Airbnb means offering a property and service, which has proven to be a profitable business. Some hosts have become full-time investor hosts and have been able to purchase more Airbnb investment properties from their income. Joining the world of Airbnb hosts is taking advantage of Airbnb’s high-demand service, intertwined with two huge industries – tourism and real estate. Here’s why more and more people are taking up Airbnb as an investment.
1. No Shortage of Customers
The main reason travelers prefer Airbnb over short-term lodging is the ability to rent out an entire house for the same or cheaper price as a hotel. Now tourists get to roam around the city as a local and come home to a place that is actually a home. With different properties to choose from, travelers can go to places they would have never heard of otherwise. Whether they’re looking to stay in a boat or a castle, they can find it on Airbnb.
While managing a property on Airbnb means work and has been adopted as a full-time job by some, there is flexibility in this type of investing. No matter the property type, an investor can gain rental income. There’s no worry about leases or interviewing tenants. Airbnb is a platform to invest and build a business at one’s own pace and terms. Bottom line, Airbnb means quickly finding tenants, completing transactions,and eliminating a lot of paperwork using one platform.
However, there are rules and regulations regarding short-term rentals. A successful Airbnb investor is one who knows what’s Airbnb legal and acts accordingly.
3. Meet the 1% or 2% Rule in Expensive Cities
For those living in cities with high home price to rent ratios, it’s impossible to meet the 1% or 2% rule. This rule states the minimum rent should be equal to or greater than 1% of the purchase price. Imagine trying to follow the 2% rule in such cities. However, Airbnb capacitates investors to follow this rule and more. In this case, Airbnb investors should set the nightly price to be greater than daily rent (monthly rent/30 days). Hence, assuming there is a 100% occupancy rate, investors can easily meet or exceed the 1% rule. Even with a 30% occupancy rate, investors can still profit more than a traditional lease.
Take a look at the example below.
4. Quick Income
Branching off from the previous point, Airbnb investment can follow the 1% rule in an even shorter amount of time. Let’s look at an Airbnb case study reported by our friends at BiggerPockets. The median rent in an area in L.A., is $2,118/month (which is like paying $70/day) whereas the nightly price of an Airbnb rental is $319/night. With a 30% occupancy (110 days/year), the host makes $35,090/year as opposed to $25,416/year through by renting out the apartment traditionally 100% of the year.
Now, not everyone pays $319 for an Airbnb rental. Even if the rate was half of that at $160/night, a 30% occupancy rate makes more on Airbnb (bringing in $17,600) than rent from 4 months ($8,472).
Get a better idea about rental income from Airbnb using Mashvisor’s investment property calculator.
5. Optimal Locations
Airbnb is used by travelers all over the world. They are usually seeking touristy (aka expensive) places. Based on the financial breakdown above, it is now feasible to compete in highly sought-after, pricey cities. This is a great advantage for investments because the number one rule in real estate is location, location, location.
6. Easier Labor
Assuming the property is not damaged (fingers crossed), the turnover between tenants can be much easier and less expensive to handle than with long-term leases. The vacation property should not require the same transforming recovery as a leased apartment. If there are short-term rentals in high demand, then the property is constantly being maintained which is an easier approach than an entire renovation. You or your property management company are compelled to be in touch with the property on a regular basis which prevents surprises. Airbnb offers Host Guaranteeproperty protection, which reimburses you up to one million dollars in property damages.
While there are additional costs with Airbnb, like the host servicing fee, there are ways to reduce costs. Managing the property by oneself can eliminate the need for hiring property management, Also, while amenities are nice touches, not everything has to be included. If the cash flow does not allow for a complete list of amenities, it’s not necessarily a deal-breaker for travelers.
Airbnb can be a great and lucrative investment. In many cases, the cash on cash return is higher through Airbnb than with a traditional lease. Before investing in an Airbnb property, it is crucial to research the numbers while on a property search. Cash on cash comparisons, occupancy rates, seasonality trends, and more relevant information is all available on Mashvisor.
Are you considering investing in an Airbnb income property? What are your thoughts about Airbnb? Let us know and let’s chat!