Launched in 2007, Airbnb is an online property rental marketplace where people can rent out their houses, apartments or condos for short-term accommodation. According to recent statistics, Airbnb has over 6 million listings globally and more than 150 million users. Here are some of the reasons why travelers prefer Airbnb short term rentals to hostels, motels, and hotels:
- Cost – Airbnb short term rentals cost much less than comparable hotel rooms. In some locations, a whole house can be rented for the same cost as a single hotel suite.
- Privacy – Airbnb visitors enjoy privacy since they are not always surrounded by hotel staff and other guests.
- Living locally – Airbnb short term rentals give guests the opportunity to ‘live like a local’ at the chosen destination.
- Diversity – Airbnb offers a wide range of accommodation options including castles, lighthouses, yachts, and boathouses.
- Peace and quiet – Since Airbnb rentals are usually secluded, guests are spared from noisy activities such as guest check-ins or departures, traffic, maid service, and late night entertainment.
- Comforts of home – Unlike hotels, Airbnb short term rentals offer visitors a home-away-from-home experience.
- Space for friends and family – By renting an entire condo, apartment or house for friends and family, guests can avoid paying for multiple hotel rooms.
It’s clear then that owning an Airbnb can be a very profitable real estate investment for anyone with some space to spare as these rentals attract many guests throughout the different seasons.
However, owning an Airbnb rental property comes with disadvantages such as potential damage to property, legal restrictions, and fees. In addition, managing the property can be very time-consuming. However, with the right approach, you can still make passive income with Airbnb short term rentals.
Here is how you can turn Airbnb rentals into passive income real estate:
1. Know How to Find Positive Cash Flow Properties
When an Airbnb rental has a positive cash flow, it’s the first step to having a passive income in the long term. So, before buying a property for Airbnb, be sure to carry out some research on the location and get realistic estimates of potential earnings from renting your space. Revenues from Airbnb short term rentals will be determined by two factors:
- Demand – Is the property centrally located, close to public transit, shops or tourist sites? Does the rental property offer scenic views of the area? Is it in a location where hotel prices are very high? These are some of the factors that will determine the demand for your passive income properties.
- Seasonality – In some locations, demand for Airbnb short term rentals reduces drastically during seasons such as winter or summer.
Investors can find suitable locations using an Airbnb heatmap. At the same time, an Airbnb profit calculator could come in handy for evaluating the potential rental income of a property. Get access to these tools by signing up to Mashvisor.
Besides calculating the Airbnb passive income potential, real estate investors need to understand the local legal requirements. In most locations, hosts need to get permission first before renting out on Airbnb.
Laws concerning the hosting of paying visitors vary from one state/city to another. In some places, it is not allowed at all, while in others, hosts might need to get a business license.
In addition, hosts might be required to pay an occupancy tax, similar to what is charged at hotels. All the permits, licenses, and taxes involved in running an Airbnb property can significantly reduce your passive income. This is why you must be aware of them beforehand.
2. List and Price the Property the Right Way
Once all the permissions have been obtained, the next step is to get the Airbnb short term rental listed. Begin by looking at the listed prices and features of other similar Airbnb listings in your location. Your listing should emphasize what makes your space unique compared to the competition.
For example, is it located near great cultural activities, nightlife or restaurants? Is it within walking distance of the train or bus terminus? What amenities do you offer (cable television, a fully stocked kitchen, an outdoor patio, wireless internet)?
Write a detailed outline of the features and amenities provided, as well as the rules and regulations for guests. Your Airbnb listing should also contain very clear images of your space. However, avoid the temptation to exaggerate any detail. If guests don’t find what they expected, they will leave a negative review, thus negatively affecting your rankings.
To generate positive cash flow and, therefore, a passive income, make sure the pricing of your Airbnb short term rentals is competitive based on the going rate in your area. You also need to consider the costs of housing such as taxes, utility bills, insurance, cleaning, and the Airbnb host fee.
3. Hire a Property Manager
Airbnb property management involves responsibilities such as:
- Responding to inquiries from potential guests and managing bookings
- Meeting guests to collect or hand out keys
- Making sure the house or apartment is properly cleaned and prepared for new arrivals
- Handling maintenance issues such as plumbing, pest control, and appliance repairs
- Being available 24/7 to attend to guests
A well-managed property is likely to generate good reviews from guests, more bookings, and a higher rental income. However, if you don’t have the time or experience necessary for managing the property and you desire passive income, you will need to hire a professional property manager. Preferably, this should be someone that has experience managing other Airbnb rental properties.
4. Improve Your Host Ranking
Getting a high ranking is crucial for the profitability of any Airbnb business. A high ranking means better visibility online, improved Airbnb occupancy rate, and subsequently positive cash flow and a high passive income. Here are some of the ways hosts can improve their ranking:
- Verification – When creating an Airbnb profile, be sure to include all the crucial information such as your email address, phone number, and social media profiles. Don’t forget to add a good headshot of yourself. This will give potential visitors some assurance that you can be trusted.
- References – References from family, friends, business associates, and co-workers will help to further build trust in your Airbnb short term rentals.
- Offer great customer service – Airbnb hosts who offer the best customer service enjoy positive reviews, more bookings, and higher search rankings. Good customer service means responding to guest inquiries as fast as possible. Problems such as burnt out bulbs or leaking taps should be fixed immediately. Airbnb monitors your responses to guests and gives an appropriate rating.
The Bottom Line
Ultimately, the formula for passive income with Airbnb rentals is positive cash flow + professional rental property management. This means ensuring you find a cash flowing investment, list and price it correctly to achieve just that, hire a reliable manager, and make sure they help you to get high rankings as an Airbnb host!