AirBnB investing: How to decide if it’s right for you
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As your overall net worth increases, you may be looking for more investment diversification. If you have all your money in the same type of investment, then if that investment loses money, it affects your entire net worth. Some people choose to diversify their investments by choosing different types of investments. Real estate has been a popular choice for investing, and there are many different ways to invest in real estate. AirBnB investing is a way to invest in real estate.
AirBnB investment vs conventional rental
If you’re wondering how AirBnB investing works, it shares many similarities with conventional rental, but there are a few important differences. With both types of rental investment, you own the property and rent it to one or more tenants. With a conventional lease, it is typical to lease for a year or more. On the other hand, it is not uncommon for an AirBnb tenant to stay with you for a week or less. This means that you are likely to have a lot more tenants if you do AirBnB compared to a conventional rental.
Another difference between AirBnB and conventional rentals is that most conventional rentals are rented unfurnished. In contrast, most AirBnBs not only have furniture, but it’s also common for short-term rentals like AirBnBs to have other supplies like toiletries or kitchen items. As a landlord, you’ll also likely be responsible for utilities when renting with AirBnB, whereas many conventional tenancy agreements have tenants responsible for some or all utilities.
How to invest in AirBnB (and other short-term rentals)
If you’re looking to invest in owning a short-term rental like an AirBnB, one of the most important things to consider is location. Choosing the right location for your investment property is one of the non-negotiables when evaluating different properties. Keep in mind that what makes a good location for your personal residence is not necessarily the same location that makes a successful and profitable short term rental.
Once you’ve purchased a property, there are still a few other things you need to do to get your AirBnB up and running. In most cases, you will need to fully furnish the unit and provide a basic level of supplies (toiletries, cooking utensils, etc.). You’ll also want to make sure your systems are in place before you open your doors. This includes making sure you have a plan for cleaning the unit between tenants, automating check-in and check-out procedures, and deciding how you’ll handle maintenance requests.
Advantages and disadvantages of AirBnB investment
Investing in AirBnB or other short-term rental properties has a variety of advantages and disadvantages:
Benefits of AirBnB investment
- Higher profits – AirBnB can generate higher overall profits. This is especially true if you are in a prime location where you may have a high overall occupancy rate.
- Find tenants more easily – Because you advertise on AirBnB (or other short-term rental websites), they do a lot of the heavy lifting to find tenants. It is always important to screen all potential tenants.
- Additional flexibility – Operating a short-term rental gives you additional flexibility, since you are not bound by long-term leases. If you decide to sell the property, convert it to another use or move in yourself, you can often do so with a minimum of tangles.
Disadvantages of AirBnB investment
- It is an active investment – if you are looking for a passive real estate investment, AirBnB may not be the right choice for you. While it’s possible to reduce your ongoing involvement if you have the right management in place, there are other ways to invest in real estate more passively.
- Higher overall costs – Although AirBnB often generates higher profits than conventional rentals, it also usually comes with higher overall costs. Cleaning and turnover fees between each guest, utilities, furnishings, and higher potential damages are some of the additional expenses you may encounter.
- Additional risk – Since you are likely to have a larger number of tenants with a short-term rental, you are also taking on additional risk. Even if you have 95% model tenants, that 1 in 20 less than ideal tenant is a risk you need to be prepared for.
Is AirBnB investing legal?
Some municipalities restrict or prohibit short-term rentals. Be sure to check with your local city or county on what you need to do to operate a short-term rental in your area. More and more jurisdictions require licenses and payment of occupancy taxes to operate a short-term rental. If your building is part of a homeowners association (HOA), you’ll also want to check HOA regulations to make sure short-term rentals are allowed.
AirBnB investing is a form of real estate investing, and it can be potentially very lucrative. But while it often comes with higher profits, it can also come with higher expenses and additional risks. Carefully consider the pros and cons of AirBnB investing to decide whether or not it’s the right decision for your financial situation.
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