Today there are so many different ways to buy and rent out an investment property. The typical real estate investor is in it for the profit mostly through rental income. The most common way of rentals for real estate is the traditional one, which is basically finding a tenant that will rent the property on a long-term basis. But the most trending in today’s market are the short-term rentals like Airbnb properties.
The decision of whether to go for a traditional or Airbnb investment property is not really complicated if the investor truly understands the differences. Each type of investment has its own market, positives and negatives, and claiming otherwise would be a mistake. That is why research and market data is needed to make the final decision. Each business related decision has to be made based on the facts involved, analyzing the numbers involved and checking customer exposure with that type of market.
Traditional vs. Airbnb Properties
People who opt to become traditional investment property owners have different expectations than those of short-term rentals. However, the decision of making your property a traditional one depends on many factors like tenant turnover, location, property management capabilities, profits and regulations.
Tenant Turnover
- Airbnb Properties: When it comes to short-term rental properties, it is important to understand that the property has to be appealing, mainly, to tourists. Airbnb owners thrive when they own property in an area that sees a lot of tourism because they can increase their prices in the high seasons to make more profit from tenants.
- Traditional Properties: If your investment property is an area that is witnessing high vacancy rates because of the lack of travelers or tourists, it is probably better to list your property on a long-term basis to avoid high vacancies.
Related: 7 Tips to Avoid a High Rental Vacancy Rate
Location
- Airbnb Properties: It is easier to find guests who are willing to pay the prices you ask for if the location of your property complies with the requirements of short-term renters. Having a central location for your investment guarantees you a high rental rate compared to someone who has a property on the outskirts of the same city.
- Traditional Properties: Not having a central location that appeals to renters means you should go for a traditional property. It’s simple logic: long-term renters are either people who are studying, working or just living there for a long period of time. They don’t mind being in central locations because it means less rent to be paid and a more quiet neighborhood.
Related: 1o Most Profitable Airbnb Locations for Cash on Cash Return
Property Management
- Airbnb Properties: The concept behind Airbnb’s success is its ability to offer a range of services as a host to the guests. Whether it is city guides, amenities or towels, these things require constant attention and time from the investment property owner. Having time to do this is important for success and if not, then it is advisable to hire a property management company.
- Traditional Properties: In the case of long-term rentals, the only thing an owner needs to worry about is having the property meet the minimum standards, such as providing furniture and amenities that are in good shape. Dealing with tenant issues can be time-consuming but it isn’t even close to the time needed to manage an Airbnb property.
Profits
- Airbnb Properties: Short-term rentals have shown that even if they are rented out for a shorter time period compared to traditional properties, they are capable of generating more income. It is easy to make so much profit in three months if you own a property in downtown Los Angeles. People are willing to pay the prices you ask for which is less than hotels but provides more space and amenities.
- Traditional Properties: Take Boston as an example of a city where investors thrive financially on long-term investment properties. Boston houses a big student population in which most of them are staying for the long-term. It is possible to make more money off Airbnb there if you compare monthly prices but the risk of high vacancy rates is a possibility.
Regulations
- An investor who lives in an area that has limited short-term rental regulations and laws will have no problem staying as an Airbnb host for the long haul. However, if the regulations hurt cash-flow, by paying a lot of taxes for example, or eradicate the possibility of making any money at all, then this strategy has to be reconsidered.
Related: Cities With the Least Airbnb Legal Issues
In conclusion, understanding these aspects of both investment property types helps in making a final decision. These factors will vary depending on location, time and competition. A decision of this magnitude requires immense knowledge about both markets and which one fits your profile the best. Many people believe that Airbnb is the way forward because it has no limits to its expansion horizons and I am personally one of them. However, at the end of the day, an investor has to decide based on the market analysis and the numbers.
