What You Need to Know Before Starting an Airbnb Investment

Before you decide on an Airbnb investment, you should consider how well you know the real estate market and what your financial situation is.

 Table of Contents 

1. Airbnb 101: What Is It & Why Is It Popular?
2. Factors to Consider Prior to Investing in Airbnb
3. How to Start an Airbnb
4. Is Airbnb a Good Investment? Pros and Cons
5. 10 Best Cities for Airbnb Investment
6. Airbnb Investment: Final Thoughts

Yes, Airbnb has altered the course of the travel and housing industry; everyone can agree on that. Despite that, investing in this type of property should not be an impulsive decision.

It is quite the contrary. Like any real estate investment, it should be carefully planned out—and built around a solid base.

By and large, an Airbnb investment can offer substantial financial benefits and provide the real estate investor with a considerable passive income. But getting your Airbnb up and running—and managing it successfully—brings about a unique set of challenges.

We can help you get a more successful outcome in your intention to invest in Airbnb. That’s why today, we will pay special attention to the key points of any Airbnb strategy—and share our knowledge on the real estate market and its potentially profitable locations.

Stay tuned.

Airbnb 101: What Is It and Why Is It Popular?

First, let’s do a brief introduction on what is Airbnb—and why this type of accommodation is so popular today.

Air Bed and Breakfast (more commonly known as Airbnb) is a service—or, more specifically, accommodation—provided by property owners who bought the place and then rented it out on Airbnb.

It’s worth noting that Airbnb isn’t limited to a single type of investment property. The properties can be single-family homes, apartments, or even spare rooms with a shared bathroom. Either way, the space is rented out to tourists and visitors who want to spend a few days in a particular location and are only looking for a short-term rental.

The limit to which an individual or group of people can stay on an Airbnb property is 90 days. After that, Airbnb will close all bookings until the end of the year. On a similar note, there’s a limit on the number of people allowed—but that’s mainly determined by the host.

But what makes the concept of an Airbnb investment so popular among real estate investors today—and even more attractive among tourists?

That’s fairly easy to answer. For one, Airbnb stays are cheaper than hotels or traditional rentals. Even more so, they offer a home-like atmosphere—and the rules are more “welcoming.” As for the age group that’s most likely to book Airbnb—Gen Z renters seem to be taking the lead so far.

All in all, the Airbnb industry continues to enjoy success nowadays, not showing signs of slowing down any time soon. So, it might be a smart way to boost your monthly bottom line through passive income; we’ll get to it in a minute.

Factors to Consider Prior to Investing in Airbnb

The answer to the question of “how to invest in real estate” starts with gathering knowledge about the exact location—and the real estate market you’re interested in at the moment.

Here are several factors that you will need to glance over before you settle on running an Airbnb business:

The Real Estate Market

Definitely, one of the most influential indicators of success for your Airbnb investment will be the “condition” or “climate” of the real estate market you choose. Real estate investors need to focus on how favorable the climate of the real estate market is for these types of investments.

For example, if you’re interested in Atlanta Airbnb, you should do a more in-depth analysis of that area. Every city is different—and you must understand the local real estate market if you hope for this investment to be successful.

One thing’s certain, though:

The US real estate market is massive—and it’s hard to keep track of everything that is going on without any help.

That’s why investment platforms, like Mashvisor, are here—to help investors get a realistic insight into the performance of a particular real estate market.

Upfront Costs

The next factor you must consider before making your Airbnb investment decision is the financial side of the business. People who are new to the real estate investing business must be aware that it involves certain start-up costs.

For starters, real estate investors should think about insuring their property—especially if it is located in a major city, such as Las Vegas. It’ll potentially save them from the need to cash out large sums of money for the damages caused.

And since it is an Airbnb, property owners must come to terms with numerous guests that will be coming and going on a weekly (if not daily) basis. It means they’ll be in charge of hiring the cleaning service more often, doing the necessary repairs, and so on.

Local Laws and Regulations

Crucial research concerning your Airbnb investment has to do with the laws and regulations that are stipulated by that specific community.

Even though it might seem unlikely, some communities do not allow Airbnb listings. In most cities, the host must first obtain a license—or be registered—before listing their property and allowing guests to come and stay.

So, be sure to understand Airbnb laws and follow them to a T. If you’re not cautious with this, you could be fined—or even go to jail.

How to Start an Airbnb

Once you’ve done the necessary research on the topic, taking your Airbnb investment off the ground—and making it attractive to future visitors—should be a piece of cake.

All you need to do is follow the following steps:

1. Locate the Property.

First thing’s first—you need to make a decision and pin down the property that you’d like to turn into an Airbnb short-term rental.

Of course, the group of tenants you are targeting will play a significant role in choosing the real estate market and the final location for your property.

For a more precise and well-thought-out decision, make use of our Property Finder.

2. Obtain a License.

Depending on the rules of the location where you’re planning to start up your Airbnb business, there are certain legalities you may need to take care of first. We’ve already mentioned them, but:

According to the general rule, in most US cities, a future Airbnb host must first be registered, obtain a license, or get a permit for listing their property on the Airbnb platform. Failure to do that may result in legal consequences.

Here’s the good news:

Obtaining a license is easy. It essentially involves paying a certain fee—and submitting your application; that’s it.

3. Equip the Property.

Once you’ve successfully purchased the property and taken care of the legal aspect of the deal, it’s time to do the heavy lifting. You need to equip the property with the necessary appliances and furniture and prepare the Airbnb space for guests.

Depending on what group of renters you want to attract, you should decorate your home in that style. Although the emphasis must be on comfort, it’s always a good thing to put in that extra effort and take the time to redesign the space.

4. Deal With the Expenses.

While some of the costs are considered up-front, others will become a part of your “Airbnb routine.”

Therefore, you should calculate how much you will need—at least approximately—for:

• Photography for listings
• Cleaning services
• Handyman services
• Utility bills
• Accounting services (you can check out the best Airbnb accounting software tools and their pricing)
• Co-host compensation

To be sure that your Airbnb property won’t just fall to pieces and leave you in debt, make use of Mashvisor’s Airbnb investment calculator.

5. List Your Property.

After you’ve equipped your property and taken care of the last-remaining details—it’s time to list it on an Airbnb platform.

It’s important for real estate investors to optimize the listing and consider the feedback that they get from past tenants—be it good or bad. With Airbnb, positive feedback can be the best advertisement!

Related: How to Access MLS Listings Without an Agent: Investor’s Guide 

Is Airbnb a Good Investment? Pros and Cons

Although it is generally considered a prospective business, there’s still a certain line between the pros and cons of owning and running an Airbnb business.

Here’s a brief rundown of the good—and the bad—you can expect as a potential real estate investor.

Pros:

• High profits during the summer and winter seasons alike
• Fewer obligations toward long term Airbnb tenants
• Ability to advertise Airbnb listings, meaning more visibility
• Higher occupancy rates year-round

Cons:

• Potentially high upfront costs
• More frequent maintenance, including cleaning services, repairs, and the like
• Spending more time on the property (almost like getting a second job)

10 Best Cities for Airbnb Investment 

If you’re serious about your intention to purchase an Airbnb investment property, you should consider the following locations. According to Mashvisor’s recent Airbnb data, they offer the highest returns on investment. The locations are arranged from the highest to the lowest cash on cash return:

1. Monroeville, PA

• Number of Listings for Sale: 8
• Median Property Price: $99,563
• Average Price per Square Foot: N/A
• Days on Market: 22
• Number of Airbnb Listings: 9
• Monthly Airbnb Rental Income: $1,719
• Airbnb Cash on Cash Return: 9.97%
• Airbnb Cap Rate: 10.86%
• Airbnb Daily Rate: $174
• Airbnb Occupancy Rate: 63%

2. Destrehan, LA

• Number of Listings for Sale: 5
• Median Property Price: $325,400
• Average Price per Square Foot: $134
• Days on Market: 106
• Number of Airbnb Listings: 7
• Monthly Airbnb Rental Income: $4,260
• Airbnb Cash on Cash Return: 9.62%
• Airbnb Cap Rate: 9.87%
• Airbnb Daily Rate: $95
• Airbnb Occupancy Rate: 63%

3. New Berlin, WI

• Number of Listings for Sale: 10
• Median Property Price: $362,940
• Average Price per Square Foot: $182
• Days on Market: 27
• Number of Airbnb Listings: 5
• Monthly Airbnb Rental Income: $2,326
• Airbnb Cash on Cash Return: 9.62%
• Airbnb Cap Rate: 10.14%
• Airbnb Daily Rate: $468
• Airbnb Occupancy Rate: 76%

4. Petersburg, IL

• Number of Listings for Sale: 5
• Median Property Price: $221,640
• Average Price per Square Foot: $106
• Days on Market: 21
• Number of Airbnb Listings: 5
• Monthly Airbnb Rental Income: $3,729
• Airbnb Cash on Cash Return: 9.60%
• Airbnb Cap Rate: 9.92%
• Airbnb Daily Rate: $319
• Airbnb Occupancy Rate: 59%

5. Thomson, GA

• Number of Listings for Sale: 16
• Median Property Price: $278,800
• Average Price per Square Foot: $143
• Days on Market: 58
• Number of Airbnb Listings: 5
• Monthly Airbnb Rental Income: $1,840
• Airbnb Cash on Cash Return: 9.52%
• Airbnb Cap Rate: 10.20%
• Airbnb Daily Rate: $277
• Airbnb Occupancy Rate: 49%

6. Prairieville, LA

• Number of Listings for Sale: 9
• Median Property Price: $351,412
• Average Price per Square Foot: $158
• Days on Market: 152
• Number of Airbnb Listings: 6
• Monthly Airbnb Rental Income: $6,039
• Airbnb Cash on Cash Return: 9.44%
• Airbnb Cap Rate: 9.60%
• Airbnb Daily Rate: $220
• Airbnb Occupancy Rate: 50%

7. Alton, IL

• Number of Listings for Sale: 10
• Median Property Price: $263,560
• Average Price per Square Foot: $95
• Days on Market: 190
• Number of Airbnb Listings: 22
• Monthly Airbnb Rental Income: $3,625
• Airbnb Cash on Cash Return: 9.37%
• Airbnb Cap Rate: 9.69%
• Airbnb Daily Rate: $132
• Airbnb Occupancy Rate: 64%

8. Corydon, IN

• Number of Listings for Sale: 5
• Median Property Price: $281,860
• Average Price per Square Foot: $176
• Days on Market: 59
• Number of Airbnb Listings: 7
• Monthly Airbnb Rental Income: $1,795
• Airbnb Cash on Cash Return: 9.28%
• Airbnb Cap Rate: 9.95%
• Airbnb Daily Rate: $100
• Airbnb Occupancy Rate: 60%

9. Peninsula, OH

• Number of Listings for Sale: 7
• Median Property Price: $359,855
• Average Price per Square Foot: $197
• Days on Market: 27
• Number of Airbnb Listings: 16
• Monthly Airbnb Rental Income: $5,180
• Airbnb Cash on Cash Return: 9.27%
• Airbnb Cap Rate: 9.48%
• Airbnb Daily Rate: $300
• Airbnb Occupancy Rate: 54%

10. Belding, MI

• Number of Listings for Sale: 7
• Median Property Price: $229,986
• Average Price per Square Foot: $108
• Days on Market: N/A
• Number of Airbnb Listings: 10
• Monthly Airbnb Rental Income: $3,227
• Airbnb Cash on Cash Return: 9.23%
• Airbnb Cap Rate: 9.58%
• Airbnb Daily Rate: $237
• Airbnb Occupancy Rate: 50%

The above locations can be considered the best places for Airbnb investment. If you have a city in mind that’s not on our list, consider using our Airbnb calculator to estimate its profitability.

Airbnb Investment: Final Thoughts

We can successfully declare the topic of Airbnb investment closed—for now, at least.

By scrolling through this article, we’ve managed to single out the most important factors and things to take note of when considering Airbnb rental properties. We also managed to include some of the best Airbnb investment locations.

Overall, investing in Airbnb is definitely an idea that pays off—provided that you use the right investment tools and a solid strategy that will ensure you a positive cash flow. Before you say “Yes” to the idea, however, you need to consider several factors, including the real estate market, start-up costs, and local laws and regulations.

Starting an Airbnb business involves finding the right property, furnishing it, dealing with the costs, and regularly optimizing the listing. Out of all the factors we’ve mentioned, the most prominent one would be cash on cash return. It’s the most reliable metric when considering the profitability of your investment property.

So, when choosing the location, remember:

The higher the cash on cash return in that area, the more profitable your Airbnb will be. Building investment strategies—and calculating your returns—is easier with Mashvisor.

To access Mashvisor’s tools, sign up today.