There’s no question that Airbnb has permanently changed the travel industry. If you’ve stayed in an Airbnb rental, you may have wondered what it would be like to be on the other side.
We can see the appeal! By becoming an Airbnb host, you can diversify your income without needing to be a real estate expert. Airbnb’s rise in popularity has made this potentially a solid approach to buying an investment property, but that doesn’t mean it will work for everyone.
In this article, we will explore Airbnb investments and the distinct advantages and disadvantages they may come with. Keep reading to learn more.
How Does Airbnb Investment Properties Work?
If you’re looking for passive income, a real estate investment may be a good option to consider. But what is the difference between a traditional investment property and an Airbnb?
A property is considered an Airbnb investment when either part or all of the property is rented out on Airbnb after purchase. These rentals are typically short-term, which allows you to host many guests throughout the span of the year, where traditional investment properties are most commonly rented to long-term tenants.
Is An Airbnb Investment More Profitable Than A Conventional Investment Rental Property?
Because each investment is unique, there’s no quick answer to this question. But in high-demand areas, the nightly cost of an Airbnb can lead to higher profits.
For instance, let’s say you want to rent out a one-bedroom apartment in Los Angeles. As of March 2022, the average monthly cost of that apartment is $2,563, meaning you could make roughly $30,000 if your tenant signs a 12-month lease. But short-term bookings are able to charge more per night, which means you could make more.
According to AirDNA, the average daily rate for an Airbnb in Los Angeles is just over $190, with units typically occupied 67% of the year. This means you could make over $46,000 off of your Airbnb – a pretty significant $16,000 more than you would through traditional renting. Airbnb also charges renters a maintenance fee, which means you may save on necessary repairs.
Still, when considering the potential for a higher profit through Airbnb, you must also consider the key differences between these types of rental properties and how those differences will impact your wallet.
Unique Expenses Of An Airbnb Investment
Managing an Airbnb involves several unique expenses you should consider, including:
Furnishing and decorating the property
Maintenance
Utilities
Amenities such as television subscription services
Potentially different, more expensive home insurance
What Kind Of Property Should I Buy For An Airbnb Investment?
Despite what some may think, an Airbnb investment does not need to be a vacation rental home, as many use Airbnb for business travel and other life events that may bring them to any number of locations across the country. This means it’s possible to have a profitable Airbnb regardless of where you’re located!
Prospective Airbnb investors should look at local listings first to see what kind of properties are in demand where they live. You can also rely on real estate experts to help you choose the right property for your investment.
“I made sure that I found a real estate agent who understood the Airbnb rental market in the area and the purchase process was easy,” says Bryce Welker, owner of CPA Exam Guy, who also owns and operates multiple Airbnb rental properties. “I followed a template I found online that walks owners through the furnishing and set-up process to equip an Airbnb rental for both short and long-term stays.”
Do I Need To Live Near My Airbnb Rental?
The short answer: no. Although it is more convenient to be located near your Airbnb property, it’s not entirely essential.
If you choose to invest in a property that is not near your primary residence, you will likely need a property manager – but that may not be a bad thing. Some experienced Airbnb hosts find great value in having the help.
“I wish I had known how often people flake on you after expressing interest in renting your place,” shares Welker. “I would have opted to hire a property management company from the start just to help with the frequent back-and-forths that end up going nowhere.”
Overall
If you’re contemplating an Airbnb investment, you must consider all the benefits and challenges you may come across along the way, from the potential for higher profits to the loss of personal time required to advertise and maintain the property.
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