Investing in a rental property or an income property usually involves one of two options: renting it out traditionally or renting it out on Airbnb. Comparing both is very relevant especially in today’s real estate markets where Airbnb rental properties are becoming more and more popular as a real estate investing option. In this blog, we’re going to be comparing both options by focusing on Airbnb rental income and traditional rental income as the points of comparison.
What’s the difference between Airbnb rentals and traditional rentals?
The difference between Airbnb rental properties and traditional properties is that Airbnb properties are usually rented out short term (usually up to a maximum of 30 days) versus a long term commitment where your tenants stay for at least six months and pay monthly dues or rental income. Of course, this could vary according to the city or state you’re investing in, but generally speaking, this is the case.
Airbnb rental income
There are different factors to take into account when you’re considering purchasing an Airbnb investment property. Some of those are your time, availability, and rental income. Airbnb rental income is one of the most important ones. Simply said, it’s your main source of income, so it’s important to understand what Airbnb rental income entails when investing in real estate.
Why Airbnb rental income trumps traditional rental income
First and foremost, it’s important to mention that many investors who have tried both forms of renting an investment property attest that Airbnb rental income can be higher. It can be higher in cash flow generation, nightly rate, and can thus be a more profitable investment.
Another reason why Airbnb rental income may be more enticing for a real estate investor is its more flexible pricing. Airbnb rental property investors and hosts can price an Airbnb property the way they see fit. Thus, as an Airbnb host, you can change your pricing according to seasons and even in between tenants. This allows the investor to profit off of high seasons like summer, holidays, festivals, etc. and increase their Airbnb rental income. In contrast, with traditional rentals, it’s more difficult to change the price since traditional investors in the same area usually charge the same range of monthly rent. Moreover, landlord-tenant leases usually restrict a landlord’s ability to change or increase rent accordingly.
Another way your Airbnb rental income can be higher is that it’s essentially free to list your property on Airbnb. Apart from Airbnb service fees, it’s a platform with zero cost. This means that you can save up on marketing costs, further increasing your Airbnb rental income.
Moreover, Airbnb provides a review option in which both hosts and guests are able to review each other. Having positive Airbnb reviews can be helpful since they can in effect market your property for you and can be a source of encouragement for guests to stay at your property. And the more guests that review you positively, the more future guests you’re likely to receive, and the higher your Airbnb rental income will be. Additionally, because Airbnb shows Airbnb guest reviews, it makes it easier for you to vet guests/tenants. Plus, the system itself is set up in a way that guarantees your payment, a problem many traditional rental property investors face with their tenants.
Finally, Airbnb provides a “host protection insurance” policy which helps you save up on costs of getting your own insurance in a traditional setting.
Why traditional rental income trumps Airbnb rental income
Despite its numerous perks, the Airbnb rental property option is not perfect.
Airbnb properties are less consistent than traditional investments. Airbnb properties highly depend on occupancy rates. This can be an issue with seasonal Airbnb properties. For example, your Moses Lake property may get many bookings in summer months but may be slower during winter seasons. This can obviously affect your Airbnb rental income. Conversely, a traditional rental property is less affected by seasonal changes since your tenants sign a lease that’s more long-term. At the same time, this problem can be overcome by finding ways to keep your Airbnb occupancy rate high. This can be done by several methods: marketing your property right, making sure you get positive Airbnb reviews, keeping your property aesthetically pleasing, clean, having competitive pricing, posting nice photos of your property, among other ways.
Pricing can be another issue when it comes to Airbnb rental income. Because pricing is more flexible for Airbnb properties, there’s more competition, especially from non-investors, the likes of hosts who just rent out their property without actually intending to become real estate investors.
A different reason an investor may refrain from choosing to invest in an Airbnb property is that managing multiple Airbnb properties can be more difficult than managing multiple traditional rentals. Imagine owning two or more Airbnb properties with multiple guests checking in and out during the week or month. You’ll need to be more alert or on call since there are more people to take care of as opposed to one tenant for a traditional property.
The above also presents another concern that many investors have – the fact that Airbnb rental properties can require more work on an investor’s end. This may be true since Airbnb rentals have higher turnover rate, which means that an investor has to deal with multiple tenants per month, run cleaning and repairs more often, etc. At the same time, many of these tasks can be made easier by using technology. Today, beyond a few messages from a host, an Airbnb guest doesn’t even have to interact with their hosts. With digital locks, a set check-in and check-out time, a host can find their way around pretty easily.
The bottom line…
Obviously, both real estate investing strategies can be profitable. And remember that at the end of the day, the success of your property depends on the locations you’re investing in, your commitment to your property, the time you allocate, among other factors. Finally, Mashvisor can be very helpful in determining whether a specific city and/or neighborhood is better for Airbnb or traditional investment. When researching a neighborhood or a city, you can find this information under “optimal rental strategy.” Moreover, the Airbnb profit calculator can provide you with a simple, yet accurate way to measure the profitability of real estate investment. Has owning an investment property always been this easy?