Investing in a rental property is one of the best things that an investor can do. Choosing the right property allows you to reap significant returns and provides a consistent source of cash flow that keeps you afloat. It’s definitely one of the best ways to make money in real estate.
In the last few years, though, real estate investors have faced a brand new dilemma: Would I be better off with a traditional rental strategy or an Airbnb rental strategy? The sharing economy has opened up a whole new industry that has shaken up the real estate investing world. Investors everywhere are starting to wonder whether Airbnb rental properties are the right way to go, or whether they should stick to the traditional route. Read on to find out which rental property investment strategy is right for you.
Consistency
Hands down, the biggest advantage of a traditional rental property investment strategy is consistency. If you’re at full occupancy, you can guarantee how much income will be coming your way from your renters. This can offer peace of mind, especially if you’ve borrowed money to finance your real estate investment. The consistency and reliability of this income source are what draws in many property investors.
Alternatively, your Airbnb occupancy rate can sometimes be volatile. While some months you’ll be at full capacity, you might struggle to find renters in others. If you’re looking for safety, traditional might be a better choice for you.
Revenue
Traditional rentals are often hailed as a fantastic way to make money in real estate — and for good reason. They’re a preferred rental property investment strategy because they offer nearly immediate cash flow. Depending on the condition and location of the income property, revenue can be very high.
But with regards to maximum potential, owning an Airbnb investment property often beats out a traditional rental. The Airbnb industry is huge and growing quickly, meaning there are millions of vacationers who may potentially be interested in your short-term rental property.
During peak seasons, Airbnbs can be rented out for much higher than average rates, which will often be significantly higher than traditional rental income. These times of year will also often offer very high occupancy rates. Airbnb can thus offer significantly higher returns than traditional rentals, in many cases. If you want to maximize returns, Airbnb is often the superior rental property investment strategy. This, of course, is contingent on finding the right Airbnb property.
Taxes
One of the biggest differences between Airbnb vs traditional real estate investing is taxation. Long-term rentals will often offer their owners great tax benefits, which may ultimately have a positive impact on return on investment. Investors have a lot of tax incentives to keep investing in real estate of this kind.
Airbnb rental properties, on the other hand, may pose a bit of financial burden in this regard. You’ll be paying an income tax on each booking of your short-term rental property. Depending on your state and municipal laws, this can either be insignificant or deal-breaking. Be sure to look into your specific situation before choosing Airbnb as a rental property investment strategy.
Workload
Both investment types need a significant time commitment from the real estate investor. With a traditional rental property investment strategy, however, the investor will need to be much less involved. Once your tenants move in, an investor should have a fairly relaxed workload, taking care only of rent collection, maintenance, and such.
With short-term rental properties, on the other hand, you may need to devote a lot more time to keep the place running. With each new Airbnb guest checking in, you or a designated person will need to welcome guests, clean the apartment, and ensure that everything is in order. Not to mention the constant correspondence with upcoming guests, and taking care of the needs of current guests. This headache often deters real estate investors from Airbnb as a rental property investment strategy.
Because of these reasons, many investors choose to enlist the help of professional property management to take care of the day-to-day operations of an investment property. This can both have its advantages and disadvantages. Many shy away from this option since the added cost cuts into the investor’s return on investment. Alternatively, if you’ve found a real estate property with high Airbnb rental income, the manager’s wage may be a burden worth bearing. Not only will the property manager have the expertise needed to keep the place running smoothly, but you also open yourself up to passive income. By handing off responsibility, you can sit back, relax, and wait for your income to flow in!
So Which Rental Property Investment Strategy Should I Choose?
Well, it depends. There are a lot of factors at play which should determine your rental property investment strategy. Some properties may bring about substantial income as a traditional rental, but subpar for Airbnb, and vice versa. As such, rental properties should be evaluated on a case by case basis.
Consider using the rental property calculator offered by Mashvisor to make the final decision. You’ll only need a few pieces of information — such as asking price, financing method, and others — and the calculator will take care of the rest. This research process can often take weeks, and so the ability to do this in a matter of minutes is vital. Using it, you can now quickly compare multiple investment options.
You’ll get a handful of numbers that can inform your decision, and determine your rental property investment strategy: cash flow, capitalization rate, and cash on cash return, all of which are crucial to determining a good real estate investment.
This specific calculator is unique, however, because it offers a comparison of what you can expect from a traditional rental property investment strategy or one which involves Airbnb. You’ll get a quick rundown of the numbers, Airbnb vs renting traditionally, and the decision becomes significantly easier. Whichever one you choose, make sure you have the numbers to back it up.
Bottom Line on Rental Property Investment Strategies
The best rental property investment strategy is one that is backed up by the right numbers. Both rental strategies mentioned here can be great choices, but only if you’ve selected the right property.