An Airbnb investment is a great way for investors to expand their businesses and increase their profit opportunities. Renting out an investment property on Airbnb isn’t a strategy suited for everyone; however, those who choose to pursue the option often reap the rewards. Read on to uncover the benefits of Airbnb, as well as learn which steps will lead you to your success.
What Is Airbnb Investing?
Airbnb investing is a strategy where real estate investors purchase rental properties and list the entire property or individual rooms on Airbnb. It is uncommon for investors to live on the properties themselves. Airbnb investing is an excellent strategy for investors to gain income from multiple properties they own. Airbnb, VRBO, and other platforms have gained massive popularity in the last decade for their ease of use for both tenants and renters.
The next question new investors ask is, “Are Airbnb investments profitable?” Airbnb investing is one of the most profitable strategies for real estate investors due to the several opportunities Airbnb rentals present. Airbnb investments do come with their own set of benefits and drawbacks. Before you start looking for properties to invest in, let’s go over the advantages and disadvantages of Airbnb investments.
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Pros Of An Airbnb Rental Property
Cash Flow: One of the biggest factors to consider when asking, “is Airbnb a good investment?” is the potential cash flow. A well-furnished property that is photographed professionally in a desirable location and comes with a grade-A host has the ability to generate significant profits. In fact, when managed properly, an Airbnb rental can pull in two to three times the revenue of an unfurnished, long-term rental. All you have to do is research the costs of hotels in the area to see how much you can actually charge guests. It doesn’t take a mathematician to realize that, financially, a well-run Airbnb can far exceed a traditional rental model. Deepasha Kakkar, the founder, and CEO of Crackitt offers this insight: “A well-booked Airbnb rental will be much more advantageous than renting the same unit to a single tenant for a long-term rental. Rather than relying on a single long-term tenant with a fixed monthly payment, you can charge higher nightly rates based on your location and the reputation of your renting space as proven by numerous rental reviews left by your previous tenants”.
Minimal Upkeep: It may be surprising, but the upkeep associated with running an Airbnb rental can be easier than the upkeep associated with a traditional long-term rental. How? Well, if you’re renting out the property relatively often, that means you’re also cleaning it relatively often. The best part: your tenants are the ones paying for the cleaning. An additional charge of anywhere between $75 and $200 is added to an Airbnb’s nightly rate that is to be used as a cleaning fee. Additionally, the fact that renters are coming and going consistently means you’ll always know when maintenance problems come about. Leave it to guests to leave a full review on whether or not every appliance in every room of the house was properly running during their stay. That might sound like a hassle, but it will allow you to get on top of any issues as soon as they arise.
Flexibility: Turning an investment property into an Airbnb rental awards owners an inherent degree of flexibility. If for nothing else, owners are not required to list their home on Airbnb forever. If Airbnb turns out to be a lucrative endeavor, investors should continue to list on the online platform. However, if online requests leave more to be desired, owners can always take their homes off the site and find other ways to put them in operation. Jerry Han, the CMO behind PrizeRebel, says nothing is stopping Airbnb rentals from being used another way. “It allows you to consider leasing if you don’t feel comfortable with Airbnb or need a more stable passive income. Or you can even take it off the market completely if need be,” says Han.
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Cons Of An Airbnb Rental Property
Communication: If you’re an investor who is looking for a more passive investment, Airbnb investing may not be for you. One of the “drawbacks” (if you can even call it a drawback) of owning an Airbnb rental is the constant communication that must go on to achieve success. From pre and post-arrival communication to planning key swaps, it’s no walk in the park. If you’re willing to put in the work, however, there’s no reason to avoid Airbnb.
Risk: There’s always some risk involved with any real estate deal, and there’s no exception when it comes to renting on Airbnb. That being said, “risk” might be considered another “con” regarding Airbnb rentals. New guests are entering and exiting your property weekly, and there’s always a chance that that could lead to problems. A rowdy group in town for a Bachelor party could spill red wine on your brand new white couch. A small child staying with their parents might accidentally break an appliance. While these instances are most certainly not the norm, they can happen, and hosts need to prepare themselves. Protect your property by properly screening tenants. Secondly, be sure to purchase insurance tailored to short-term rentals.
There is no “one size fits all” solution for Airbnb rentals, but there is the chance to profit if you take the right precautions. As with all investing strategies, there are pros and cons associated with the process. By minding your due diligence and identifying your short and long-term goals, it is possible to achieve success as an Airbnb owner.
Airbnb Investment Vs. Conventional Rental Property
A conventional rental property is typically defined as a long-term rental unit, where tenants sign a lease and pay monthly rent. This arrangement is a common real estate investment strategy because of its consistent cash flow and long-term stability. Airbnb investments are considered short-term rentals, and require more maintenance and day-to-day responsibilities. That being said, Airbnb investments can yield higher profit margins than long-term units.
When deciding between an Airbnb investment or conventional property, think about your target market. Do you want to invest in your own market area? And, if so, does your area have high tourism? Is demand consistent or seasonal? Similarly, would you be willing to invest elsewhere and work with a property manager to maintain the rental? Consider how each of these factors would impact your day-to-day business operations and overall budget.
If you do live in a high-demand market, Airbnb could increase your returns significantly. Again — think about the commitment involved in managing an Airbnb rental. Conventional rental properties are a great alternative, and can yield impressive profits in their own right. All in all, the best investment decision depends on what you are looking for.
Airbnb Investment Strategy 101: Set Yourself Up For Success
You can do three different things to ensure your Airbnb rental property is a success. Start by researching the local neighborhood. Is the property in a desirable area? Are there activities to take part in? Is the home within walking distance to nightlife? Does it have easy freeway access? Identifying these features will help you decide whether an Airbnb rental is right for you and how much you should be charging your guests. Just as you would review “comps” in any other real estate transaction, research how much other Airbnb hosts are charging in the area.
Tip number two: embrace dynamic pricing. It’s okay to raise your rates when the market is hot and lower those rates when guests are few and far between. Again, stay on top of the trends by looking at what your competitors are charging. As for any product, the price should change depending on the demand of the market.
Finally, as an Airbnb host, you should never be afraid to charge extra for additional amenity usage. If you’re providing an extra bed or your guest wants to add an additional person to the house, they should have to cover the costs. No questions asked. Be sure to include these additional amenities in your property’s listing description. You want to be as transparent as possible with your guests to build that trust.
Airbnb Pricing: 5 Ways To Maximize Profits
Like with any other investment, a significant amount of research is required before deciding how much you should spend on a property, as well as how much you should list the property for. Done right, Airbnb investing can be massively profitable. Review these few tips on how to price your Airbnb investment:
Run The Numbers: As with any investment, the most important thing to look at before deciding whether or not to pursue a deal is the numbers. If you have multiple investment properties, try listing just one on Airbnb to see how it performs. How much can you charge? What are the occupancy rates? How much work are you putting into the job? There’s also always the option to rent out your primary residence on Airbnb. Take a vacation and see how difficult it is to navigate the platform. Just remember, the testing stage is vital.
Run Your Rental Like A Business: Whether you have one property listed on Airbnb or 10, you should always run your rentals like you would a business. What do we mean by that? Well, Airbnbs are essentially hotels, right? They are a hotel’s top competitor, in fact. 5-star hotels get their status by going above and beyond their guests’ expectations. So consider the needs of those to who you’ll be renting your property. An extra toothbrush in the bathroom, ground coffee beans in the coffee pot, or cold water bottles in the fridge are just a few ways to show your guests you care.
Get Creative: The properties that are rented out most frequently on Airbnb are those that are well decorated and professionally photographed. So channel your inner interior designer and get to work. While it’s important not to get too eclectic with the decor (you do want to appeal to the vast majority of people, after all), it is perfectly okay — encouraged, in fact — to get a little creative. Is your rental in a “beachy” location? Play up the vibe with tiki torches and floral design. If you’re in a city, consider hanging art that is reflective of the town’s character.
Outsource: When it comes to Airbnb rentals, be sure to play to your strengths. If you’re not the best interior designer, outsource that project. If you aren’t the best at fixing a leaky toilet, outsource that project. Time is an investor’s most valuable asset. So when you are willing to delegate, you’re actually doing what’s best for yourself, your property, and — in the long run — your budget.
Identify Your Target Renter: Defining exactly the type of person you want to rent your property will help you market said property. If you want to appeal to higher-paying guests, you’re going to have to fulfill your end of the bargain and provide a luxurious experience. If, on the other hand, your competitive advantage is your property’s nightly rate, be ready to put in the work that comes with consistent tenant turnover. Whatever your ideal customer looks like, be sure to play up whatever it is about your property you know that “ideal renter” would want.
Airbnb Investments and COVID-19
Like many businesses, Airbnb took a hit during the COVID-19 pandemic. Although the company suffered initially, they saw an increase in customers looking to travel to remote locations that are secluded from large populations. This trend is beneficial for property owners in rural areas who are currently renting out their short-term vacation rentals on Airbnb, but it should not be expected to be long-lived. As the world slowly returns back to normal life, Airbnb expects the current spike in remotely located property rentals to lower while bookings in populated areas rise back once again.
Owning an Airbnb investment can be a great way to earn additional cash flow, but before diving into the strategy, be sure to review the pros and cons, identify your goals, and play up your strengths. If you have any experience adding Airbnb rentals to your portfolio, please feel free to share your advice in the comments below.
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The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only.