rental income to pay off your mortgage, insurance, property taxes, or other expenses.
To overcome such risk, you as a savvy real estate investor should select a location with high demand. These locations are usually safe neighborhoods with plenty of amenities, transportation, and attractions.
To avoid having vacancies or a negative cash flow, resort to Mashvisor’s Airbnb profitability calculator as it will show you data on occupancy rates in a selected area while calculating metrics such as cap rate, cash on cash return, or return on investment so as to drive a high return on your investment.
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Airbnb Property Investment Risk #4: Legal Airbnb Issues
Since its launch in 2008, Airbnb has offered accommodation to over millions of tenants. The emergence of short term rentals and particularly Airbnb has, in turn, shaken the fears of hotels, as they no longer welcome as many tourists as they did before.
Therefore, regulations to restrict the use of Airbnb have been enforced in many areas across the US. This poses a big risk. In some areas, when you are not compliant with city and state regulations, you will pay fines, penalties, and even serve jail time.
Make sure to study regulations in your area, especially those pertaining to short term rentals (less than 30 days). Reach out to your local city council to get more information about these regulations.
Airbnb Property Investment Risk #5: Liquidity
Another risk of owning an Airbnb property investment or other real estate investments is that these investments are not liquid, meaning you can’t easily convert them into cash. Thus, selling an investment requires time and effort.
Moreover, when real estate investors rush into selling a property, most likely they end up selling it for cheaper and/or incurring losses.
To avoid having these liquidity problems, we recommend that you carefully assess your financial solvency. If you need the money, you might consider renting more than one bedroom in your property. If you are already doing so, you could make minor renovations and charge a higher rate.
Airbnb Property Investment Risk #6: Hidden Structural Problems
Another risk of having an Airbnb property investment or any other investment property is that you might end up buying a property with major hidden structural problems. Therefore, the chances of facing unexpected repairs and maintenance increase. You will have to pay more to make your property fully operational.
To avoid buying a property with structural problems, we recommend that you get a professional property evaluation. Get a home appraisal as well. Property appraisers will be able to comment on the livability of the property and distinguish these structural problems.
Airbnb Property Investment Risk #7: Bad Tenants
When renting your property, there’s the risk of having bad tenants. We have often times heard of horror stories of tenants damaging properties or even staying for a longer period than they agreed to. Although Airbnb offers Host Protection Concierge, it doesn’t cover every incident.
Although there’s no guaranteed way to prevent the risk of having a bad tenant, you can take measures to mitigate this risk. Again, make sure to carefully assess potential renters. Look at reviews other hosts have posted on renters’ profiles.
Certainly, do not consider those with bad reviews. Upon selecting tenants, make sure to warn guests in advance that they are responsible for any damages. You could even write a manual with all the precautions and penalties that tenants ought to consider.
The best real estate investments are those that are planned right. When you assess all risks, whether liquidity, bad tenants, or hidden structural problems in a property, you are in a better position to think of ways to prevent or overcome them.