Airbnb Investment or Traditional Investment: How to Determine The Optimal Strategy

One of the most frequently asked questions among real estate investors is which real estate investment strategy is better: Airbnb investment or traditional investment? Seeing as the goal of every real estate investor is to make money from investment properties, the simple answer would be whichever makes the highest return on investment. But this leads to another question: which one is more profitable? In the world of real estate investing, there is no ultimate answer to this question. What might be profitable for one real estate investor isn’t necessarily a good option for another. Moreover, every real estate investor might have a different viewpoint on this real estate subject.

Determining which real estate investment strategy a real estate investor should follow is not a simple task. Real estate investors have to take into account a certain set of factors and attributes before making such a decision. Keep reading to learn these factors which will help you determine whether an Airbnb investment or traditional investment is the best option for you.

Airbnb Investment vs. Traditional Investment – Location

Location, location, location! This is something experts in real estate investing will never get tired of saying. The location of your real estate investment property plays a major role in the success of your career as a real estate investor. So, it’s not surprising that this is the number one factor to decide between Airbnb investment and traditional investment.

Some locations yield a higher return on investment and are better suited for an Airbnb investment and others for a traditional investment. It all comes down to the demand for each investment strategy in the real estate market. For example, if you’re a real estate investor in a market known for a strong tourism industry, such as the Las Vegas or Orlando real estate market, then an Airbnb investment would be more favorable because there’s a higher demand for Airbnb rentals than for traditional investment properties.

Related: Best Locations to Buy an Airbnb Investment Property for High Cap Rate

On the other hand, if you own a real estate investment property in a college city or an area that offers job opportunities and is attractive to students and employees, like the Nashville or Austin real estate market, then demand for traditional investment properties would be higher than for Airbnb rentals, making it a favorable market for a traditional investment over an Airbnb investment.

Therefore, real estate investors need to check the demand for real estate investing in their local real estate market and determine which investment strategy is optimal based on that.

Airbnb Investment vs. Traditional Investment – Local Laws

This factor is closely related to the location of the real estate investment property. Traditional investment properties are governed by a strict set of rules and regulations which aim to protect both the real estate investor and the tenants. However, these laws vary from place to place – they are landlord-friendly in some real estate markets and tenant-friendly in others. Thus, before determining the optimal rental strategy, real estate investors should ensure that they’re in a landlord-friendly real estate investing market.

In addition, local laws become especially important for a real estate investor considering an Airbnb investment property. Different cities in the US have different permit regulations. Others impose limits on the number of days per month or per year that real estate investors can rent out their Airbnb investment property or even the number of tenants. There are also city zoning restrictions that limit Airbnb rentals to specific neighborhoods in certain cities.

Let’s take Los Angeles for an example. In theory, LA is a perfect city for an Airbnb investment property due to tons of tourists, beaches, and entertainment. However, you might be surprised to hear that LA is one of the cities with the worst Airbnb legal issues. For instance, Airbnb investors in Los Angeles have to pay a 14% transient occupancy tax for stays of 30 nights or less!

Related: Don’t Invest in Airbnb Rentals Here: The Places with the Worst Airbnb Legal Issues

Thus, it is important that real estate investors dig deep and research what rules and regulations apply in their real estate market to determine whether an Airbnb investment or a traditional investment is the best real estate investment strategy and to ensure not to violate any laws.

Airbnb Investment vs. Traditional Investment – Property Type

The type of your real estate investment property also plays a role in determining the optimal rental strategy. In the world of real estate investing, real estate investors can choose between many types of residential investment properties. There are single-family homes, multi-family homes that range from duplexes to entire complex buildings, condos and townhouses, etc. Some real estate investment properties work best as traditional investment properties and others as Airbnb rentals.

For example, a condo would not always work as an Airbnb investment. If you’re investing in a townhome or condo and planning on renting it out as an Airbnb rental, then you must take Homeowners’ Association rules and regulations into account. Some HOAs prohibit owning an Airbnb investment, some allow real estate investors to rent out through Airbnb for more than 30 days, and others require the real estate investor to provide them with tenant information before approving.

Related: What’s the Best Property Type for Airbnb Rentals?

If you’re investing in a single-family home, for another example, then the optimal rental strategy would be a traditional investment since families look for places to live in for a long time period. However, real estate investors could decide to rent out a room of their single-family home as a vacation Airbnb investment if they’re in a real estate market with high demand for Airbnb rentals! Make sure you take this into consideration when deciding the optimal rental strategy.

Airbnb Investment vs. Traditional Investment – Target Tenants

The last factor to consider is on our list for obvious reasons. The optimal rental strategy for a real estate investor depends on the tenant he/she is targeting. If the real estate investor is targeting families, for example, then a long-term traditional investment would be the optimal rental strategy. On the other hand, Airbnb rentals are more attractive to travelers or businesspeople. These are tenants looking for places to stay for a short time period that are not as costly as hotels. Thus, if these are your target tenants, then an Airbnb investment is best for you.

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Still Not Sure? Mashvisor Can Help

Mashvisor is an online platform that provides beginner and experienced real estate investors with the best tools and data analysis to help them make smart investment decisions for a successful real estate investing career. Real estate investing tools provided by Mashvisor include the rental property calculator, rental property finder, the Heatmap, and Mashmeter. To learn more about our product, click here.

Mashvisor’s rental property calculator, specifically, is the best tool for a real estate investor to determine which real estate investment strategy is optimal! This tool allows beginner and experienced real estate investors to calculate the different values related to an investment property using a versatile and customizable tool. The main values that you will be able to calculate are Cash on Cash Return, Cap Rate, Cash Flow, and Airbnb Occupancy Rate.

Mashvisor also provides Airbnb and traditional comps based on qualitative and quantitative data gathered from different sources. This allows a real estate investor to easily compare different investment properties (and even different real estate investment strategies) to determine the optimal rental strategy and property type for both an Airbnb investment and a traditional investment.

Sign up with Mashvisor to get full access to these real estate investing tools and more to help you determine whether to go for an Airbnb investment or a traditional investment!

To learn more about how we will help you make faster and smarter real estate investment decisions, click here.

Airbnb Investment VS. Traditional Investment – The Bottom Line

As you can see, the answer to which makes the best real estate investment strategy depends on a number of factors that real estate investors must keep in mind. If you’re still wondering whether an Airbnb investment or a traditional investment works best for you, Mashvisor will help you find the answer!

To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.