Investing in Short-Term Rentals: Airbnb
Short-term rentals have grown in popularity over the years. Airbnb (short for Air Bed and Breakfast) is an online marketplace for lodging across every major city, mainly for vacations and tourist rentals. The website matches individuals looking to rent residential properties with people looking for lodging in a specific area.Â
Becoming an Airbnb host adds a passive source of income. As a host, you set your own terms and conditions for your property’s availability and tenant requirements. Best of all, you can find potential guests with ease through Airbnb’s massive online marketplace.
So you want to be an Airbnb host? Great, here are the essentials you will need to know to get started.Â
First and foremost, strategically choosing your Airbnb house is crucial. When you own a rental primarily for Airbnb visits, there are some important considerations you should know in advance. This article explains the nitty-gritty of purchasing a home for Airbnb. We will discuss:
- How to find the right house
- Pros and cons of Airbnb investment
- Main difference between Airbnb and traditional renters
- Working with dedicated Airbnb property managers
What Are the Pros and Cons of Buying a House for Airbnb?
Here are the benefits and downsides you face with Airbnb properties.
Pros
Many benefits arise when you buy an Airbnb. They range from financial gains to improved credit scores, security, and property value. Here are some of the benefits you reap from properties rented out on Airbnb.
Protection from Damage
When you have your property rented with Airbnb and the guests’ damage your house, Airbnb compensates up to one million dollars (as long as you’re a member of the Host Protection Plan).
Flexibility
You don’t need to buy different properties for residence and Airbnb rentals. You can purchase and use a house as a primary residence and rent parts. Airbnb allows you to rent a floor, room, basement, or guest house. If you are away on vacation or don’t want to live in your house immediately, you are able to rent the whole unit as well.
Easier To Get Tenants
Airbnb takes measures to increase the visibility of your property and expose you to many prospective customers. People who move from place to place or take vacations always look for short-term stay places. So, you get more tenants for a short-term rental than you would for long-term tenants. However, taking care of other factors like location and quality of service also affect how easily you get clients.
Transfer of Costs
Since many people check in and out of your Airbnb house, the property gets dirty quickly. As a result, the maintenance costs increase. The good part is that you can transfer some expenses like clean-up charges to your clients. As a result, you cut down on the overall cost of owning your property.
Cons
Whereas buying a house for Airbnb can be a lucrative investment, the industry presents different challenges. Before you buy a house, brace yourself for potential risks. Some of the challenges include the following:
Strict Legal Restrictions
Understand the legalities involved before you buy a property. For example, in some regions, you can’t list your house as an Airbnb rental without a special permit or license. Also, if the house has preexisting structural damage and a tenant is hurt, you could face lawsuits.
Higher Risks
Due to the limitations on background checks, it is difficult to determine your guest’s character. You’ll depend on many guests for higher profit, but the more guests, the higher the risk. You’ll also need private insurance coverage to guarantee safety.
Active Management
Airbnb is not a passive venture, so you’ll have to attend to different guests regularly. In addition, any issues that arise within your rental property will call for your attention. So, if you want a passive investment, Airbnb may not give you much free time. Airbnb rentals require more active management than many traditional rental methods.
How Does Airbnb Differ from Conventional Investment Rental Properties?
The Airbnb versus traditional strategy is a significant discussion point among real estate investors for many reasons. The question about which investment generates a higher ROI is even more vital. The two have various significant differences, as outlined below. The distinction of profitability will depend on these factors and your specific investment.
Tax Considerations
You pay federal and state income tax based on your rental type. For example, for properties rented out on Airbnb, you’ll have to pay occupancy tax. Conventional investment rental property also attracts taxes, but you get more concessions. The best way to understand your tax obligations is to consult a professional tax consultant.
Property Insurance
The Airbnb company offers partial protection, but each host should also have extra vacation rental insurance. Because you rent your house to different guests on Airbnb, you face a greater risk of property damage. As such, you will incur higher insurance costs with an Airbnb rental.Â
Rental Charges
Airbnb is more flexible with how you charge your clients, so you are free to use different price strategies. For example, you could adjust your charges in response to demand, season, and day of the week. The lease agreement outlines the costs with traditional renters, and you receive the same amount of rent. As a result, your source of income with Airbnb is more customizable while traditional renting is usually more steady.
Demand
Airbnbs depend on seasonality and face lower occupancy rates during the low season, hence a lower income. During the high season, the guest turnover and increased prices will raise the revenue. Either way, your property’s demand is based on different factors and doesn’t happen overnight. Traditional renters are not seasonal, and the demand depends on the location and other factors.
Rental Period
Airbnbs are short-term, and the tenancy agreements last for a shorter time, usually less than a month. If your house becomes popular due to the excellent services, you will get many guests. On the flip side, traditional rental agreements usually last for one year unless you settle for shorter periods. Your tenants also pay the penalty for early termination of the lease agreement.
Who Manages Your Airbnb House?
Airbnb real estate investors don’t only invest finances – but also their time. You will need proper strategies to manage your property, guests, and house. Property management can be a full-time job, with frequent and timely communication, maintenance, and more all becoming necessary.
The good part is that you can get the burden off your shoulders with property managers. Find an excellent property manager who guarantees a five-star experience and high occupancy rates. Below are services you get from dedicated Airbnb property managers.
Marketing
Property managers offer advertising and digital marketing packages to attract customers online. Also, the connection between property managers and contacts with prospective guests is deep. So, even if you aren’t good at marketing and advertising, your managers can get the job done.
Rates Determination
Market research to find out how much other Airbnbs charges from time to time is hectic and consumes a lot of time. Yet, you have to stay updated with trends to keep your costs on the right track. Property managers constantly research to set the appropriate price on your behalf. If the vacancy rate declines, your property managers will help your property’s prices remain competitive.
Customer Service
A customer who always finds people to offer help – physically and virtually – is more likely to be a satisfied customer. If your occupancy rate is high, without a property manager to help you won’t be able to effectively keep up with communication and responses to vital issues. Property managers can come in to help you research properties & prices, and create a pristine customer support environment as well.
Benefits of Working With a Real Estate Agent to Buy an Airbnb Property?
With the advent of technology and the rise of do-it-yourself websites and resources, more people are wondering if they need a real estate agent to sell or buy a house for Airbnb investing. The answer is yes! Here is why our real estate agents exceed the competition:
- Our Airbnbs produces a passive 8-12%+ Net Cash Flow
- Our Airbnbs are passive investment options. We will help you find the property, buy it, design it, and place it into one of our property management team’s Airbnb super host accounts to help you start earning money right away. We also use dynamic pricing and adjust the price of Airbnb based on what events are being held or if there is a major holiday. During these times our team will up the price of your rental ensuring the highest possible profit from your Airbnb.
- From acquisition to booking the Airbnb we can take care of the client from A to Z.
- Our team spends countless hours researching markets across the United States are good Airbnb markets and will use this information to help guide our investor’s purchases.
- After everything is set up, our property management team will take care of issues that arise and manage your reservations for you. All the investor has to do is log into their online portal and see how their investment is doing.
TFS Agents Have a Track Record of Success
Our real estate agents specialize in finding Airbnb properties to buy for existing and new hosts. At TFS Properties, our professionals have a track record of success with our clients. Here are just a few highlights:
- Our Airbnb’s produces a passive 8-12%+ Net Cash Flow
- Our Airbnb’s are a passive investment option. We will help you find the property, buy it, design it, and place it into one of our property management team’s Airbnb super host accounts to help you start earning money right away. We also use dynamic pricing and adjust the price of the Airbnb based on what events are being held or if there is a major holiday. During these times our team will up the price of your rental ensuring the highest possible profit from your Airbnb.
- From acquisition to booking the Airbnb we can take care of the client from A to Z.
- Our team spends countless hours researching which markets across the United States are good Airbnb markets and will use this information to help guide our investor’s purchases.
- After everything is set up, our property management team will take care of issues that arise and manage your reservations for you. All the investor has to do is log into their online portal and see how their investment is doing.
Conclusion
Buying a house for Airbnb rental can be a worthwhile investment but thorough research should be conducted before taking the leap. Selecting a property in a popular destination, as well as familiarizing yourself with Airbnb rules and regulations, are crucial steps in this decision-making process.
As the short-term rental industry continues to grow and the real estate investment market continues to change, purchasing a home for use as an Airbnb rental has become a worthy choice. However, the decision requires research into choosing the best rental property for your investment. We hope our guide helps kickstart your Airbnb investment process!
