Investing in Airbnb Rental Property: Pros and Cons to Consider
Real estate investing is a lucrative income stream with so many ways to make money. Some people buy and flip homes whereas others purchase long-term rental properties.
But these aren’t the only ways to make money in real estate. There’s also the short-term market such as investing in Airbnb rentals.
Whether traveling for work or pleasure, many people are ditching traditional accommodations for Airbnbs.
These properties are sometimes cheaper and provide travelers with additional space.
Listing a property on Airbnb might work if you’re looking to get into real estate investing, yet you don’t want to be a traditional landlord.
Before jumping into these investments, though, make sure you understand the pros and cons of investing in Airbnb rentals.
Becoming an Airbnb host and listing a property can diversify your income, and it’s a great first-step for novice investors. Advantages of these short-term rentals include:
Potential for passive income
Some people dabble in real estate to create a passive income stream.
To be clear:
Any type of side hustle or investment property requires some measure of work.
However, the benefit of passive income is that you can earn money with little to no effort.
Once your Airbnb is ready for short-term rentals, you’ll earn money each time a guest books a stay at your place.
You don’t have to be there with guests, nor are you required to entertain them. Just list the property and keep the accommodations in good condition.
Earn more compared to other rental properties
Another benefit of the Airbnb rental market is the opportunity to earn more as a real estate investor.
To illustrate, let’s say you buy a property and find a long-term tenant that pays $1,400 a month based on market conditions. Over the course of 12 months, you’ll gross about $16,800 with this traditional rental.
Now, let’s say you list the same property on Airbnb at $150 a night.
Realistically, you won’t have guests every night. But even if you only keep the property occupied for six months (or 182 days out of the year), you’ll gross about $27,000 from rental income with Airbnb — about $10,000 more.
With Airbnb, you also have the flexibility to pull your listing at any time.
You can decide when short-term renters can occupy your property and for how long.
If you purchase a property exclusively for Airbnb, you can block certain days for your enjoyment.
Or, if you’re hosting guests in your primary residence, you can turn off bookings on certain days or weeks.
Set your pricing
Airbnb is also a lucrative hustle because there’s the freedom to set your own pricing.
The platform doesn’t determine the weekly or nightly rate for a property — you do.
However, if you’re competing with other properties in the area, keeping your rate competitive can ensure a steady income stream.
But although listing your property on Airbnb can be profitable, here are a few cons to know about the platform.
It’s free to list your property on Airbnb.
Just know that you’ll pay a service fee each time a guest books your property.
The typical fee is 3 percent for hosts, which the company deducts from your payout.
A major downside to listing a property on Airbnb is that rental income tends to be irregular compared to other rental properties.
With a long-term rental, your tenant might sign a 12, 24, or 36-month lease. As a landlord, you can usually count on this income from month-to-month.
The number of bookings, however, determines your Airbnb income. This can fluctuate during certain times of the year, especially when tourism drops.
And if there’s a lot of competition in your area, it might be difficult to maintain steady bookings. So your income can be a bit irregular. The upside is that money earned throughout the year can compensate for slow periods.
If you buy a long-term rental and find a tenant, you’ll have fewer monthly expenses compared to a short-term rental.
Sure, you’re responsible for paying the mortgage which comes out of the tenant’s rent. But as far as utilities, Internet, and furniture, the tenant usually covers these expenses.
This isn’t the case when you own an Airbnb rental.
You’re dealing with short-term renters who’ll only stay for a few days or a few weeks.
Therefore, you’re responsible for monthly costs associated with the property.
You have to purchase furniture and decor.
In addition, your guests will expect basic amenities like cable, Wi-Fi, and curb appeal — which you’ll pay on a monthly basis, too.
Other Things to Consider With an Airbnb Rental
Along with weighing the pros and cons, you have to take other factors into consideration.
You might have to pay taxes on income earned from a short-term rental.
Typically you can avoid taxes if you rent the property for 14 days or less out of the year, and if you use the property for at least 10 percent of the total number of rental days.
If buying an Airbnb as a real estate investment, make sure you keep detailed income information.
It’s also important to set aside money for both state and federal income taxes.
The good news about rental investments, though, is that you’re able to write off some of your expenses.
Eligible write-offs might include:
- cleaning and maintenance fees
- service fees charged by Airbnb
- mortgage interest
- property repairs
- guest amenities
Speak with a tax professional for more information on eligible deductions.
Local rules may apply
Another thing to keep in mind is that short-term rental rules vary depending on where you live.
Do you live in a community with a homeowner’s association? If so, check with your association to confirm whether it allows short-term rentals.
Also, check your city government’s policy on short-term rentals. Some cities require their hosts to obtain a license before listing their properties on Airbnb. In other cities, you can only list your primary residence on Airbnb.
Don’t forget to speak with your homeowner’s insurance company, too.
You’ll likely require additional insurance to protect yourself and the property.
How to List a Property on Airbnb
Getting started with Airbnb is simple.
Have the property ready
Once your property is in pristine condition and ready for bookings, the first step is to create an account and become a host.
Here, you’ll provide information about yourself and location.
Once you’ve created the account, provide information about the type of property.
For example, is it a condo, apartment, townhouse, single-family home, etc? Also, are you providing a private room only or the entire house.
The website will also ask about the number of bedrooms (how many persons does the property sleep comfortably) and bathrooms.
After providing this information, the next step is to upload photos and create a written description of the property.
This is an opportunity to make your property shine above the competition, so don’t skimp on details.
Include several high-quality photos that best capture your property. Remember, you’re competing with other hosts.
Take photos of the kitchen, bathrooms, bedrooms, and amenities.
Be as honest and transparent as possible so your guests know what to expect.
Once you have your description, complete the section detailing your house rules.
For example, you might only allow guests ages 21 and older. You might also limit the number of guests on the property to discourage parties.
This section also allows you to include other details about your property.
For example, does the home have assigned parking, a driveway, or street parking. You can also provide check-in instructions here.
Manage your calendar
Next, you’ll customize your calendar.
This is where you can block and unblock certain dates.
You can also list other information like how long guests can stay and the amount of notice you’ll need for cancellations.
One benefit of using Airbnb is that the company will suggest a nightly rate based on the local market and other conditions (tourism, holiday, etc. ).
Understand, though, you’re always free to set your own price. But again, staying competitive can ensure consistent bookings.
Once you’ve set your price, you can publish your listing.
Whether you’re a new real estate investor or a seasoned investor, listing a property on Airbnb can provide passive income and diversify your investments.
And the best part:
You might earn more from short-term rentals compared to long-term rentals.
However, Airbnbs can have additional expenses and red tape, so make sure you understand how the process works.
Weigh the pros and cons and then decide whether it’s the right investment strategy for you.