Is investing in an Airbnb short term rental still a good investment strategy, or is it a better idea to invest in a monthly rental instead?
As a beginner investor, it is one of the most important questions that you need to ask yourself before you start investing.
Table of Contents
- Comparing Short Term Rentals vs Monthly Rentals
- How to Analyze Short Term vs Monthly Rentals
- Where to Find Airbnb Short Term Rentals for Sale
The real estate market is ever-changing. It means that last year’s best strategies might not be today’s best strategies.
Over the past decade, Airbnb short term rentals dominated the rental real estate market due to how lucrative they are. But as 2022 draws to an end, several markets across the US are seeing significant growth in the performance of monthly rental properties.
However, it doesn’t mean that short term rentals are no longer viable. On the contrary, the demand for short term rentals grew significantly in the past year, following the lifting of the COVID-19 lockdowns.
So, in this article, we will look at today’s real estate market to answer questions about short term rentals vs monthly rentals. We will discover the advantages and disadvantages of investing in each, how to analyze a good investment opportunity, and where to find the best Airbnb for sale.
Comparing Short Term Rentals vs Monthly Rentals
To choose between the two strategies, every investor needs to know the differences between short term rentals and monthly rentals. While both investment strategies revolve around renting out your property in exchange for rental income, the two strategies differ in a number of ways.
So, let’s take a closer look at the Airbnb short term rental strategy and the long term monthly rental strategy to see what advantages and disadvantages they have.
Airbnb Short Term Rentals
Short term rentals are properties that are rented out to guests for short periods of time that typically range from one night to a couple of weeks.
The most unique aspect of the short term rental strategy is that you don’t need to rent out an entire house or apartment to make money from it. Instead, many investors opt to rent out a spare room in their primary residence through a short term rental platform like Airbnb.
In some ways, running a short term rental business is similar to owning a small hotel.
Of course, you’re not limited to only renting out a room in your primary residence. Many investors start out their real estate investing business by purchasing multifamily homes and renting out multiple units as short term rentals to maximize their returns.
It is why Airbnb short term rentals are very popular among beginner investors – because they offer flexibility. Many beginner investors can’t afford to buy an investment property for the sole purpose of renting it out.
Short term rentals offer them the chance to kickstart their real estate investment business and make a profit from their primary residence before they can afford to buy more rental properties.
However, it is important to note that the biggest disadvantage of using Airbnb short term rentals as your main investment strategy is due to existing regulations. There are markets that impose strict laws that prohibit or significantly reduce the viability of short term rentals as an investment strategy.
So, before you consider it as your rental strategy, make sure you research the laws and regulations regarding Airbnb and short term rentals in any market that you want to invest in.
Related: How to Buy Your First Airbnb Property
Long term monthly rentals are the most common and well-known type of rental real estate. They include any house or apartment that you rent out to long-term tenants via a landlord-tenant agreement. The duration of a landlord-tenant agreement is typically at least one month.
Rental property owners are called landlords, and they are free to create their own agreement. Such agreements relate to the duration and the terms that the tenant must follow while living in your property.
In today’s real estate scene, most young adults are opting for renting instead of buying their first home due to property prices becoming unaffordable in many markets.
Monthly rentals share a very intricate relationship with home values since people who can’t afford to purchase a house will choose to rent, therefore driving the demand upwards. With the significant rises in property prices in the past few years, we are now seeing increased demand for monthly rentals across most markets.
So, in addition to being low-risk investment opportunities, the higher demand for monthly rentals is making them become more lucrative for running a real estate investment business.
An important advantage to note when considering monthly rentals as your primary investment strategy is in relation to financing. Monthly rentals are much easier to purchase because there are more financing options available to you.
And since monthly rentals bring in a consistent monthly rental income, good financial planning will allow you to pay your entire mortgage back from the income that your property is generating.
How to Analyze Short Term vs Monthly Rentals
When it comes to analyzing Airbnb short term rentals vs monthly rentals, there are important distinctions that you will need to make.
Since both types of rental properties attract different types of guests or tenants, the demand for each rental type can shift independently of the other.
The demand for monthly rentals is typically more long-term. It means that when demand for monthly rentals increases in a market, it is expected to remain that way for a while.
On the other hand, the demand for short term rentals is very seasonal and can shift drastically between summer and winter.
So, with the two main differences in mind, let’s look at how you can analyze a market for each rental strategy.
Analyzing Short Term Rental Markets
As previously mentioned, the demand for short term rentals is significantly dependent on seasonality and other annual events.
Due to their hotel-like nature, people who stay in short term rentals are usually travelers. They include tourists, business travelers, event attendees, or other types of people who are only staying in the area for a short duration of time.
During their short stays, most Airbnb guests aims to maximize the use of their time. The tourism industry, of course, operates around the same drive.
It is why you will often see annual festivals that take place around the same time of the year, like during the same week or month. By doing so, they allow tourists to take advantage of all the said events during their short stay.
As a real estate investment business owner or as an Airbnb short term rental owner, you will want to take advantage of such periods throughout the year to maximize your returns.
For example, if you own a short term rental in a coastal area that people like to visit during the summer, you should look at the attractions that your potential guests will be looking for.
Attractions can be both landmarks and locations, or they can be events that take place at a specific time. And the best short term rental markets are ones where you can find both landmarks and events taking place year-round.
So, when analyzing a market for an Airbnb short term rental investment, you should buy a vacation rental property that gives access to such attractions.
And by looking at the event schedule in that market, you can predict or adjust your rental rates to match the increased or decreased demand during certain times of the year.
Related: 100 Best Short Term Rental Markets in 2023
Analyzing Monthly Rental Markets
We previously mentioned the relationship between property prices and the demand for monthly rental properties. It is considered one of the main indicators to look at when analyzing markets for monthly rental investment businesses.
In fact, one of the main metrics that you will see used in online real estate investment platforms such as Mashvisor is the metric: price to rent ratio. The price to ratio metric tells investors whether a market is considered more affordable for renting or for purchasing a property.
A price to rent ratio of 15 or below is generally considered worse for investment rentals because it means that buying a property to live in is more affordable than living in a rental home. On the other hand, a price to rent ratio of 20 or above means that the demand for rental homes is high because properties are too expensive.
Of course, as a beginner real estate investor, you might not be able to afford a property in an expensive market despite the temptation of high demand for rentals. However, it doesn’t mean that you can’t find lucrative properties in markets with lower demand.
Since property prices are increasing across the US, the demand for rentals is increasing in most markets.
Additionally, there are other metrics to take into consideration when analyzing markets for both Airbnb short term rentals and monthly rentals alike.
Analyzing Markets for Both Rental Strategies
While each rental strategy relies on different indicators to analyze the market, there are some metrics or methods of rental analysis that both strategies use.
When analyzing a rental market, every investor will want to know what the return on investment is going to be. The return on investment for rental properties is calculated in a similar manner for both rental strategies using metrics such as the capitalization rate and cash on cash return.
Both metrics require the investor to obtain certain types of data about the markets or properties that they want to analyze. The most important pieces of information that investors need to know are the monthly rental income and the price of the property.
When analyzing a market, the investor would need to know the average monthly rental income that short term and monthly rentals generate, as well as the median property price in that market.
To get the most accurate results, investors will also need to account for other costs and expenses that will incur from owning a property in that market as well.
Important Expenses to Take Into Consideration
Since owning a rental property business is a long-term investment, it is very important to account for the expenses of running that business even after you’ve paid for the property.
There are many types of one-time costs and recurring monthly or annual expenses that can ramp up in price. When you’re calculating the cost of buying the property, for example, it’s important to account for all closing costs, agent fees, property registration, legal fees, and other costs that may incur.
Additionally, when calculating the return on investment based on the rental income that the property is generating, it’s important to deduct the monthly and annual expenses such as:
- Property management
- Property maintenance
- HOA fees
- Cleaning costs
The above list includes only a few of the costs and expenses that investors need to account for.
While not all of them will apply to every property or every rental strategy, knowing what the average expenses are for owning a rental property in a market is very important.
Of course, gathering all of the required information can be very challenging, especially for a beginner real estate investor. Luckily, online real estate platforms like Mashvisor can be excellent tools to solve such a problem.
So, let’s see how you can find Airbnb short term rentals or long term monthly rentals using Mashvisor’s online platform.
Related: How to Estimate Rental Income on Short Term Rentals Using Mashvisor
Where to Find Airbnb Short Term Rentals for Sale
Finding lucrative investment and rental properties for sale is one of the biggest challenges that a beginner investor can face. It is because it’s not easy to access the data that is needed for analyzing markets and properties and predicting their rate of return.
However, in today’s real estate world, there are many online platforms and sources of data that are accessible to investors. Mashvisor is one of the platforms that specializes in providing real estate tools, data, and analytics to help beginner investors find rental properties for sale.
By obtaining data from several trusted sources, including the MLS and Airbnb, Mashvisor’s algorithm crunches the data and turns it into useful insights.
So, let’s take a look at how Mashvisor can help you during the most crucial steps of analyzing markets and finding a profitable Airbnb short term rental or monthly rental property.
Analyzing Markets and Finding Properties
The first important use that you will find with Mashvisor is the ability to analyze markets and find properties using a very effective and easy-to-use map tool.
After entering a location, such as a state, city, or neighborhood, into the search bar, the map tool will immediately show you stats and analytics for that market.
The map interface will show you information about the number of properties for sale in each smaller market within that larger market that you’re looking at, alongside the median prices and rental rates of properties there. You can freely zoom in and out of areas on the map to adjust your view and the information you’re seeing.
Additionally, the tool comes with a wide variety of features, such as several filters to narrow down your search based on property types, rental strategy, or the projected rate of return.
By using Mashvisor’s map tool, investors can get quick insights to analyze markets before picking a suitable one. Afterward, investors can zoom all the way down to the neighborhood level, where they can view and compare even more insights and analytics for each individual property.
Rental Property ROI Calculator
Another extremely important tool that any beginner investor will want to use is Mashvisor’s rental property calculator tool. The tool lets you analyze each investment property separately and see all of the information that you need to know about that property’s rental performance.
Instead of calculating all of the metrics mentioned above, the rental property calculator will conveniently provide you with the desired results. But to help you get the most accurate results on your rental property analysis, the values on which the calculations are made can be adjusted and changed.
For example, the calculator shows you the breakdown of the costs and expenses for each property in accordance with the market that it’s in. You can adjust the expense figures or remove and add new ones, like insurance or taxes, to get results that are more specific to your unique case.
Similarly, the tool includes a mortgage calculator that lets you see what your return on investment and 5-year payback rate will look like based on the mortgage’s amount and interest rates.
It is probably the easiest, fastest, and most efficient way to analyze markets and rental properties based on metrics like the cap rate and the cash on cash return.
Finally, all of Mashvisor’s tools, including the map tool and the rental property calculator, can separate between Airbnb short term rentals and monthly rentals.
So, regardless of the strategy that you choose, Mashvisor can help you find your best investment property with ease.
Start using Mashvisor today using our 7-day free trial offer.
Should You Invest in Airbnb Short Term Rentals?
Investing in rental properties is a great idea for any beginner investor, whether they want to buy an Airbnb short term rental or a long term monthly rental.
Going into 2023, the shifts in the real estate market are resulting in increased demand for rental properties in the US. To take advantage of the rising demand, investors are looking for excellent rental properties and vacation homes for sale.
Choosing between an Airbnb short term rental and a monthly rental plays a significant role in the future of their investment. Both rental strategies come with clear advantages and disadvantages that investors may seek to use. It means that analyzing markets and properties can also be different based on the rental strategy that you want to use.
Luckily, online tools like Mashvisor can assist you in analyzing any market and finding great investment opportunities in rental properties for sale.
Whether you’re looking for Airbnb short term rentals or monthly rentals, Mashvisor’s data comes from trusted sources like Airbnb and the MLS, and the insights they provide can help you make the right decision when the time comes to invest.
Want to learn more about Mashvisor? Book a time for a demo of our platform now!