Short-term rentals are a popular option among real estate investors nationwide. There are several advantages to owning an Airbnb investment property. The most important is obviously making Airbnb rental income. However, what if you don’t own a property to rent out? In this case, many turn to renting out a room on Airbnb. But is this a good strategy to make money from Airbnb investing? Let’s find out.
Should You Be Renting Out a Property or Renting Out a Room on Airbnb?
There are several dimensions to this question. Before anything, let us look at the three general ways to rent out on Airbnb:
- Shared room: you rent out a room at your property to accommodate multiple people.
- Private room: you rent out a room at your property for single Airbnb guests.
- Entire apartment: you rent out an entire property. It could be your primary residence and you are away for some time or it could be an investment property. The latter is also called a “non-owner occupied rental.”
How would each option affect your Airbnb rental income? And which one is generally considered a better investment for real estate investors? Read through the following evaluation to find out.
Pros of Renting Out a Property
1) More cash flow
An obvious reason to rent out an entire property on Airbnb is the additional cash flow. You can also rent out multiple private rooms in one investment property, to multiple guests, and increase your Airbnb rental income. All in all, you’d be making more money with Airbnb when renting out a property.
2) Less interaction with guests
If you don’t have the time to welcome guests, or if you simply would not rather interact with them, then renting out an entire apartment or house is the better option. You can install digital locks and leave a guide of your rental property for your Airbnb guests– this will save you significant time on having to welcome guests and providing them with keys and instructions. If you’re the type of real estate investor who does like to connect with guests, you can still, by all means, do so.
Cons of Renting Out a Property
1) More regulation
Things have changed for Airbnb investors in 2019…
When renting out a property, you’ll face more laws and Airbnb regulations- especially in cities where Airbnb has become illegal. In cities like Santa Monica, renting out a property that is not your primary residence is illegal. So if you’re planning on buying an Airbnb investment property in Santa Monica, thing again.
Make sure to read up on the latest Airbnb regulations and laws in your city or area.
2) Bigger investment, bigger finances
To rent out an entire property, you need a property other than your own. And buying an investment property requires a significant down payment, and then a commitment to paying monthly mortgage payments. Unless you have a large sum of money that can get you an entire investment property right now, then you’ll have to prepare a long-term financial plan.
At the same time, Airbnb rental income can provide you with a source of cash flow that you can use to pay back your loans. It is, after all, an investment that pays off.
Besides the financing, there are other costs to consider. For example, it usually costs more to clean an entire apartment as opposed to one room. It’s not a huge difference in cost, but it’s something to consider.
Pros of Renting Out a Room on Airbnb
1) Less regulation
Renting out a room on Airbnb has less regulation than renting out an entire apartment. Even in cities where Airbnb is illegal for non-owner occupied rentals, it’s still possible to rent out a room for less than a month if you reside in the property and follow the other rules that exist like paying taxes and applying for permits. Still, that’s one less thing to worry about!
2) Less time consuming
Obviously, tending to an entire Airbnb rental property is different than tending to a single room. With renting out a property, you have to run intense cleaning between guests, restock toiletries and food, etc. – which could consume a large portion of your time, as well as increase your costs. Some Airbnb investors consider Airbnb property management and account for the costs of the service.
3) You don’t need an entirely new property
You already have the property. All you’re doing is renting out that extra room you have. So the initial investment amount is close to zero. You don’t have to worry about securing a down payment and monthly mortgage payments when renting out a room on Airbnb.
Cons of Renting Out a Room on Airbnb
1) You won’t get a high return on investment
Single rooms bring in much less Airbnb cash flow than renting out a property. So if you’re in it for the bigger ROI, you should consider buying an Airbnb investment property. Renting out a room isn’t considered much of an investment; it’s more of a way to make some extra cash. Yes, you are making money from your property, but so can anyone with an extra room in their home.
2) You may feel like Airbnb guests are “intruders”
If you’re a person who likes their privacy, then renting out a room on Airbnb may not be your best bet. In the case of renting out a single room in your personal property, you’re bound to have to interact with them at one point or the other, and it can be considered an invasion of privacy, especially to you introverts out there!
Our Final Evaluation on Renting Out a Property vs. Renting Out a Room on Airbnb in 2019
For a real estate investor, it would only make sense to be renting out a property, not just a single room. You could start with a room as a way to make some extra money, but make buying an Airbnb investment property your long-term goal.
The final verdict: If you want to be making money with Airbnb, you should be renting out a property entirely as opposed to renting out a room on Airbnb.
Finally, remember that you can find the best Airbnb investment properties at Mashvisor. Check out Mashvisor’s Airbnb profitability calculator to learn how to make more money with Airbnb. And use Mashvisor to find Airbnb comps, Airbnb data on the most profitable cities in 2019, and more useful information and tools. To learn about your options for signing up for our services, click here.