Have you ever wondered what it would be like to have your own Airbnb investment property? Here is a guide to help you take the first steps.
If you’re considering buying a property to list on Airbnb, you will want to read this article first.
Table of Contents
- How Does an Airbnb Investment Property Work?
- Pros and Cons of Having an Airbnb Investment Property
- Airbnb Investment Trends and Forecast
- How to Find the Perfect Airbnb Investment Property
- 10 Best Cities to Buy an Airbnb Investment Property
Short term rentals led by Airbnb have changed the hospitality industry. Since the platform became popular, travelers now prefer staying in an Airbnb instead of hotels because of its lower cost, convenient location, and household amenities. Some Airbnb guests enjoy feeling like they are home even when they are away from home.
If you’ve stayed in an Airbnb rental before, you might want to know what it is like to be an Airbnb host. Aside from being a fun gig, is it also profitable? Will it help you gain another source of income without the need to take additional classes or acquire new skills? The answer to both questions is yes.
In this article, we will take a closer look at what it would be like to own an Airbnb investment property, the different trends you need to look out for, and where to invest your money.
If you want to know whether an Airbnb investment is right for you and how you can find the right property, keep reading to learn more.
How Does an Airbnb Investment Property Work?
While investing in real estate is generally an excellent option for those looking for a passive income source, it does not apply to every investment strategy. A great example would be Airbnb investment. Let’s compare it to traditional rental investment to understand better how it works.
Rent Duration
An Airbnb investment is when you rent out either a part or an entire property on the Airbnb platform. Such rentals are usually short-term, with a minimum one-night stay, though putting up your property as a monthly rental is possible.
Meanwhile, traditional rental investments are long-term rental properties in which the tenant stays for at least six months.
Number of Guests and Pricing
Because of the short duration when renting an Airbnb, you will be hosting many guests in one year, compared to a long term rental where the landlord gets one or two sets of tenants.
The irregularity in the influx of guest bookings gives you an opportunity to be more flexible with your pricing. While landlords must follow the monthly rent indicated in the lease agreement, you can use different pricing strategies. You can adjust your rates as often as every day to match the demand.
Host’s Responsibilities
Since your guests only stay for a short while, they expect you to keep the property in tip-top condition. It means fully furnishing the unit with tasteful decor, supplying items such as snacks and beverages, and cleaning the place after guests leave. They are on top of monitoring and answering emails and messages from potential guests.
Meanwhile, landlords do not need to fully furnish their traditional rental property. Instead, they can rent it as a bare unit or with basic appliances.
Occupancy Rate
Depending on where you buy Airbnb property, there may be certain seasons when you get a lot of bookings and months when it is quiet.
For example, short term rentals near the beach may get fully booked in the summer but struggle to book half of the calendar month during the colder seasons. For this reason, an Airbnb property’s occupancy rate fluctuates depending on the season.
Because of the long-term duration of the traditional rental, on the other hand, landlords enjoy more income security.
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Pros and Cons of Having an Airbnb Investment Property
The market for short term rentals like Airbnb has become more competitive now. So, before you start searching for an Airbnb property to invest in, you must first know about the risks that go with the benefits and decide if you can handle them.
Pros of Investing in an Airbnb Property
Investing in rental properties for Airbnb purposes comes with several benefits. Here are a few obvious reasons why a lot of investors prefer to go into the short term rental business:
1. Potentially Higher Profits
In the best Airbnb markets, the nightly rate of an Airbnb can lead to more profits than you would get with long term renting. For example, in Saint Augustine, Florida, where the Airbnb cash on cash return is 5.87%, the average long term rental income is $2,717. It means you can make around $32,604 in annual rental income if your tenant signs a 12-month lease.
But short term rentals usually charge more per night. According to Mashvisor’s January 2023 data, the average daily rate for an Airbnb in Saint Augustine, FL is $244, at a 50% occupancy rate. It means you can make over $4,473 per year off of your Saint Augustine, FL Airbnb—more than twice the annual income of long term rentals in the area.
2. Pricing Flexibility
Airbnb hosts have several opportunities in a year to adjust their pricing. You may lower your rate for longer stays or midweek bookings or charge more during peak seasons, weekends, holidays, or when there is a popular event in the area. It lets you try out different pricing strategies and determine which can maximize your income potential.
3. No Lease Agreement
One thing that differentiates an Airbnb business from a long term rental is the lease agreement. Unless you are subleasing your place on Airbnb, you do not need to ask your guests to sign a lease agreement.
Airbnb’s terms and conditions, as well as your house rules, are often enough to protect you and your property. If a guest breaks your house rules or damages your property, you can reach out to Airbnb for support and mediation instead of suing your guests. Legal disputes tend to drag on for too long.
For added protection, consider drawing a vacation rental agreement for you and your guests. Although it might prevent some of them from booking your property, the ones who do end up signing are often great guests.
Cons of Investing in an Airbnb Property
As several benefits come with owning an Airbnb business, it also comes with certain drawbacks. So, before buying an income property for sale and listing it on Airbnb, Vrbo, and other similar platforms, you might want to take a look at the following cons first:
1. Higher Upfront Costs Due to Furnishing and Decor
Guests expect the Airbnbs they book to offer a combination of coziness that they get from their own homes and the cleanliness, comfort, and quality assurance they can get at a hotel.
As a result, you need to fully furnish your property with fine appliances and tasteful decor and stock it with items that your guests would appreciate, such as coffee, tea, and snacks. And unless you are skilled in decorating, you might want to hire an interior designer to handle the project. It is to ensure that they can capture the vibe that attracts guests.
You should also consider getting a professional photographer to take high-quality photos of the property so you can show it off on your listing. It is very important yet an often overlooked aspect of marketing.
Think Instagram or Pinterest. Photos catch guests’ attention when looking for a rental and can help them decide whether to book your place.
2. Potentially Higher Operating Costs
Despite the higher potential for profit, having an Airbnb investment requires unique expenses, including the following:
- Airbnb fees
- Restocking items like snacks and beverages
- Cleaning and maintenance
- Utilities
- Amenities like subscriptions to streaming services
- Insurance that tends to be more expensive
You will also need to pay your property manager (if you hire one), cleaning crew, and other people to help you maintain the place to keep your operations running smoothly.
3. Success May Be Gradual
Even if you are able to buy an Airbnb investment property in a tourist hotspot, bookings for your property will not happen overnight.
First, you need to get a few five-star reviews to establish a good reputation as a host. The more positive reviews you receive, the more bookings you will get. But since you are starting with zero reviews, you might need to lower your rates than your more established competitors to attract guests.
Once you get five-star reviews and achieve an occupancy rate of 90% or higher in one month, you may start increasing your daily rate to match the demand.
Airbnb Investment Trends and Forecast
Given the pros and cons of owning a short term rental property and listing it on Airbnb, you still need to answer the question, “Is Airbnb a good investment?”
Before buying an Airbnb investment property, you must first look at the market and any external factors that may be impacting it.
After struggling in 2020 and 2021 due to pandemic-induced lockdowns that prevented people from traveling, Airbnb rentals in most markets are quickly recovering now. Airbnbs in rural and less-crowded areas, for example, are seeing a surge in bookings as travelers who were tired of staying home started seeking out safe travel destinations.
Another trend we anticipate will grow more in popularity is the increase in long term stays on Airbnb in both urban and rural areas. As of February 2021, Airbnb allows extended stays on vacation rentals. It is mainly because of the increasing popularity of remote work. Instead of working from home, they chose to do it elsewhere.
We’re seeing improvements in the Americans’ overall travel sentiment since the onset of COVID-19. As we head back into pre-pandemic norms, more people are now traveling for business and pleasure. Residents are also embracing the return of tourists to their communities.
With such trends and sentiments, the best places to own an Airbnb can be found in rural areas, where families and big groups who want to travel safely prefer to visit. However, Airbnb rentals in the cities can keep their occupancy rates high by accepting long-term bookings to accommodate remote workers.
How to Find the Perfect Airbnb Investment Property
Now you know the pros and cons of buying and investing in an Airbnb property, as well as the trends and forecasts for the industry. If you wish to proceed, here is a step-by-step guide to help you find a rental home with high-profit potential.
Step 1: Finalize Your Budget
As previously mentioned, an Airbnb investment property can be more lucrative compared to buying a traditional rental home. However, it requires a higher upfront cost. When deciding on your budget, do not just think of the highest property price you are willing to pay. You must also take into account your one-time setup costs, such as:
- Inspection fees
- Closing costs
- Repair and remodeling
- Furnishing
- Other expenses to get your income property ready for listing
If you want to check how the upfront costs will affect your overall returns, you can use a tool like Mashvisor’s Airbnb rental calculator. The calculator estimates your expenses and takes them into account when calculating your cash flow over the next 10 years.
Step 2: Identify Up to Five Cities for Your Search
You do not need to limit your search to your immediate proximity when finding an Airbnb rental to buy. Even though locating your investment property near where you live would be more convenient, your area may not be optimal for short term rentals. If such is the case, real estate investors will look for other cities within and beyond their state.
As you filter your search down to a few cities, the most important thing to consider aside from profit potential is the legality.
Each county, city, or even neighborhood may impose different regulations for short term rentals. Some of them are very strict. For example, you can only rent out your primary residence, or you can only accept bookings for a certain number of days in a year.
If you are a beginner investor and are just testing the waters, investing in an area with such strict regulations can be a good start. But if you want to earn a steady income while keeping your privacy, you’re better off buying in areas allowing non-owner-occupied short term rentals.
Not sure where to start looking? Tools like Mashvisor’s Property Search can help you. Use the heatmap to highlight the areas that meet your criteria: cash on cash return, rental income, or occupancy rate.
Go to Mashvisor now to start looking for a profitable Airbnb investment property in any location of your choice in the country.
Step 3: Decide on What Type of Airbnb Investment Property to Buy
What is great about Airbnb becoming popular is that you do not need to own a vacation home like a cabin, lakehouse, or beachfront property to get bookings. The best markets for Airbnb are not just tourist hotspots. Here are some types of Airbnb guests we found by looking at the top listings in the US:
- Business travelers
- Destination wedding guests
- Families visiting someone in a military complex
- Long-distance movers looking for a place to stay the night
- Remote workers who want a temporary home
While they open up a lot of possibilities, it is better to minimize your risk by looking at the data to find what types of properties are popular among Airbnb guests in your chosen city.
Mashvisor’s Airbnb analytics show which property types (studio, one-bedroom, two-bedroom, etc.) in the area get the most bookings. We use data straight from the Airbnb platform to give you accurate and up-to-date analysis.
Step 4: Search for and Analyze Properties
Now you know which cities to search and what type of property to buy. But how would you know which house or apartment is profitable? If you think just because Airbnbs in a city provides high returns means every property in that area would generate a lot of rental income, you would be wrong. Different factors can affect an individual home’s profitability.
Using Mashvisor to Analyze Airbnb Properties
As you search for the perfect house to buy and turn into an Airbnb rental, you would be more efficient if you use an online tool that allows you to analyze every listing.
Mashvisor’s Property Finder tool displays properties for sale in up to five cities and sorts them by profitability. You can also filter your search by setting your budget and the number of bedrooms and bathrooms and selecting your rental strategy and property type.
Mashvisor’s Property Finder can help you search for the perfect Airbnb investment property in up to 10 markets at once.
Clicking on a house that interests you will direct you to its listing page, which contains everything you need to know, including the following:
- Property description
- Selling price
- Investment property analysis
Under property valuation analysis, we estimate the rental income, expenses, cash flow, and returns if you buy the house and turn it into a traditional rental or Airbnb rental. In such a way, you can tell which rental strategy is optimal for the property.
Scroll down the listing page and you will see our Airbnb rental calculator. Here, you can play with the numbers to see how a higher or lower rental income, expenses, or occupancy rate can affect your returns in the next decade.
If you plan to buy with a mortgage, our mortgage calculator will factor your loan into the rental calculations. The results are then summarized at the bottom of the page, which includes the 10-year investment payback balance.
In this section, you can see your accumulated earnings (or losses) each year. This complete analysis will help you decide whether the property you are looking at is worth buying or not.
10 Best Cities to Buy an Airbnb Investment Property
As we’ve already moved past COVID-19 and entered the post-pandemic era, many travel and accommodation trends in top Airbnb markets are steadily recovering their lost momentum.
Using Mashvisor’s January 2023 short term rental data, we found what the best cities are for Airbnb investment this year based on their performance in the last 12 months. We used the following criteria to filter which locations made it to this list:
- Each location must have a median property price of no more than $1,000,000
- Each location must have at least 100 active short term rental listings
- Each location must have an average monthly rental income of no less than $2,000
- Each location must have a good cash on cash return rate of 2.00% and up
- Each location must have a 50% occupancy rate or more
That being said, here are the 10 best cities to buy Airbnb properties, ranked from those with the highest to the lowest cash on cash return:
1. Northlake, IL
- Median Property Price: $329,300
- Average Price per Square Foot: $204
- Days on Market: 95
- Number of Airbnb Listings: 116
- Monthly Airbnb Rental Income: $4,259
- Airbnb Cash on Cash Return: 7.82%
- Airbnb Cap Rate: 7.96%
- Airbnb Daily Rate: $169
- Airbnb Occupancy Rate: 54%
- Walk Score: 33
Start searching for a profitable Airbnb investment property in Northlake, IL.
2. Bellwood, IL
- Median Property Price: $258,460
- Average Price per Square Foot: $208
- Days on Market: 84
- Number of Airbnb Listings: 173
- Monthly Airbnb Rental Income: $3,820
- Airbnb Cash on Cash Return: 7.77%
- Airbnb Cap Rate: 7.91%
- Airbnb Daily Rate: $164
- Airbnb Occupancy Rate: 62%
- Walk Score: 83
3. Rileyville, VA
- Median Property Price: $332,031
- Average Price per Square Foot: $192
- Days on Market: 15
- Number of Airbnb Listings: 153
- Monthly Airbnb Rental Income: $3,733
- Airbnb Cash on Cash Return: 7.57%
- Airbnb Cap Rate: 7.69%
- Airbnb Daily Rate: $235
- Airbnb Occupancy Rate: 55%
- Walk Score: 10
4. Columbia, MO
- Median Property Price: $294,905
- Average Price per Square Foot: $137
- Days on Market: 82
- Number of Airbnb Listings: 258
- Monthly Airbnb Rental Income: $3,264
- Airbnb Cash on Cash Return: 7.54%
- Airbnb Cap Rate: 7.67%
- Airbnb Daily Rate: $144
- Airbnb Occupancy Rate: 59%
- Walk Score: 30
5. Parma Heights, OH
- Median Property Price: $194,232
- Average Price per Square Foot: $141
- Days on Market: 61
- Number of Airbnb Listings: 135
- Monthly Airbnb Rental Income: $2,409
- Airbnb Cash on Cash Return: 7.40%
- Airbnb Cap Rate: 7.61%
- Airbnb Daily Rate: $140
- Airbnb Occupancy Rate: 50%
- Walk Score: 66
6. Kenmore, NY
- Median Property Price: $194,267
- Average Price per Square Foot: $152
- Days on Market: 149
- Number of Airbnb Listings: 475
- Monthly Airbnb Rental Income: $2,723
- Airbnb Cash on Cash Return: 7.24%
- Airbnb Cap Rate: 7.43%
- Airbnb Daily Rate: $162
- Airbnb Occupancy Rate: 54%
- Walk Score: 80
7. Maywood, IL
- Median Property Price: $233,374
- Average Price per Square Foot: $143
- Days on Market: 92
- Number of Airbnb Listings: 327
- Monthly Airbnb Rental Income: $3,116
- Airbnb Cash on Cash Return: 7.20%
- Airbnb Cap Rate: 7.38%
- Airbnb Daily Rate: $160
- Airbnb Occupancy Rate: 59%
- Walk Score: 58
8. Schiller Park, IL
- Median Property Price: $306,270
- Average Price per Square Foot: $229
- Days on Market: 39
- Number of Airbnb Listings: 128
- Monthly Airbnb Rental Income: $3,668
- Airbnb Cash on Cash Return: 7.09%
- Airbnb Cap Rate: 7.21%
- Airbnb Daily Rate: $163
- Airbnb Occupancy Rate: 58%
- Walk Score: 63
9. Harpers Ferry, WV
- Median Property Price: $371,846
- Average Price per Square Foot: $298
- Days on Market: 75
- Number of Airbnb Listings: 131
- Monthly Airbnb Rental Income: $3,719
- Airbnb Cash on Cash Return: 6.95%
- Airbnb Cap Rate: 7.05%
- Airbnb Daily Rate: $195
- Airbnb Occupancy Rate: 55%
- Walk Score: 0
10. Franklin Park, IL
- Median Property Price: $313,503
- Average Price per Square Foot: $200
- Days on Market: 66
- Number of Airbnb Listings: 181
- Monthly Airbnb Rental Income: $3,718
- Airbnb Cash on Cash Return: 6.82%
- Airbnb Cap Rate: 6.94%
- Airbnb Daily Rate: $160
- Airbnb Occupancy Rate: 60%
- Walk Score: 64
Summary
If you are looking for a lucrative investment, an Airbnb investment property is a great option. But first, you need to understand how it works, how it will benefit you, and what the potential risks are.
Unlike a long term rental property, an Airbnb rental requires shorter stays of at least one night, though monthly Airbnb rentals are increasing in popularity nowadays.
Because you will be hosting multiple groups of guests, you have the flexibility to adjust your pricing as often as every day. It will help you take advantage of the high demand or ensure occupancy in the low seasons. However, if you mess up your pricing strategy, you might see lower occupancy rates.
Since Airbnbs operate like hotels but are homier, you need to furnish and decorate your property appropriately. Stocking the place with basic amenities would guarantee you five-star reviews as well. While such responsibility means you must deal with a lot of expenses, doing it right would mean earning up to three times the income of most landlords.
And since we’re already in a post-pandemic era, Airbnb hosts are bound to make money this year.
If you want to get a hold of such a welcome opportunity, you need to learn how to find a property with high profitability. With the help of Mashvisor, you can look for a profitable house to buy in a rural area to cater to families looking for a safe getaway. Or, you can invest in a growing city that remote workers would want to live in for around a month.
Whichever you choose, make sure that you base your decision on accurate data. Learn more about how Mashvisor can help you find profitable investment properties by scheduling a demo now.