More Profitable than Traditional Renting?
Renting properties through Airbnb can be more profitable than renting them to long-term tenants, depending on the property’s location. Your costs may be higher if you rent it out via Airbnb, as you are expected to furnish the property, maintain cleanliness, and pay utility bills. It may take some time to start making money from Airbnb, as bookings largely depend on your reputation as a host. Your monthly income can vary more significantly if you rent it through Airbnb.
Diverse Tenant Portfolio
With traditional renting, you put your eggs in one basket with a single tenant. This can be fine if the tenant is financially reliable and stays for a long time. But if they miss a rent payment or suddenly disappear, your income is immediately affected, and it’s hard to replace that income right away. In the case of Airbnb renting, you earn income from different guests regularly. Each guest represents a very small percentage of your overall income, so if any of them cancel at the last minute or refuse to pay, it may not have a significant impact.
Costs May Be Higher
If you own a property and rent it to a single tenant, your involvement in property management may be less. A committed tenant will pay bills regularly, keep the place clean, and mow the lawn. You only need to intervene for maintenance or to handle the occasional emergencies. An Airbnb property may require more work, as it is your responsibility as the host to ensure it is in good condition at all times. You may also need to provide some things that you wouldn’t usually offer to a single tenant, such as:
- High-quality furniture, decor, appliances, and amenities: If you want to attract potential Airbnb guests, you may need to invest some money to ensure the place looks and feels luxurious. Airbnb guests want to feel like they are staying in a premium unit.
- Food: You don’t need to cook food for your Airbnb guests, but keeping some basic groceries in the fridge can help make guests happy. This may involve providing some fresh eggs, coffee, or alcoholic beverages. Some Airbnb hosts even provide snacks at various times of the day.
- Cable TV, Wi-Fi, and other services: If you rent to a single tenant, it’s typically the tenant’s responsibility to set up cable TV and Wi-Fi. Airbnb guests usually expect these things to be available during their stay, so the cost of this technology and its maintenance falls on you.
You may be able to save time and effort by hiring a cleaning service and property management company to handle all these tasks, but this will also increase your operating costs.
Success May Be Gradual
You are unlikely to maintain an Airbnb unit booked almost every night right from the start. Airbnb bookings heavily depend on your reputation as a host. The more reviews you have from previous guests, the more likely you are to attract new guests. Initially, you may have very few reviews, so you may need to keep rental prices low or offer incentives to attract people to stay. Even if you have a fantastic unit in a great location, don’t assume you will generate rental income immediately.
Income May Be Irregular
If you own a property and rent it to a single tenant, you may be able to keep that tenant on a long-term lease and collect rent monthly, providing you a steady income stream. Renting via Airbnb may be more irregular. Although in theory, you can rent the property year-round, you are likely to have many vacant dates on your calendar. You may even prefer to have one or two days vacant between bookings to prepare the property for the next guest.
In
In a post on the Airbnb community forum in 2016, a property owner named Michelle wrote that her units are booked about 60% of the time, depending on the season. During the humid season in New Orleans, she said bookings drop to 40%, but her units in Massachusetts are booked at 75% during peak tourist times.
As an owner, you may be able to make up for these vacant dates by charging higher than what you would receive in a typical rental unit, but there’s no guarantee that you will be profitable. Generally, your occupancy rate as an Airbnb host will depend on several factors, including weather, time of year, and location.
Summary
Airbnb and other short-term rental platforms can be very profitable, especially if you are patient and willing to put in the effort to attract tenants and keep them satisfied. However, your operating costs are likely to be higher than a traditional rental property, and regulations have made investing in Airbnb difficult or even illegal in many places. Be sure to do your homework before diving into an Airbnb investment.
Frequently Asked Questions (FAQs)
How do you determine the price for an Airbnb rental?
Look for Airbnb properties in your area and see how much they cost. They are your competitors, so you want to price your rental accordingly. Compare features, size, and location to estimate how your price may differ from other rentals. Cleaning fees and other additional charges can be included in the rental price or charged separately.
How much does Airbnb take from your earnings?
Under the split fee structure, Airbnb takes 3% of your earnings and charges an additional service fee to your customers. You can also choose to pay between 14% and 16% of your earnings to allow your customers to rent without paying the service fee. These fees may vary by location or type of rental.
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Sources:
RentCafe “Seattle, WA Rental Market Trends.”
AirDNA. “Seattle Overview.”
Airbnb Help Center. “San Francisco, CA.”
Airbnb. “How Does Occupancy Tax Collection and Remittance by Airbnb Work?”
Airbnb. “Community Center: What Percentage of Your Month Is Booked?”
Airbnb. “Help Center: Airbnb Service Fees.”
Source: https://www.thebalancemoney.com/pros-and-cons-of-airbnb-as-an-investment-strategy-4776231
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