Airbnb has changed everything. The home-sharing platform has transformed the formerly small vacation rental market into a massive global industry. Everyone, from homeowners with an extra room to real estate investors, won’t stop talking about how great it is to run an Airbnb. But renting out a room in your flat is one thing; how about investing in a property for the sole purpose of renting it out to vacationers on Airbnb? Is Airbnb real estate investing a good idea? Is Airbnb even worth it for investors?
As with most things: it depends. If done right, Airbnb can be a massive source of income for any real estate investor. But before investing in an Airbnb property, you need to take the proper steps to ensure that it will be a financial success. First and foremost, ask yourself these questions:
How Much Money Can I Make?
Every smart real estate investor needs to do their math when creating an Airbnb investment strategy. Due to all of the extra variables associated with this type of rental property, there’s a lot of things to account for when analyzing your expected Airbnb return on investment.
You’ll foremost need to find out your cap rate, cash on cash return, and predicted Airbnb occupancy rate. This will give you a very clear idea of how much you can expect to make for a specific property, and greatly increase your chances at success. Although they can be a pain to compile, these Airbnb analytics are a crucial first step.
Using an Airbnb profitability calculator, like the one offered by Mashvisor, can take a huge amount of work off of your shoulders. Rather than spending hours upon hours manually collecting data and crunching the numbers, services like Mashvisor can reduce the research phase to under an hour. This is a great way to look into multiple Airbnb properties and compare which of them will bring about the greatest return on investment — at a fraction of the time commitment.
Is Airbnb worth it? Using the profitability calculator will give you a solid answer.
What Regulations Stand in My Way?
The last two years have seen the introduction of many Airbnb restrictions across American cities. Places like New York and San Francisco have introduced strict laws that regulate what you can and can’t do with Airbnb.
Some cities, such as Albuquerque and Chicago have introduced taxes on Airbnb stays, which will increase your overall costs. This should be taken very seriously when calculating your expected return on investment. Other cities have introduced laws to limit the minimum and maximum stays, or restrictions relating to properties unoccupied by their owners. In some extreme examples, like Santa Monica, those running Airbnb rentals need a municipal license before they can even begin operating. All of this time and money is an added cost that affects your bottom line and cuts into your Airbnb profit margin. Such strict regulations may make Airbnb not worth it as a real estate investment.
Airbnb regulations like specific laws, permits, and taxes which are relevant to your city should be very carefully studied.
Should I Invest in My City?
When considering investing in an Airbnb property, many people default to searching for rental properties close to home. This could be a good idea if you intend to manage the property on your own; you’ll have easy access to your vacation rental, and you can stay on top of your guests’ needs.
Unfortunately, investing close to home isn’t always the best course of action, and the best real estate investment might not be very close by. If you live in a city that has restrictive Airbnb policies, exorbitant housing prices, or very few vacationers, investing further away can be substantially more profitable. Some cities are especially profitable for Airbnb investors and can yield a much better stream of income than your current city. Why settle for a good return on investment at home when you can get a great return on investment elsewhere?
In order to accomplish this, many investors hire vacation rental managers to properly run their Airbnb properties. While hiring a vacation rental manager may slightly increase your costs, it can greatly reduce your stress and turn your Airbnb investment property into a source of passive income. Not to mention that professional vacation rental managers will have the expertise to maximize your occupancy rates and boost your income.
But then a new issue poses itself: how do you buy a property outside of your own city or state without having the local knowledge? For many real estate investors, picking a property in a housing market where they lack experience can be a huge downfall, especially for Airbnb investments where the location is everything. For this hurdle, you can use the Heatmap Analysis Tool offered by Mashvisor to put you on a level playing field with local investors! Rather than shooting in the dark, using this tool can show you exactly which neighborhoods will yield the best return on investment, taking into account every indicator that matters.
How’s the Vacation Rental Market Doing?
Pretty amazingly, actually. The market for short-term vacation rentals is huge and growing quickly. Buying an Airbnb property can, therefore, give you access to this highly lucrative market. Airbnb growth shows no signs of slowing down as of 2019! Short-term rentals are offering vacationers a brand new experience, incomparable to traditional hotels. The demand definitely exists, and you have the chance to enter this market at its peak.
The Final Verdict: Is Airbnb Worth It?
With all of that said, Airbnb can be a fantastic real estate investment strategy. In order to make money with Airbnb, make sure that you can answer all of the questions above with accuracy. If you’ve run the analysis and found the right property, in the right city, with the right cap rate, you’re on your way to a successful investment. The savvy Airbnb investor will use the right tools to save themselves a major headache, and use the platform for a stream of steady passive income.