Buying Airbnb rental properties has become a hot real estate investment strategy in the past few years. However, not everyone in the short-term rental business gets to stay in the business for long. There are situations that may not allow you to continue as an Airbnb host. As a real estate investor, you may have to opt to convert your Airbnb into a long term rental property. If this is the case for you, you have come to the right place.
Before we get into what you can do to complete this conversion, let’s first look at some of the common reasons that may lead someone to this decision.
5 Reasons to Consider Converting an Airbnb into a Long Term Rental Property
Oversupply of Airbnb Rental Properties in Your Real Estate Market
As Airbnb continues to grow in popularity and more people invest in the industry, competition is bound to get tougher. If many Airbnb listings become available in your housing market without an increase in tourism, the demand for short-term rentals can reduce considerably. There will be a decrease in rental rates and an increase in vacancy rates. If you’ve already tried everything to stand out but you’re still not making enough money with your Airbnb, it may be prudent to consider converting your Airbnb into a long term rental.
Abrupt and Permanent Loss of Demand
Some Airbnb markets can experience an abrupt and permanent loss of demand for short-term rentals. Such a sudden and permanent loss of demand can occur in an attraction-driven market when the main tourist attraction is shut down permanently. Keep in mind that this is different from real estate markets experiencing low seasons due to seasonality. In such a situation, there’s not much you can do but to switch to a long term rental strategy.
Unfavorable Airbnb Laws
Sometimes, cities and municipalities may adopt new Airbnb laws that make short-term rentals illegal for real estate investors. For instance, there are some cities that have banned short-term renting for non-owner occupied rentals. To avoid landing into legal trouble, switching to a traditional rental strategy would be a good idea.
There are also other Airbnb regulations that can significantly reduce your number of bookings and income when introduced. For instance, a limit on the number of days you can rent out the investment property could adversely affect your returns and force you to convert your property into a long term rental.
Need for Consistent Cash Flow
Short term rental properties usually have less consistency in cash flow due to seasonality. You can even go for weeks or months without an Airbnb guest. Apart from this, external factors like social unrest, weather, economic slumps, and natural calamities can also affect travel trends and rental rates. If you own a rental property in such locations and rely on a steady income to pay off your mortgage or for other needs, you may need to convert. A long term rental property would provide more consistent rental income.
Running an Airbnb business successfully requires time commitment and effort. Even though there is the option of hiring a property management company, this option may not be viable if the rental income is not substantial enough to cover the cost of management. On the other hand, long term rentals require less maintenance and would be easier to manage if you are out of town or busy.
Related: The Pros and Cons of Owning Vacation Rental Property
How to Convert Your Airbnb into a Long Term Rental Property
If you are thinking of turning your Airbnb property into a traditional rental property, here’s how you can go about it:
1. Use Mashvisor to See How Long Term Rentals Perform in Your Area
Before converting your Airbnb into a long term rental, you should first analyze the location to know if it is right for long term rental properties. The location of a rental property is the number one factor that determines performance.
Mashvisor can help you know if your location is ideal for investing in long term rentals. With our real estate heatmap, you can quickly do a neighborhood analysis of your rental market. The heatmap will help you understand the average performance of your neighborhood based on metrics like traditional rental income and cash on cash return.
Go a step further and make sure your rental property will perform well as a long term rental. With our rental property calculator, you can enter in your investment property’s information and be given estimates of the traditional cash flow, cap rate, and rental occupancy rate that you can expect. Schedule a demo now to learn more about how to do this.
Taking these steps will let you know whether switching rental strategies will help you make more money in your current location with your current rental property- or if you should try to sell.
2. Learn the Local Landlord-Tenant Laws
Landlord-tenant laws usually cover issues like property access, house safety, security deposit, and eviction notices. Since these laws usually vary by location, it is important that you research the state and local laws before switching to a long term rental property. Be sure to be clear on these early on to avoid violating the law.
3. Determine the Right Price
Even though you’d want your real estate rental property to have a higher rental rate than your monthly expenses, you also have to be competitive to attract tenants. You need to find the right price that can achieve both. You can get an idea of the rental rate you should set by looking at rental comps. But you may be asking yourself: How do I check comps of long term rentals near me? Well, you can do so easily using our investment property calculator.
Related: How to Set the Right Rent Price for Your Investment Property
4. Write a Lease Agreement
Protecting your rights and that of your tenant is crucial. Therefore, have a written lease ready so that each party understands their obligations and rights. A basic lease contract can easily be found online. However, if you have any important issues specific to your situation, be sure to include them.
Some of the points to include in your lease are lease term, security deposit, rent due date and penalties, eviction terms, pet policies, rules on smoking, responsibility for repairs and routine maintenance, the process of breaking a lease, etc. Make sure that the lease agreement is in line with the laws of the area. You may want to consult a lawyer on this.
5. Create a Real Estate Marketing Plan
Part of learning how to turn your Airbnb into a long term rental property is knowing how to find tenants. However, before you even list the investment property for rent, you want to make it attractive to potential tenants. Consider staging it and taking professional photos to make it look its best.
There are many strategies when it comes to marketing a long term rental property. Apart from the free online listings, you can use social media, newspaper ads, email marketing, etc.
6. Screen Tenants
Tenants of long term rentals usually stay for, well, longer terms. Therefore, it’s important for a landlord to pick only the best to avoid a lot of headaches down the road such as tenant nonpayment of rent and property damage. The best way to avoid this is to conduct thorough tenant screening before you rent out your real estate investment property. This includes running a background and credit check.
Related: What Should Landlords Do to Find the Perfect Tenant?
The Bottom Line
Both Airbnb and long term rental strategies have their pros and cons. But while the vast majority of Airbnb rentals do quite well, there are some who are forced to call it quits for a number of reasons. If you have evaluated the situation and decided to convert your Airbnb into a long term rental property, you can do so easily by following the above steps. When done right, becoming a landlord could be your breakthrough in the real estate industry.