Ever since it was founded in 2008, Airbnb has continued to grow and become a popular site for both hosts and short-term guests. For many, renting out a property on Airbnb is a great way to earn extra income. Likewise, Airbnb rentals have quickly become the most favorable option for tourists and vacationers looking for temporary lodging.
In fact, this strong demand has made investing in vacation rentals a profitable investment strategy for real estate investors As such, it comes as no surprise that more and more investors are turning to short-term rentals as the returns they can offer are robust!
However, it should be mentioned that not just any type of property listed on Airbnb will generate rental income as high as you’d wish. Therefore, before you decide to buy an investment property to rent out for the short-term on Airbnb, you need to make sure you’ve picked the perfect property first.
If you want to buy an Airbnb investment property, then these are the five main factors to keep in mind in order to choose the perfect property for you.
1. The Airbnb Investment Location
As with any real estate investment property, location is the most important factor when selecting your perfect short-term rental. Typically, cities with tourist attractions such as beaches, mountains, or a national park are desirable for tourists and, thus, are the best locations for Airbnb real estate investing.
However, investors should make sure that the investment location has less supply of hotels or other short-term rentals. This will ensure that your investment property will have a high Airbnb occupancy rate.
Furthermore, before picking where you want to buy an Airbnb investment property, it’s important to take seasonality into account. You don’t want to own a vacation home rental that stays empty during the off season and does not generate any rental income. This will actually cost you more money over the long term than it will earn you!
Successful Airbnb hosts invest in the best locations where tourists and other visitors are present all year-round. Such areas will have a consistent and strong demand for short-term rental properties.
2. Short-Term Rental Laws and Regulations
Before buying a property to rent out on Airbnb in any location, real estate investors must check the laws and regulations regarding short-term rentals there. This is important because some cities have strict laws that make investing in Airbnb illegal.
In these cities, only primary residents are allowed to rent out their owner-occupied properties on Airbnb and they have to be present during the stay. As a result, if you’re a real estate investor planning on buying property as an investment (not as a primary residence) and renting it out as a short-term rental, you could face legal issues. Major cities in the U.S. with strict Airbnb regulations include New York, San Francisco, and Los Angeles.
On the other hand, there are cities across the nation that welcome Airbnb investors with open arms. Laws and regulations in these Airbnb-friendly cities are unlikely to affect your return on investment.
Here is where you’ll find your perfect Airbnb investment property! In the U.S. housing market, there are currently four states that expressly allow and shield short-term rentals (Florida, Arizona, Indiana, and Idaho). You can use Mashvisor’s search tools to find profitable Airbnb properties for sale in your city of choice in any of these states.
3. Type of Airbnb Investment Property
Real estate investors know that the best type of property to buy for Airbnb investing is the one that makes you the most profits. However, how can you identify such a property? This will largely depend on the location as well as the type of Airbnb guests you’re targeting to rent out to.
For example, if you prefer renting out to solo travelers or couples, then a condo or an apartment located in the city center is your best option. On the other hand, if you’re interested in owning an Airbnb investment property to rent out to families or a big group of friends, it’s best to go with vacation homes or beach houses.
It’s also worth mentioning that you don’t have to limit yourself to the traditional type of real estate properties. According to recent studies, today’s travelers (especially millennials) are booking more alternative, unconventional lodging options. This includes nature lodges, tiny houses, RVs, and even tree houses.
When renting out these types of Airbnb rentals, you’ll be able to give your guests a unique experience and stand out from other Airbnb real estate investors in your location.
4. Your Budget and Rental Expenses
Owning a rental property of any type comes with costs and expenses that will affect your profit margin and overall return on investment. While short-term rentals can definitely be more profitable than long-term rentals, they can also cost more.
Keeping that in mind, our next tip for finding the perfect Airbnb investment property is to set a budget and carefully break down your expected costs and expenses. The most important monthly expenses you need to factor in your budget are:
- Mortgage Payments (if you choose to finance the investment property instead of buying it fully in cash)
- Property Taxes (these will vary by state)
- Furniture and Utilities
- Property Management Fee (if you hire a property management company instead of managing it yourself)
- Cleaning Service Fee
- Maintenance Fee
- Vacancy Provision
Again, the perfect Airbnb property for you is the one that fits in your budget. If these monthly expenses exceed your monthly rental income, the property will generate negative cash flow (instead of a positive one) making it easy to start losing money.
But how can you be sure your property will actually be profitable? Easy – use an Airbnb Profitability Calculator! With this tool, you enter the costs of the investment as well as your financial details and it’ll do the math for you.
You’ll be given data regarding the property’s expected rental income, expense estimates, cash flow, cap rate, cash on cash return, and Airbnb occupancy rate. You can find this tool right here at Mashvisor!
To learn more about our tools and how we will help you make faster and smarter real estate investment decisions, click here.
5. Airbnb Data and Predictive Analytics
One of the benefits of investing in a traditional, long-term rental, is the fixed return you’ll get every month in the form of rent collected from tenants. With short-term rentals, however, investors need to set a nightly rate and keep adjusting it based on seasonality, special events, neighboring competition, and travel trends.
The fact that Airbnb property investors don’t get a fixed monthly return makes investing in these properties a risk for some.
Nonetheless, there is a way to reduce this risk – using Airbnb data and predictive analytics! As the name suggests, Airbnb predictive analytics is data that helps real estate investors predict future outcomes and, hence, allows them to make wise investment decisions with confidence. With Airbnb analytics, you are able to analyze the returns and performance of an Airbnb investment property in the city of your choice based on:
- Comparable Rental Income
- Estimated Rental Expenses
- Cash Flow
- Cash on Cash Return
- Cap Rate
- Airbnb Occupancy Rates
With these five factors in mind, you are guaranteed to find the perfect Airbnb investment property for you today! If you’re looking for a profitable Airbnb rental property to buy, check out Mashvisor. You will find readily available data and analysis of hundreds of thousands of properties across the US housing market.
When you sign up to Mashvisor and start using our real estate investment tools, you’ll realize that finding and analyzing rental properties can easily and efficiently be done in a matter of minutes!
To start your 7-day free trial with Mashvisor and subscribe to our services with a 15% discount after, click here.