Starting an Airbnb rental business allows you to earn passive income and could be more profitable than renting to long-term tenants. However, an Airbnb investment requires careful thought and consideration, as many factors will determine your success.
Here is the complete guide on how to make money with an Airbnb investment property.
Airbnb Pros & Cons: Decide Whether Airbnb Is Right for You
Is buying an Airbnb a good investment for you? There are a few ways to break into the real estate market. Many real estate investors choose to go the traditional route of renting to conventional tenants who sign contracts for one year or more.
However, short-term rentals (STRs), such as an Airbnb rental, have the potential to earn you more money with less hassle and greater flexibility – if you do things right. Let’s quickly review some of the pros and cons of investing in Airbnb.
Pros to Investing in Airbnb Properties
The top advantages of investing in an Airbnb rental property include:
- Higher-income potential: You can charge as much as hotels charge or even more in some cities. As long as you can maintain a high occupancy rate, charging per night can bring in more income than traditional renting.
- Better cash flow: With Airbnb, you can get your cash multiple times a week, depending on how often you have guests.
- More flexibility: Airbnb lets you set your own house rules, block calendar dates, choose a cancellation policy, set minimum and maximum stays, etc. You won’t have to commit to a long-term lease with one tenant who may be a bad one. You can also take your house off the market and switch to long-term rentals at any time.
- Vet your guests beforehand: Airbnb allows you to decide whether to enable instant bookings or approve all booking requests beforehand. If you do the latter, you can review a guest’s profile and reviews before renting to them to minimize the risks of troublesome guests.
Cons to Investing in Airbnb Properties
At the same time, there are some potential disadvantages of renting on Airbnb.
- There may be low seasons: There may be times when you struggle to find guests, especially if tourism in your city is seasonal. You’ll have to budget and plan for those low seasons when rental income is inconsistent.
- Requires a more considerable investment: You must furnish an Airbnb before renting it out. That means you have to buy beds, a couch, cutlery, cooking equipment, a TV, cleaning supplies, and more, depending on the type of rental. You don’t have to do all that when renting to long-term tenants.
- More ongoing expenses and maintenance: You also have to pay the water, electricity, gas, internet, and other bills. Furthermore, you have to clean the apartment between stays, though you can charge guests a cleaning fee to cover those expenses.
- You must be available 24 hours a day: As an Airbnb host, you always have to be on hand to help guests. They might have difficulty connecting to the Wi-Fi, lose the house keys, or have a few questions about public transport in the area. The level of customer service Airbnb requires is a lot higher than with traditional renting.
The success of your Airbnb investment property will depend on several factors, including the city, neighborhood, and how good of a host you are. If you’ve decided that you prefer the flexibility and higher earnings potential of an Airbnb, read on.
Find a City Good for Airbnb
Your hometown might not be the best place to invest in an Airbnb. While it might be more convenient, some cities aren’t the right fit for a vacation rental. Here’s what to look for in a city when investing in Airbnb rental properties.
It Needs a Booming Tourism Industry
For a city to be a good fit for Airbnb, the local tourism industry must have a good forecast. Top tourist destinations in the US include New York City, Philadelphia, Miami, New Orleans, San Francisco, and others.
If there are no attractions or National Historical Landmarks in or near the city, it’s unlikely to be an excellent place to buy an Airbnb.
There’s something else to consider: the seasonality of the tourism scene. Do people only come a few months a year for kayaking trips? Or do people visit all year round, like in New York City? Every city will have a peak tourism season, but if tourism is dead for the entire year save a few months, being successful on Airbnb will be tough.
The Local Laws Must Be Airbnb-Friendly
Some cities make it challenging for Airbnb owners. For example, in Los Angeles, you can only rent an Airbnb if it is your primary residence. Even then, you must apply for a permit and not rent it for more than 120 nights per year. If you want to rent it out for longer, you must apply for additional licenses, which can be a big hassle – and you may not qualify.
Always investigate the existing local laws before buying a property you intend to rent on Airbnb. Also, check if lawmakers in the area have been considering laws that target Airbnbs.
Occupancy Rates Must Be Good
Even if a city is touristy, are people staying in Airbnbs instead of hotels? An easy way to find out is to hop on Airbnb, enter several date ranges, and investigate the top listings in the search results.
Even if an Airbnb is available for the period you selected, it should have many periods of unavailability over the next few months to indicate a favorable occupancy rate. Check the availability calendar for the listing. If most of the listings have empty calendars for weeks or months with no bookings, things aren’t looking good.
It Must Have High Nightly Rates
Now that you’ve established that the Airbnbs in the city have reasonable occupancy rates, you’ll need to figure out the average nightly, weekly, and monthly rates in your town. That way, you can calculate how long it will take to get back your initial investment.
Make sure to filter for the type of property you will be renting. For example, suppose you plan to buy a multi-bedroom apartment and rent out individual rooms. In that case, the nightly rates for complete apartments or houses are irrelevant, as they naturally cost more.
Remember that rates can vary based on seasonal demand, so select time ranges at various times of the year.
Look for Properties in the Right Areas
Even if a city is conducive to Airbnb success, you won’t get as many guests if your place is in an inconvenient location. Sure, some guests may not mind staying in the city outskirts, but others won’t be okay with it.
What makes a location suitable for Airbnb?
Near City Center
The first is proximity to the city center or the city’s major attractions, including parks and museums. That depends on the city – in some cities, the city center is boring and has nothing to offer. Naturally, properties in the center will be more expensive, so an alternative is looking for a property with easy access to the center via public or private transportation.
For example, if there is a direct bus or metro line to the city center that takes just 10-20 minutes, many guests will be happy to stay there. Alternatively, if there is a direct road with little traffic, guests who come with private vehicles or take Ubers will be satisfied.
The safety of the neighborhood matters – nobody wants to stay somewhere they feel unsafe. Also, is the area nice, modern, clean, and quiet?
Markets & Amenities
What about amenities? Guests who stay for a week or more will want to be near a supermarket. Most guests will prefer to be in an area with some restaurants, cafés, and nightclubs.
Open your Airbnb app and use the map view to see where most Airbnbs in the city are. If most are in a specific area, it might be worth looking into that neighborhood. Alternatively, if you determine a particular location as great for tourists but find few Airbnbs there, you will have less competition.
Furnish the Apartment
Once you’ve found a good city and neighborhood and bought the place, it’s time to prepare it for guests. Start by setting up internet service and other amenities, and then work on furnishing the home.
Here are some things you might want to purchase:
- A bed with a comfortable mattress and cute bedding
- Window curtains so guests can sleep in late
- A table and chair for guests to eat, or a desk for guests who need to work
- A comfortable couch or mini-sofa
- Cooking equipment and eating utensils
- A microwave, kettle, and minifridge
- A mounted TV
- Cabinets or a closet
- Air conditioning, heating, a showerhead with good water pressure, and shower curtains
- Pictures and other decorations
Focus on making the place comfortable and inviting, so guests can feel at home. You can add some cookies, fruit, a water distiller, and other amenities that guests will appreciate.
Look at what other Airbnb hosts in the area are offering. Try to be as comprehensive as possible, getting ideas from several top hosts in your city. Don’t copy them, though – you want your Airbnb to be unique.
Create Your Listing
After fully furnishing your apartment, it’s time to sign up for Airbnb and create your listing. Get a business license or any necessary permits – hopefully, you’ve chosen a city with easy requirements.
What makes a good Airbnb listing? Here are some tips:
- Be descriptive: Talk about the place, the amenities, the kind of ambiance you’re trying to offer, the neighborhood, services (like laundry services), access to attractions, etc.
- Be personal: Fill out your Airbnb profile and add a bio. Consider adding a few lines about yourself in your listings. Airbnb is all about connections.
- Take pictures: People will notice your photographs first. Hire a professional photographer to take incredible pictures with plenty of light from good angles. Select your best shot to be the featured photo.
Offer Incentives to the First Guests
Airbnb allows you to offer a 20% discount to your first three guests. This discount will show up when users view the listing, incentivizing them to book your place even though it’s new. You can opt out at any time. According to Airbnb, it helps hosts get their first bookings 30% faster, on average.
Consider offering long-stay discounts to people who stay at least a week or month. For example, you can offer a 10% discount on Airbnb pricing for weekly stays and a 25% discount for monthly visits.
That helps keep your occupancy rates high, and it can help you get your first guests quicker, as some people are visiting for business for a few weeks or months and are looking for affordable places to stay. Others might be locals looking for a place to stay between long-term contracts.
Flexible Cancellation Policy
Another way to incentivize first bookings is by offering a flexible cancellation policy. It increases the chances of a guest canceling at the last minute, but the likelihood of any particular guest doing that is still low.
Turn on “Instant Book”
As a first-time host, consider turning on Instant Book so people can reserve your place instantly. You’ll likely get more last-minute bookings that way, but your goal should be to get a few reviews, so your listing can take off.
Be Responsive to Questions
Also, many people will ask you questions about the place before reserving. Respond to all queries as fast as you can. Your response rate and the average time it takes for you to respond to inquiries will show up on your listing! If people see a new listing with no reviews and a response rate of less than 90%, they won’t trust you as much.
Become a Superhost
Becoming a Superhost will help you get more guests, as it increases trust. In addition, you’ll get special perks, like a $100 coupon credit every year. You’ll need to maintain high ratings, low cancellation rates, high response rates, and provide customers with excellent customer service overall. Read more here on the requirements for being classified as an Airbnb Superhost
Airbnb is a great way to earn recurring passive income. However, it’s essential to choose the right city and create a business plan to achieve success. At TFS Properties we help our clients find the perfect real estate properties. Let us help you find your next one or few properties!