Real estate investment in rental properties is growing fast and becoming a more popular strategy to generate extra cash. With the increasing popularity of using Airbnb for short-term lodges, the comparison between Airbnb vs traditional renting in terms of generating higher rental income becomes a hot topic among real estate investors, opening the question of which rental strategy is more lucrative and yields higher rental income.
When studying Airbnb vs traditional renting strategies, there are different factors that need to be taken into consideration, including the location of the property, the marketing strategies, and the extent to which the investor is willing to work and take the extra mile to succeed.
Both Airbnb and traditional renting strategies have their pros and cons. Long-term tenants who pay the same amount of money every month to the landlord provide him or her with constant cash flow; however, the high nightly rate of Airbnb’s short-term rental can prove to be, in many cases, a more profitable strategy to investors in rental properties.
Airbnb vs Traditional Renting: Rental Income
In order to analyze Airbnb vs traditional renting in terms of generating positive cash flow, we need to break down their rental income. Airbnb’s high nightly rate does not only allow you to generate double or triple the amount you make with traditional renting, but also let you rent the property for short periods of time, giving you the chance to have more guests throughout the month and constantly check on the property’s condition. Airbnb’s policy requires guests to pay money in advance by holding the amount of money on guests’ bank accounts when they book and directly transfers it to the host’s bank account once they check in. This is a great benefit for Airbnb’s hosts and secures their right. However, in traditional renting, you have to always check with tenants to make sure they pay their rent every month. Another way of making extra money with Airbnb vs traditional renting is that with Airbnb, you can make money off of cleaning fees. Traditional renting for long periods of time does not usually require cleaning fees; however, this is not the case with Airbnb as most hosts require cleaning fees as part of charging guests to clean the rental, allowing investors to make extra money. For example, if you rent out your investment property 37 times per year and you request $55 as cleaning fees every time, you can make up to $2,000 a year as cleaning fees, and most Airbnb guests are used to pay for these fees.
Airbnb vs Traditional Renting: Insurance Policy
When comparing Airbnb vs traditional renting in terms of insurance policy, one disadvantage of having different guests throughout the year in Airbnb rental properties is that the possibility of damaging the rental goes up, which consequently increases damage and maintenance costs. On the other hand, having a constant guest during a one-year lease does not necessarily insure the property’s protection. Most hosts of traditional rentals require a security deposit which equals a payment of a month and they might have commercial insurance policy that would cover damages’ costs. Some hosts on Airbnb also require a specific amount of money to go towards security deposit, but many of them do not usually interact with guests face to face and do not ask for a security deposit. However, as a host on Airbnb, you have a one-million-dollar insurance policy that comes with hosting account for damages’ costs. Airbnb also gives you the chance to use its reviews’ system to somehow inspect your guests and see what type of lodgers they are, which the traditional rental system lacks.
Airbnb vs Traditional Renting: Occupancy Rate
One of the biggest advantages of traditional renting is that hosts secure occupancy for relatively long periods of time and this is not the case with Airbnb because guests mostly use it up to one week or so. With Airbnb you might have full booking for one month and no booking for another, depending on the season. Although occupancy rate on Airbnb relies heavily on the location and whether the area is close to tourism sites, shops, restaurants, and beaches, Airbnb hosts can be really smart about it through working hard to market for the property, keeping it clean and tight, taking good photos, and uploading them on Airbnb with creative and eye-catching description. Airbnb hosts should put a great attention on getting good reviews from guests because Airbnb users rely heavily on reviews to evaluate the property before booking it. These factors play a huge role in increasing Airbnb occupancy rate throughout the year, insuring the consistency of generating positive cash flow for the host and a higher turnover rate. However, consistency of having lodgers increase the pressure on the host to prepare the property and insure its cleanliness and tightness, but if the real estate investor is making double the traditional rental income, it is worth the efforts and time.
When it comes to the question of whether Airbnb yields higher rental income compared to traditional renting, there are reasons and factors more than the eye can see. Airbnb as a rental strategy does not generate higher rental income by itself, as it depends tremendously on the location of the investment property and the willingness of the investor to market the property, get good reviews, and take advantage of the Airbnb rental strategy. If these factors are met, the above-mentioned comparison of Airbnb vs traditional renting with regards to generating rental income will prove that Airbnb yields higher rental income.
If you decide that Airbnb rentals are the right investment strategy for you, check out what’s needed and required to become an Airbnb host.
Mashvisor provides real estate analytics to real estate investors for Airbnb vs traditional renting properties by using predictive and comparative data to analyze properties, providing investors with optimal rental strategies and allowing them to find properties that meet their criteria. It will answer investors’ questions of what kind of property to invest in? What strategy to use? Where to invest? And what are the expected returns?
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