Short-term rental properties such as Airbnbs have become increasingly popular with many real estate investors and travelers all over the world. Recent Airbnb data shows that there are 2.9 million Airbnb hosts and 190 million Airbnb users globally. Airbnb is active in 191 countries and 81,000 cities. However, the debate about owning an Airbnb vs renting traditionally still continues. But we are here to tell you that owning an Airbnb is a smart real estate investment strategy.
Can You Really Make Money with Airbnb?
Many real estate investors make a decent rental income through investing in Airbnb. Though the numbers vary, Airbnb hosts in the US make $924 a month on average. If you buy several homes or apartments and rent them out on a full-time basis, you can earn a very good Airbnb profit margin. If you’re curious about how much money you can make with this rental strategy, use an Airbnb profit calculator. With this real estate investment tool, you can calculate potential rental income based on your location and the expected Airbnb occupancy rate.
3 Reasons Why Owning an Airbnb Investment Property Is Smart
Here are some of the reasons why owning an Airbnb rental property is a smart investment:
1. Higher rental income
It is a fact that Airbnb investment properties generate significantly higher revenues than traditional rental properties. This is because Airbnb hosts can charge more on a nightly basis. For instance, the average monthly rent for an apartment could be $1,500. This adds up to $18,000 if the renter signed a 12-month lease. What if you took the Airbnb option? Assuming the average daily rate is $120 and the units are occupied about 270 days annually, you can make a gross Airbnb revenue of $32,400 per year. That is $14,400 more than you would earn through traditional renting.
2. A diversified portfolio of tenants
With traditional renting, you are stuck with one tenant for a long period of time. This can be an advantage if the tenant pays rent on time and stays for a lengthy period. However, if they decide to move out suddenly or default on rent payment, you might go without a rental income for weeks or months. You may also have to go through a lengthy and expensive eviction process.
Owning an Airbnb allows you to generate income from different guests. Since the rental property is booked on a nightly basis, you will not feel the impact when someone fails to pay or cancels at the last minute. If you’re in a good real estate market for Airbnb, you will easily find your next guest. And even though your occupancy rate may be lower, you at least don’t risk getting stuck with a bad tenant for a very long time as Airbnb squatters are rare.
3. Duality of use
The great thing about owning an Airbnb rental property is that you can use it as a secondary residence when traveling for business or vacations. This is ideal for real estate investors since they can make money from the investment property and still use it whenever they wish. As an investor owning an Airbnb, you can indicate the dates when the rental is available, something that is not possible with traditional rentals.
Check out this Traditional Investments vs Airbnb Investments Real Estate Infographic to learn more about the differences between these two rental strategies!
The 5 Best Tips to Ensure You Own a Successful Airbnb Rental Property
Owning an Airbnb is smart…if it is a successful Airbnb. So here are some tips for succeeding as a real estate investor owning an Airbnb:
1. Make sure Airbnb is legal and get permission
Before owning an Airbnb, you should get familiar with the legislation regarding short-term rentals in your area. In some places, renting out property on a short-term basis is not even allowed. Elsewhere, you might be required to obtain a license/permit before running an Airbnb business. If you break any of your state’s or city’s laws, you might end up paying hefty fines. It is, therefore, better to be safe than sorry.
If you are thinking of owning an Airbnb rental property and becoming an Airbnb host, it is also very important that you get official permission from your homeowner’s association where applicable. However, even before talking to your HOA, check any agreements you signed upon buying.
2. Find the right investment property for sale
If you want to be making money with Airbnb, you must first find the right investment property. Mashvisor’s Property Finder is an ideal tool that real estate investors can use to find an Airbnb property in their areas of interest. You can search using investment criteria such as your desired property type or your budget. This tool comes with a wide range of filters and once set, it will return top-performing investment properties based on Airbnb analytics like cash on cash return. This will ensure you buy Airbnb property that promises a good return on investment.
3. Consider the upfront costs
As an investor owning an Airbnb, you must ensure that the rental home is perfect for your visitors. This could mean clearing clutter, buying new furniture, and even a new paint job. Since you are competing with other hosts in your area, you will need to invest to upgrade your rental. Here are some of the basic upgrades to consider:
- Unlimited Wi-Fi connection
- A digital entry system which will allow Airbnb guests to access the property remotely (without worrying about losing keys)
- A smart TV
- Toiletries such as shampoo and soap
- Extra towels
- Pantry staples such as condiments, pepper, and salt
- Wine openers
- Ironing boards
4. Set the right Airbnb price
You can use the Airbnb calculator to come up with a suitable price based on your location and the number of guests you can host per night. However, you can raise or lower your prices depending on expected surges in demand. You could also decide to charge extra for additional services such as city tours, equipment rental or cleaning services. Other factors to consider when setting your Airbnb price include:
- Airbnb host fees (usually 3-5% of the listing price)
- Applicable VAT charges
- Payment for co-hosts or property managers
- Monthly or weekly discount offers
5. Hire some help
Owning an Airbnb and running it by yourself can be very overwhelming, especially for out of state properties. This is why you should consider hiring or enlisting a co-host to handle all the queries, bookings, and feedback professionally and promptly. This could be a neighbor, friend or family member. The co-host can also help with the check-in/checkout process, cleaning, and urgent Airbnb property management issues. However, make sure your co-hosts understand Airbnb co-host terms of agreement to avoid violating any rules. And agree with your co-host how much they will earn per reservation.
If you cannot find a co-host, consider hiring a professional property manager to run your property. Proper management will boost your Airbnb occupancy rate and revenue.
To learn how to list space on Airbnb, read our comprehensive guide on becoming an Airbnb host.
Running an Airbnb business is a smart and lucrative real estate investment, there is no doubt about that. Just be sure to follow the above tips and use the right real estate investment tools to ensure success.