Real estate investing is a dynamic industry to work in, especially if the real estate investor is in the residential real estate sector. Long term rentals, as well as short term rentals, are considered as the best real estate investments. Nevertheless, what if your traditional rental property is not generating that good return on investment that you have dreamed about? First of all, DO NOT PANIC! Many real estate investors make mistakes. However, to be the best real estate investor in the state as well as in the country, you need a plan “B” and fast. So, in order for your income property to be at the top of the housing market, let’s find out how to switch from one rental strategy to the optimal rental strategy. In our case, we will explore the steps of turning your traditional rental property into an Airbnb rental property. Ready to find out how it is done? Just keep on reading, future Airbnb landlord!
#1 Traditional Rental Property vs. Airbnb Rental Property
When choosing the optimal rental strategy for an income property, the real estate investor should have a clear understanding of what he/she will deal with in the future as a landlord. This is why we’ll briefly examine the rental strategies of long term rentals and short term rentals.
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Long Term Rentals
Investing in traditional rental property is seen as one of the best real estate investments. The reasons are obvious. You ensure a constant cash flow from your tenants on a monthly or weekly basis. Moreover, there are many tax deductions that may apply to you. Lastly, the landlord should ensure a routine maintenance of long term rentals to keep tenants happy.
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Short Term Rentals
Short term rentals are typically oriented for travelers who are on holiday or vacation. An Airbnb rental property is usually occupied for approximately one week by Airbnb guests. The success of an Airbnb rental property hides in the location of the rental property. Moreover, heavy attention should be placed on a marketing strategy in order to have a high return on investment rate a well as Airbnb occupancy rate. The secret to the success of short term rentals hides behind the maintenance of the income property. Therefore, if you plan to succeed with an Airbnb rental property, you should actively manage the short term rentals.
However, an Airbnb property management company is a great solution when investing in out of state Airbnb rental property, for instance.
#2 Steps to Follow When Turning Traditional Rental Property into Airbnb Rental Property
When it becomes clear that a certain traditional rental property does not bring in enough money, it is the right time for a landlord to take actions. No, we do not mean selling your long term rentals! What we actually mean is that you have a great chance to start owning an Airbnb rental property that will generate greater Airbnb rental income than the long term rentals. All you need to do is follow certain steps.
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Step One: Conducting Comparative Market Analysis
For Airbnb investors to be sure that a certain investment will prosper in a particular location, they should conduct a bunch of analyses. For example, comparative market analysis and investment property analysis are the first two types of research that Airbnb investors should do. Yes, the steps are quite similar to the ones when buying an Airbnb investment property. However, in this situation, we are talking about switching to another rental strategy.
So, the first step future Airbnb investors should do is to conduct a comparative market analysis. With this analysis, the real estate investor will explore the current housing market. Moreover, it is crucial to know if owning an Airbnb property in the current real estate market has the potential to succeed. Another thing that Airbnb investors should consider when doing a comparative market analysis, is real estate comps. Real estate comps are the similar properties that were recently sold on the specific market. Usually, real estate comps are used in order to estimate the value of the income property in question. Knowing the value of an Airbnb rental property, the landlord is able to determine the rent he/she can charge potential tenants.
When comparing real estate comps, make sure you compare more than 3 income properties. The more the real estate investor compares, the more precise results he/she may get. Consequently, there is a chance to charge a higher price to your tenants, thus, receiving better Airbnb rental income.
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Step Two: Conducting an Investment Property Analysis
The main goal of an investment property analysis is to support and help the real estate investor find the factors that might have an effect on the performance as well as profitability of an Airbnb rental property. Consequently, before making fast decisions, the future landlord should know if he/she will be able to control the factors or their effect on an Airbnb rental property.
Location is the first thing that should be researched, as it is one of the main determinants of Airbnb occupancy rate as well as the potential for the appreciation rate to increase. Moreover, you should also conduct a neighborhood analysis as certain areas may have some underwater rocks, even if the current housing market is positive for owning an Airbnb rental property.
Not only will the location help in the estimation of the property’s value, but also the landlord should analyze the investment property’s features. The real estate investor should find out the number of bathrooms and bedrooms, square footage, facilities that the property has, etc. Why you may ask? Well, the better your income property is geared, the higher rent you may charge, therefore, the higher Airbnb rental income you’ll get.
Calculating Airbnb occupancy rate, doing the neighborhood analysis, and estimating potential return on investment all sound like a lot of work to do. Actually, yes that is a lot. When the investor wants to turn his/her traditional rental property into an Airbnb rental income property, such estimations should not be done manually. Luckily, there is a sweet escape route from the heavy workload. Your first option is to hire an Airbnb property management company that will also manage the Airbnb rental property in the future. However, the investor should keep in mind that good Airbnb property management companies charge “good” rates.
Another option is to use either a rental property calculator or an Airbnb profit calculator. Both tools will compute real estate metrics in no time. Yet, when dealing with short term rentals, we advise you to use Mashvisor’s Airbnb profit calculator. For example, this Airbnb profit calculator will suggest if the selected location is profitable. Moreover, with the help of Mashvisor’s Airbnb profit calculator, you will know what Airbnb rental income to expect.
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Step Three: Transforming Your Traditional Rental Property into an Airbnb Rental Property
After determining whether the market is suitable for short term rentals, it is the right time to place your income property online as an Airbnb rental property. Do not forget to come up with a marketing plan as your Airbnb rental property will not find tenants by itself. Moreover, you should fully furnish, clean and tidy your rental property in order to get positive reviews. Small tip: positive reviews are a crucial thing when owning an Airbnb rental property.
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