Airbnb offers great opportunities for anyone looking to make money in real estate. With over 150 million guests making trips to 65,000 cities around the world (according to AirDNA), investing in Airbnb rentals is quickly becoming the optimal real estate investment strategy for savvy property investors.
However, not all who rent out on Airbnb are making great returns. Why? Well, there are certain factors that determine what kind of Airbnb return on investment you can expect to gain. To find out what they are and what you can do to maximize your real estate return on investment, just keep reading!
Where Your Airbnb Is Located
Many real estate investors (especially beginners) looking to buy an investment property to rent out on Airbnb often think that buying a property close to home is the most sensible decision. You know the housing market, it’s easy to get to for cleaning and maintenance, and you might even know people who are renting out their place on Airbnb and are making extra cash.
However, investing in an Airbnb rental property far from where you live will give you a significantly higher Airbnb return on investment. Real estate investors will have the whole country to pick from, allowing them to find the best markets for the best returns on short-term rental properties. AirDNA believes out-of-state investing is great for Airbnb rentals too! According to AirDNA, owning an Airbnb investment out of state “forces you to make your investment a passive one.”
Why limit yourself to your local market when a better real estate market exists? If you’re looking to invest in a short-term rental property in 2019, look to invest in markets that have better economies and tourism. A better economy can mean stability for the housing market and better tourism means a higher Airbnb occupancy rate and higher rental income. Together, these factors allow for the best Airbnb return on investment.
Rental Property’s Costs and Expenses
Every real estate investor knows that rental costs and expenses will affect your investment property’s cash flow and bottom line. Cash flow is simply your monthly rental expenses subtracted from your monthly rental income. If the costs of owning and running a short-term rental property exceed your rental income, then you can’t really expect a good Airbnb return on investment. Let’s take a closer look at two Airbnb investment opportunities to further explain: one in Los Angeles, CA and the other in Lansing, MI.
A beginner real estate investor might think that an Airbnb rental property in Los Angeles will make great returns. However, despite being one of the most popular tourist destinations in the US, it’s not the best place to invest in for Airbnb return on investment. Property prices there are too high ($935,350 according to Mashvisor’s Investment Property Calculator) and with additional running costs of maintenance, bills, and insurance, it’s almost impossible to sustain positive cash flow.
In comparison, Lansing is one of the most affordable housing markets based on Mashvisor’s data (the median property price is only $102,100). The Greater Lansing region welcomes over 4.8 million tourists a year, meaning you’ll certainly have a high Airbnb occupancy rate. In addition, an Airbnb rental property here will yield a monthly rental income of $2,674. Seeing as the costs of owning a rental property here are not as expensive as in Los Angeles, you can definitely expect positive cash flow and better returns.
Want to get this kind of data for Airbnb (and traditional) investment properties in your city of choice? Start out your 14-day free trial with Mashvisor now.
Airbnb Laws and Regulations
Depending on where you choose to invest in real estate short-term rentals, listing an investment property on Airbnb can be highly regulated, involves higher taxes, licensing costs, inspections, and other large fees. This will most certainly affect what Airbnb return on investment you can expect in 2019.
Airbnb runs into strict regulations in popular areas, like Los Angeles. New laws regarding Airbnb rentals in Los Angeles (set to take effect in July 2019) only allow primary residences to be rented out for the short-term. Therefore, if you’re an Airbnb real estate investor here and you don’t live in the property for at least 6 months out of the year, you’ll no longer be able to list your rental property on Airbnb. Also, homeowners are only allowed to rent out their primary residence to short-term guests for up to 120 days annually.
In non-traditional areas, on the other hand, city officials are largely passive and even welcoming to short-term guests and hosts. Going back to our comparison, city officials across the greater state of Michigan have been largely silent on the issue. Officials are even pushing to pass bills that prevent any city from banning Airbnb short-term rentals! This means that renting out a non-owner occupied Airbnb investment property in Lansing remains legal. Furthermore, Airbnb hosts are unlikely to face restrictions, taxations, fines or licensing problems. Thus, it only makes sense that real estate investors can expect a higher Airbnb return on investment in Airbnb-friendly markets.
Tips to Maximize Your Airbnb Return on Investment
#1 Have a Pricing Strategy
Successful Airbnb real estate investing starts with the right rent price. You want to make enough Airbnb rental income while still having a competitive price at the same time. To achieve this, you need to have an Airbnb pricing strategy and get rid of the “one size fits all” strategy! Account for things like seasonality, special events, neighboring competition, and travel trends in your pricing strategy. In addition, research the price of competing listings in your area. Then, make adjustments as needed: for example, lower the rent price during the off-season to attract guests and increase it during peak season when the demand is high.
Another thing that’ll help you set the right rent price for the best Airbnb return on investment is using an Airbnb Profit Calculator. Simply plug in the costs associated with your Airbnb rental property (price, rental income, monthly expenses) and this tool will provide an estimation of what kind of returns you can expect from this investment property before you buy it. This helps you ensure that the rent you’re charging allows for positive cash flow and good ROI. You can get your hand on this tool right here on Mashvisor!
To start analyzing the best Airbnb investment properties in your city and neighborhood of choice, click here.
#2 Use Airbnb Analytics
If you want to be a successful Airbnb host, then using analytics is a must. Airbnb analytics uses the past to predict future outcomes through traditional and predictive analytics. By using big sets of historical data, you can make accurate projections for future market trends. This helps Airbnb real estate investors make wise investment decisions with confidence and reduce the risks of investing in short-term rental properties.
Another advantage of using Airbnb analytics is that it gives you an analysis of key Airbnb return on investment metrics. This way, you’ll get a better projection of your investment property’s profitability and how it’ll perform over the long-term. With this kind of data, a smart real estate investor will be able to identify profitable Airbnb opportunities and find the best investment before anyone else! These metrics include:
- Comparable Rental Income
- Estimated Rental Expenses
- Cash Flow
- Cash on Cash Return
- Cap Rate
- Airbnb Occupancy Rates
- Rental Comps
#3 Optimize Your Airbnb Listing
Don’t let a boring Airbnb listing hold you back from achieving the best Airbnb return on investment. Instead, optimize your listing to stand out and reach as many potential short-term guests as possible. Add all the required information, add appealing photos, be responsive, improve your property description, and encourage guests to leave reviews. Look at your Airbnb listing – not as a host, but as a guest and see if it gives a good first impression. Another good tip to optimize your Airbnb listing is to look at a few of the top Airbnb listings on the site for reference.
The Bottom Line
Airbnb real estate investing quickly became one of the best ways to make money for beginner investors. However, the kind of Airbnb return on investment that you can expect depends on certain factors: your location, expenses, and short-term rental regulations in the housing market. If you want to increase your chances of succeeding with an Airbnb rental property, follow our tips and sign up for Mashvisor to get your hands on advanced investment tools that will help you make faster and smarter real estate investment decisions!