When renting out your investment property, it is sometimes hard to decide on which rental strategy to choose. Whether it is traditional rentals (long-term rentals) or Airbnb rentals (short-term rentals), it does not matter, as long as you choose the right one for you.
However, when it comes to choosing between traditional rentals and Airbnb rentals, you have to make sure that the selected rental strateg is, in fact, the one that is right for you. So, here we are going to help you compare the two rental strategies based on some of the main aspects of the two.
First: Rental rates
Airbnb rentals have better rental rates because you have more tenants than in traditional rentals, especially that they are only renting for short periods of time. You can also make extra money on Airbnb rentals if you charge extra for cleaning services. On the other hand, in traditional rentals, you have to lower your prices as much as possible in order to make a better deal that satisfies your tenants. Not to mention that you can’t just charge extra or increase rent during the lease period.
Second: Choosing the right tenants
Airbnb rentals provide hosts with guest ratings. This means that you will be able to make sure that you get good guests, and rest assured that your rental property is taken care of. On the other hand, if you go with the traditional rental strategy, you cannot be 100% sure of that. Though you can run a background and credit check on your potential tenants, it still does not mean that they are good tenants. Keep in mind that Airbnb guests always try to get good ratings in order to be able to use Airbnb rentals in the future.
Third: Payments and insurance
Renting out your investment property on Airbnb might have better financial potential. Moreover, you always get paid in advance. You get your payment once your guests have checked in. In traditional rentals, alternatively, you might find yourself chasing your tenants in order to get paid. There is also a chance of getting rental arrears. But a good aspect of the traditional rental strategy is the steady income. You know how much and when you are going to receive your payment for as long as the lease agreement lasts.
In terms of insurance, they might be even. Airbnb has an insurance policy called the host insurance policy. It offers up to one million dollars for damages. Though it does not cover theft, it is still a good option to benefit from. Traditional rentals also have an insurance policy that is good. Traditional rentals can have a commercial insurance that covers any damages as well.
Fourth: Occupancy rates
In traditional rentals, you can rest assured that your rental property is occupied for the whole duration of the lease contract. In other words, if you sign a lease agreement with a tenant for a year, you do not have to worry about your rental investment being vacant for the whole year. But in Airbnb rentals, you have short-term guests. You might even have a few a month. There is no guarantee that you will have the same occupancy rate all the time. It is a bit seasonal, which means you get a higher occupancy rate in vacation seasons than in other seasons.
Fifth: Interaction with tenants
If you are renting out your investing property via traditional rentals, you do not have to interact much with your tenants. You will only have to meet with your potential tenants and sign the lease agreement with them. Besides, you will only need to show up if a problem occurs and you are the only one to deal with it. You can even hire a professional property management company which will spare you the interaction with your tenants. These real estate professionals will actually take care of the rental property in terms of maintenance and repairs and get your rent payments. In Airbnb rentals, however, you have to manage your investment property personally, and you will also have to deal with your tenants personally and more frequently. Another thing to consider if you are going to choose the Airbnb rental strategy is different tenants. You are going to meet new tenants more frequently than in traditional rentals. Remember, Airbnb rentals are all about hospitality.
Sixth: Furniture expenses
This is another important aspect to consider. Airbnb rentals might cost a little more than traditional rentals. You have to furnish your investment property. Whether it is a house or just a room, it all adds to the expenses. On the other hand, in traditional rentals, you will mostly rent out unfurnished. This means you will only be responsible for the main facilities in your rental property, such as water and electricity among others.
In Airbnb rentals, you face a huge competition from other short-term real estate investors and even ordinary people. In long-term rentals (traditional rentals), you are competing with other real estate investors as landlords whose main goal is to make money off their rental properties.
Eighth: The legal aspect
Traditional rentals are ruled by stricter law regulations, which is good in order to protect both the landlord and the tenant. Airbnb rentals’ regulations are not as strict. This can cause legal issues more frequently than with traditional rentals.
Finally, it is your decision to make. It all depends on what you are most comfortable with, and what real estate investment goals you have in mind. If it’s purely financial, you might consider going with the short-term rental strategy. If you want to have a steady rental income in the long term, you might consider traditional rentals.
To learn more about rental strategies and all other aspects of real estate investing as well as to choose the best investment property for either rental strategy, sign up for Mashvisor.