Short-term rentals are becoming an increasingly popular source of passive income for many real estate investors all over the world. Platforms such as HomeAway, VRBO, Vacasa, TurnKey, Booking.com, FlipKey, and Hotels.com have made it easier for investors to list their rental properties and find guests. However, the undisputed king of short-term rentals is Airbnb. With over 150 million users and 7 million listings globally, this platform continues to grow at an exponential rate.
Listing your apartment, cabin, boathouse, treehouse, or beach house on Airbnb can bring a very good return on investment. However, before you invest in Airbnb property, it is very important to understand Airbnb pros and cons.
Here are some of the Airbnb pros and cons to consider:
Advantages of Airbnb
- More profitable than traditional renting – When it comes to traditional vs Airbnb investments, the latter is usually the more lucrative option. This is because short-term rentals are charged on a nightly basis. Let’s say you have an income property in the Miami real estate market where renting out a single family home could generate rent of up to $2,000 per month. Listing the same investment property on Airbnb could bring in up to $200 per night. This means that it would only take you 10 days to earn an Airbnb income of $2,000. Even if the unit has a 50% Airbnb occupancy rate, your gross monthly income will be $3,000.
- No need to purchase property to get started – With Airbnb, it is possible to make money without necessarily buying an Airbnb property. All you need to do is simply rent out or lease a property, and then list it on Airbnb (with the owner’s permission). You will then be required to pay the homeowner a fixed monthly rent each month. Any amount you make above that goes into your pocket.
Learn more about this real estate investment strategy by reading: Learn How to Make Money with Airbnb Rental Arbitrage.
- Bad tenants don’t stay long – Bad tenants can be a nightmare for any landlord. These are tenants who pay rent late, disturb their neighbors, damage property, illegally sublet units, or fail to pay for utilities. For traditional landlords, the eviction of bad tenants can be a very expensive and time-consuming task. Since the average stay in an Airbnb rental is one week or less, you will not have to worry about being stuck with a bad tenant for a long time.
- More flexibility – Another great benefit of Airbnb is that you can block off dates when the rental property is not available. When such dates are blocked on your Airbnb calendar, they cannot be booked by potential guests. Such flexibility is helpful when you would like your friends or family to use the home, or when major repairs or renovations need to be done.
Disadvantages of Airbnb
- Maintenance and management are labor-intensive – An Airbnb investment property involves a lot more in terms of maintenance and management compared to a traditional rental. Before guests check-in, you will have to answer a wide range of questions, such as how to access the property, how to activate the alarm system, where to park, or how to operate household appliances. After each stay, you will have to clean the rental property and prepare it for new guests. Running an Airbnb also involves constantly adjusting your rates depending on the season.
- Higher expenses – To attract potential Airbnb guests, you might need to invest some money upfront to ensure the income property looks classy. After buying an Airbnb for sale, you will need to invest in high-quality beds, furniture, appliances, and décor. In addition, you might need to install free cable TV and Wi-Fi, as well as pay for professional cleaning or property management services. When you add other costs like insurance and licenses, running an Airbnb business turns out to be a very expensive affair.
- Bad reviews can hinder future bookings – Airbnb guests usually look at the reviews of a rental property before making a booking. Having even one bad review on Airbnb can have a very detrimental effect on your business. Potential guests will think twice before booking with you. The good news is that Airbnb allows hosts and guests to discuss reviews before they go public. As an Airbnb investor, you must stay on top of reviews to avoid problems in the future.
- Irregular income – With traditional rental properties, tenants usually sign a long-term lease. Being able to collect rent each month allows you to enjoy a steady cash flow. However, Airbnb rentals can be very inconsistent when it comes to income. You are likely to find yourself with many vacant dates each month due to low bookings or blocked dates. The problem of vacancy can be exacerbated if you live in an area where the law limits the number of days an Airbnb home can be rented out.
Avoid this issue by investing in Airbnb in a neighborhood with high Airbnb occupancy rates.
- Risk of damage – When you have a good tenant in a long-term rental, you won’t have to worry about the safety of your property. However, having new guests checking in and checking out of your investment property on a weekly basis can be very risky. There is a high chance that, at some point, you will host rowdy or careless guests who might break your appliances or deface your property. You can mitigate this risk by screening tenants and buying insurance designed for short-term rental properties.
While it’s true that there are some downsides to this real estate investment strategy, Airbnb hosting is something worth considering. If you are patient and willing to work hard, Airbnb investment property profits will eventually roll in. However, before buying Airbnb property, make sure you understand the Airbnb pros and cons. Do your research to find out the Airbnb occupancy rate, cap rate, cash on cash return, and cash flow for the area you are targeting as well as the property in question. You can do all of this with Mashvisor’s real estate investment tools. Don’t forget to find out about the laws governing short-term rentals in your area. If you discover that Airbnb is not the right real estate strategy for you, consider investing in a traditional rental property instead.