Some might say comparing an Airbnb listing and a traditional property are poles apart since one is a service and one is a product. But it is a hot question right now among interested investors, which real estate investing strategy is better? Which is more profitable?
Cons of Airbnb and Pros of Traditional
Airbnb means you may not be in check with the law. Avoid violations by understanding your city’s laws and restrictions on short-term renting. If you’re renting out a property and then subletting it on Airbnb travelers, you could be breaking the law and get evicted. Many cities require you to register or get a permit or license for short-term leasing. Of course if you own the property, this doesn’t apply to you, but you could still be required to pay taxes. Know the law and your city’s regulations and about legalizing Airbnb rentals.
Traditional says: With traditional leasing, you don’t have to worry about the legal issues as much.
Airbnb means hospitality, not leave the check in my mailbox. This may not be a con for some, but it does mean more work. Airbnb is a hosting service and not a passive income job. You provide the furniture, supplies, amenities and instructions on how to live in your property and more. If you want to go the extra mile, you might leave a welcome basket among other perks, which means more work for you. As one blogger put it, “know the difference between a commodity business vs. a service business.” You might feel this con the most during turnover or transitioning from guest to guest. If guests check-out late and new arrivals check-in early, that can limit time to clean up the property and get it primed.
Traditional says: You are exchanging an empty space for a filled check. Simple. You don’t owe residents a lot other than maintenance and that’s (hopefully) not a constant effort. In both of these situations, you can hire property management company.
Airbnb means you have competition with those who are not investors. There are some hosts who list their own home temporarily. They’re not looking to pay a mortgage, but may just need extra cash for rent or other reasons. In other words, they are not really engaging in real estate investing; so they lower their prices and attract short-term lodgers. For this reason, it’s important to make your property stand out and offer excellent service. Do not higher your prices unless you have a lot of reviews and have established a name for yourself. Of course if you have a 100% Airbnb occupancy rate, then you should raise your prices.
Traditional says: This doesn’t quite apply to traditional landlords, because rental properties in the same neighborhood will have similar rates. Maybe vacationers have the option to splurge or not, but when it comes to finding a place to live, people stick to a budget. You’re also not competing on a single platform.
Airbnb means taxes. If you are offering a short-term rental, you pay sales tax and occupancy tax, similar to hotels. One blogger reached 16% in taxes.
Traditional says: Yes, you most certainly pay taxes as a landlord. All income received is taxable, however, there are a few tax deductions applicable to some expenses like repainting, replacing damaged furniture, etc.
Note: Click here to start searching for the best performing Traditional Rentals in the US!
Pros of Airbnb and Cons of Traditional
Airbnb means meeting new and different people. Getting to know people from different parts of the world and country can be so exciting and enlightening. You can meet people from all over the world at your very doorstep or coffee table. This could also give you an idea of who’d you like to stay with when you’re vacationing.
Traditional says: You don’t interact with tenants as much. In fact, you might avoid each other. They may be fascinating tenants but you shouldn’t be getting new tenants every month, depending on the lease and number of properties you own.
Airbnb means fun. It’s not a boring job. You come to understand the fundamentals of customer service and hospitality. The customer is happy and you get rewarded through their reviews which generate bookings. You stay interactive with your property and make constant improvements.
Traditional says: Landlords don’t benefit from titles like “Superhost” from having great reviews and a high response rate. Landlords don’t get to stay in touch with their properties. They also don’t have the opportunity to build a reputation for themselves as easily as Airbnb hosts do.
Airbnb means making money! Ding, ding, ding! For some, this pro might trump all other pros and cons. Airbnb hosts who rent out their rooms have reported their income helping them with over 50% of their rent and paying their mortgage. Many Airbnb hosts have expressed making more money through their vacation rental than through traditional leasing. An Airbnb calculator has proven to be helpful in estimating potential rental income from their property.
That might make you wonder, “they make more money, but how much extra work do they do?” Well, it doesn’t have to be all that much. A lot of things can be simplified using technology. There are apps for locking and unlocking your door, which make check-in and check-out easier. Creating a guide is a one-time thing that should be adequate for guests to make themselves comfortable. Finally, the Airbnb platform takes some part in answering inquiries for you but responding to an email shouldn’t be that dreadful.
Traditional says: Don’t always make more money.
Airbnb means playing with your prices. As an Airbnb host, you can take advantage of the weekends and high seasons by raising your price due to high demand and limited options.
Traditional says: Can’t raise your rent randomly on weekends or high season. There are other things you should know about becoming a landlord.
Note: Click here to find the best performing Airbnb properties in the US!
Are You Stuck Now?
Well there’s one more factor that falls under cons for both real estate investing strategies. You might have already heard about Airbnb horror stories. Some residents like your property so much, they like to throw parties and trash the place. The good news is, Airbnb offers up to $1 million dollars in insurance that protects you from damage and theft. On the other hand, would vacationers really use every nook and cranny in a vacation property to damage it?
As for traditional, landlords are certainly never short of repairs and emergencies and they are obligated to preserve the property. The good news is, as mentioned earlier, there are some tax deductibles for upkeep costs. On the other hand, would traditional renters willingly trash their own homes?
A Simple Fix
Mashvisor tells you if a property would be more lucrative if listed on Airbnb or through traditional renting. It does this by giving you the analytical breakdown of both routes and showing you the comparison.
Have you managed traditional and vacation properties? What was your experience? Which one proved to be better for you?
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