Vacation Rental

A few years ago, hotel rooms were the top choice for many travelers across the globe. But things have since changed. 

According to a recent study, 6 guests check into an Airbnb listing every second worldwide. In 2023, Airbnb rentals in the USA generated an annual revenue of $9,917,000,000, an increase of 18.07% from the annual revenue in 2022.

Many real estate investors all over the world want a share of that cake. But the Airbnb business is just like any other business. You’ll have to dedicate your time and energy. You’ll have to learn the ropes and consider many factors.

While the process might seem complicated to some investors, conducting in-depth research can help you refine your knowledge and launch your business on the right foot.

In this guide, we’ll look at everything you need to know about starting an Airbnb business in 2024.

Pros and Cons of an Airbnb Business

Sure, starting a profitable Airbnb business is every investor’s dream. But there are a lot of factors to consider before diving headfirst. 

For example, you might already know that some travelers prefer hotel rooms over Airbnb rentals. And that’s just one example.

That said, let’s look at a few pros and cons of starting an Airbnb business:

Pros of Starting an Airbnb Business

Here are some prominent advantages and benefits of starting a vacation rental business:

High Profitability

Money is the real motivator for many investors. Airbnb rentals have become popular among investors due to their high profit potential. Depending on the market and pricing strategy, short term rental properties provide a significantly higher income and return on investment than long term ones.

For example, a one-bedroom long term rental unit in Orlando, Florida, might give you a monthly rental income of $2,000 or $24,000 annually. If the same unit is well managed as a short term rental, you might get an annual rental income of more than $45,000.

To maximize this potential, Airbnb investors need to do market research and smart pricing strategies. For instance, if you invest in a tourist city, you can adjust your prices accordingly based on demand during particular times of the year.

Low Barrier to Entry

When getting started, you can simply rent out a room in your primary home to test the Airbnb strategy. You can even sublet a room in the house you’re renting without owning the property yourself. This is known as Airbnb arbitrage, which we will discuss in a bit.

If you like it, you can purchase an investment property for the sole purpose of renting it out on a short term basis. Many savvy investors prefer to buy a rental property first and a home second to take advantage of real estate investing.

In other words, the answer to the question “How do I start an Airbnb business with little money?” is through short term rental arbitrage or renting a room in your own home.

Unlimited Opportunities

The sky’s the limit with Airbnb investments. When buying a property, you can choose from thousands of markets and millions of listings. You can go for a beach house in Florida, a cabin in Colorado, or a condo in New York. You can rent out a room, a housing unit, or an entire multifamily real estate property.

You also get to host and interact with diverse guests from various parts of the world and cultures. This experience can help you create strong friendships and relationships that could be useful later in life.

Flexibility

Airbnb rentals offer investors more flexibility compared to conventional long term rentals. You get more control over the property since you won’t have a tenant occupying your property in the long term. This makes carrying out repairs and maintenance easier.

You can also enjoy the property yourself or use it to host family and friends. Simply block the dates you’d like to use the property on the calendar.

You also enjoy flexibility when it comes to pricing. Long term rental property owners are locked in a contract and earn based on the terms of the contract. On the other hand, short term rental property owners can adjust their rates regularly to match the market and demand.

Passive Income

As an Airbnb investor, you can choose to be active or passive depending on how involved you want to be in the business.

If you have a full-time job or other engagements, you can hire a professional property manager or management agency to carry out the day-to-day management tasks for you.

The property manager is in charge of various tasks, such as guest screening, Airbnb marketing, responding to queries, and scheduling cleaning and repairs.

This means you can earn a decent side income while you focus on your 9-5 job or other tasks.

Tax Benefits

For a long time, traditional rentals have been known to offer various tax benefits for investors. Now, short term rental investors also enjoy the same.

If the property you’ve listed on Airbnb isn’t your primary residence, you can deduct numerous expenses from your taxable income. For starters, a tax-deductible expense is any cost associated with keeping the property in top condition.

Service fees for property management, cleaning services, marketing, and repairs are examples of tax-deductible Airbnb expenses. Mortgage and property insurance costs are also tax-deductible.

Keep in mind that not all Airbnb expenses are tax-deductible. Always consult with a tax professional to determine what you can deduct from your taxable income.

Cons of Starting an Airbnb Business

While becoming an Airbnb host can be a rewarding experience, it’s not just a breeze with no ups and downs. Here are some potential downsides you should know about:

Endless Host Responsibilities

If you decide to be an Airbnb host yourself and not hire a manager, you will have a never-ending list of things to do. Your tasks will include checking in and checking out guests, cleaning and restocking between stays, repairing broken furniture, communicating with renters, asking for reviews, writing guest reviews, etc. 

These are tasks that need dedicated time and energy. It’s important to consider this factor before starting your Airbnb business. The higher your Airbnb occupancy rate, the more work you’ll have.

Higher Startup Expenses

You don’t have to own a property to start your Airbnb business. If your state and local government allow short term rentals, you can start by simply speaking to your landlord and subleasing the property—this is called an Airbnb arbitrage.

While you won’t need money to purchase a property, you’ll need a sizable amount of capital to furnish it. Remember, you want to give your guests an unforgettable experience and keep them coming back.

In addition, there may be other costs involved, such as carrying out repairs and upgrading some of the property features to meet high-quality standards. 

You will also need to stock the property with supplies such as coffee, snacks, towels, and tissue paper and equip it with Wi-Fi.

High Operating Costs

Airbnb properties’ ongoing and recurring costs make owning a short-term rental costlier than owning a traditional one. You need to cover the utilities, provide coffee and tea at a minimum, replace toiletries, pay for Airbnb rental property insurance, and clean the property. 

You’ll also have to pay the property manager to ensure everything runs smoothly. Some investors may view Airbnb rentals as expensive since you have to settle some of these costs in between bookings.

Make sure to factor in the said expenses in your rental property analysis before you buy a property.

A Lot of Maintenance Work

Short term rentals are demanding when it comes to maintenance. 

Since guests only stay for a few nights, they are less attached to your property than long term tenants. Guests are more likely to cause wear and tear. Some might even go as far as hosting parties that could leave you with broken furniture, missing items, and stained walls and floors.

Imagine receiving complaints from neighbors who are long term tenants or finding the flat-screen TV broken.

As a result, you will need to spend time and money fixing the property, replacing missing items, repairing broken furniture, and cleaning the house to continue generating demand and 5-star reviews.

Traditional rental property owners don’t have to worry about this since long term tenants treat the property as their home. They are more likely to be responsible.

Strict Legal Regulations

Some top short term rental markets have strict rules when it comes to starting an Airbnb business. Many previous top locations for Airbnb investment are no longer an option due to newly imposed short term rental laws. 

For example, Chattanooga in Tenessee has paused all new applications for non-owner-occupied short term rentals as it continues to evaluate the future of Airbnb rentals there. In Los Angeles, you can no longer use Airbnb rentals to host parties. 

In New York City, hosts are forbidden from renting out entire units as short term rentals for less than 30 days. Airbnb rentals in NYC are only considered legal if the host lives in the same unit as the guests. The city also doesn’t allow the host to have more than two guests.

Many more are likely to introduce further regulations to protect affordable housing and local citizens. Thus, it’s best to choose a location where long term rentals are also profitable if you need to switch strategies and get into long term rental investing.

Unpredictable Rental Income

When you’re renting out to a long term tenant, you know how much money you can expect every month or year based on the contract. That’s not the case with Airbnb rentals.

While the estimated monthly Airbnb rental income might be high, the truth is that short term rentals have both high and low seasons. You might have a series of weeks or months when you’re booked back to back, only to experience an extended dry season. There’s no guarantee that you’ll meet the monthly income estimates.

Furthermore, investing in an Airbnb rental doesn’t mean that you’ll start getting bookings immediately. You might go a few months without getting a single booking, yet you’ll have to settle the operational costs.

To counter this, you might have to set lower nightly rates than the average market rates to attract consistent bookings at the beginning. You can also increase your occupancy rate by using the right marketing strategies and providing better amenities.

How to Start an Airbnb Business

From what you’ve learned up to this point, starting an Airbnb business can look complicated. While it requires time, effort, and dedication like any other business, it might be more straightforward than you think.

Follow the 10 steps below to learn how to start an Airbnb business most optimally, with or without money:

1. Determine Your Budget and Financing

Whether you plan to invest in a long term rental property or an Airbnb investment, the first step is to calculate how much money you can afford to spend on an investment property. To do so, you must look at your savings, as well as how much money you expect to make in the coming years.

If you plan to use a conventional mortgage, keep in mind that the minimum down payment required is 20% of the purchase price, but you can also consider alternative loans for investment property. In addition, you need to factor in closing costs (2%-6% of the loan amount), first-year property tax and insurance, and repairs.

Don’t forget to also factor in furnishing, repair, upgrades, and other startup costs that we looked at. Considering the current median property price in the US is around $350,000, you can put around $10,000 aside for furnishing and other costs. The total amount might be substantial for someone just getting started.

Moreover, as a beginner real estate investor, it is important not to leave yourself with zero cash reserves, as anything can happen in real estate investing.

For instance, you can face an unexpected repair issue with your Airbnb income property. Or you might also experience a below-average Airbnb occupancy rate for a few months.

That’s why when you buy a property to start an Airbnb business, you should plan ahead. You need to make sure that you can purchase an investment property, take proper care of it, and continue covering the monthly mortgage payments in the future.

2. Select Suitable Real Estate Markets for an Airbnb Business

The importance of selecting the right location for your real estate investment can never be overemphasized. The real estate market is one of the top factors that influence your return on investment.

Many potential investors have a top city in mind for their Airbnb business. Most go for locations within their proximity, whether it’s where they live or work. While this might be a good strategy to help you manage the property better, just because you invest in your city doesn’t mean that you’re making a wise business decision.

Generally, the rule of thumb for beginners is to avoid big cities and small towns. Big cities tend to have major competition from big hotels and established Airbnb businesses. On the other hand, small towns may not have a decent number of visitors that can give you a good occupancy rate.

Start with moderation: go for a city that’s not too big or too small.

Here are other factors to be on the lookout for when searching for a potential short term rental investment market:

Tourism

The top Airbnb investment locations tend to have one recurring theme: they’re top tourist destinations. While short term rentals might be legal in your city, does it receive enough guests throughout the year to receive constant Airbnb bookings?

Check how many tourists the city receives every year on average, whether the number is set to increase or decrease, and what the local tourism forecast looks like.

Most importantly, check whether Airbnb occupancy and daily rates are directly related to tourism numbers. Since you don’t want your property to stay empty for a large part of the year, choose a city with a shorter low season than a high season.

Amount of Competition

While conducting your market research, be sure to establish how many Airbnb listings are in the same market. Go in-depth and look at how many rentals of the same property type and with the same number of bedrooms, features, and amenities you’re competing with. 

You want to start your business in a market without stiff competition. The higher the number of Airbnb rentals, the less likely your short term rentals will receive consistent bookings.

Airbnb Statistics

You need to look at several Airbnb numbers that will help you evaluate the profitability of the short term rental. These statistics include:

• Average Airbnb rental income
• Average Airbnb daily rate
• Average Airbnb occupancy rate
• Average Airbnb return on investment (cap rate and cash on cash return)

Invest in a market with high numbers. For example, a city with an average occupancy rate of 60% and an average Airbnb ROI of 10% will give you a profitable daily rate and monthly rental income.

3. Research Local Laws and Regulations

As we saw a bit earlier, many cities and states in the US real estate market are implementing laws to regulate the ownership and operation of Airbnb rental properties.

Research the local laws to avoid running into legal issues down the line. While your market may allow Airbnb rental properties, you might be required to register and obtain several permits and licenses to operate legally. 

Some cities also have a cap on the number of days and nights you can lease out the property as a short term rental in a year, as well as the number of guests you can host every time. 

Others will only allow you to lease out your property as an Airbnb rental if you live on the property. 

Also, pay attention to the taxes and annual fees you need to pay to the local authorities.

Apart from the laws and regulations, check whether you might have any other hurdles. If you’re subleasing the property, you need to reach out to the landlord or building management and get their consent. If you’re still paying off a home loan, you might have to get approval from your mortgage provider.

4. Select Suitable Airbnb Investment Properties for Sale

Once you’ve chosen the best market for Airbnb rental property investment, you can now begin the property search. You want to go for properties with features that stand out. 

For example, a short term rental property with a rooftop swimming pool is likely to appeal to many potential guests and attract more bookings. You can also add fancy amenities like an espresso machine or vinyl player to make your space unforgettable

Savvy real estate investors use multiple sources of listings when searching for the best properties to buy. They should include MLS listings (which you can traditionally access only through a real estate agent or broker), real estate investor websites, and online marketplaces. You can also check out “For Sale” signs in the neighborhood and reach out to your network.

Since there are many factors that you need to consider before buying a short term rental property, you need to use a tool that lets you analyze both the real estate market and property. And just because a market has many potential investment properties doesn’t mean that the properties are suitable investments.

This is where Mashvisor’s Property Finder comes in. This app gives you access to past performance data and predictions to help you find a property that matches your investment and financial goals.

On top of that, you can see hundreds of thousands of potential Airbnb properties for sale in the entire US real estate market. It makes searching through them based on specific criteria extremely easy. The listed properties include:

• MLS listings
• Foreclosures
• Short sales
• Bank-owned homes
• Off-market properties

Importantly, each property listing is accompanied by a readily available Airbnb investment property analysis showing you how good an opportunity a certain property is. Our real estate investment tools make out-of-state real estate investing easy and feasible even for beginners.

5. Analyze the Return on Investment for Your Airbnb Business

The search isn’t over yet. You’d want to conduct a deeper analysis of a few properties that meet your search criteria. This is to confirm that, indeed the properties make great candidates for short term rentals.

The most accessible option for most investors is Airbnb spreadsheets. However, this requires months of collecting, entering, and analyzing Airbnb data. By the time you’re done with the investment property analysis and ready to move forward with the purchase, all profitable opportunities will be gone.

Since many tasks are now automated, you can quickly and efficiently analyze any residential property in the US market with our Airbnb calculator. This tool shows you the property’s estimated occupancy rate, rental income, cash on cash return, and cap rate.

The properties listed on the Mashvisor real estate investor website come with readily available analyses. For off-market properties that are not listed on our platform, you can simply enter the street address to access the rental property analysis.

Keep in mind that all the estimates you find are based on rental market analysis and Airbnb rental comps. Airbnb rental comps are comparable active short term listings that are very similar to the property you’re interested in and are located in the same neighborhood. The data is recent, so you won’t have to worry about reliability.

The best thing is that the tool provides metrics for both long term and Airbnb rental strategies. It allows you to perform a quick side-by-side analysis to select the optimal rental strategy for investment.

6. Buy an Investment Property

By now, you’ve done everything to be ready to buy a rental property with confidence that it will bring you a positive cash flow and a high return on investment. If you’re an experienced real estate investor who is now switching to starting an Airbnb business, you can purchase the property on your own.

However, if you’re just getting into real estate investing, you might want to consider hiring an agent to help you. Buying an investment property is complicated for someone with zero experience. An agent will be able to negotiate the best possible price for you and close the deal quickly.

Meanwhile, you don’t need to worry about an increase in the closing fees as agent fees in the US real estate market are paid for by the property seller, not the property buyer.

When buying a short term rental property through a broker, it’s important to work with one who has specific experience working with Airbnb rentals in your market and negotiating with sellers. Also, get one with a wide network in your market. They might suggest better listings than what you’re interested in.

Once you’re satisfied, you can now make an offer that suits both you and the seller.

7. Fix Up the Airbnb Property

Congratulations—you’re now an Airbnb host. But before you can list your property, you need to ensure the rental is in tip-top condition to attract guests and make them comfortable. You’d want to welcome your guests with a warm and comforting atmosphere.

During the home inspection before the purchase, you should have gained a clear understanding of the property’s current state and any necessary repairs and improvements.

If there are any, it’s now time to implement those fixes. Don’t overdo them to avoid increasing your Airbnb startup costs. Remember, this is not your home but an investment property.

Don’t forget the amenities and facilities, such as towels, coffee maker, smart TV, and others. Your goal should be to gain an edge over other Airbnb rental listings in the neighborhood. It will allow you to ask for a decent Airbnb daily rate and achieve a high Airbnb occupancy rate.

8. List Your Short Term Rental Property

While short term rentals are commonly referred to as Airbnb rental properties, Airbnb is not the only website where you can list and market your vacation home rental. There are dozens of other home-sharing platforms, such as Vrbo, Booking.com, Expedia, Vacasa, Homestay.com, and many others.

As a first-time Airbnb host, you should explore a few different websites and choose the best one for your particular case. Check out whether they charge a listing fee or you only pay a percentage of your bookings. 

Be sure to know exactly how much you‘ll be expected to pay and what you’ll get in return for the listing fee. Remember that advertising and marketing play a huge role in optimizing your ROI.

The best thing is that you can list your short term rental on multiple platforms. Just ensure that you’ve synced your calendar to avoid double bookings.

9. Create & Optimize Your Airbnb Listing

Choosing a listing platform is only part of the equation. Your guests find your rental on the listing platforms first and decide whether to make a booking based on the listing. Since you want to make a good impression, you must focus on creating and optimizing an eye-catching listing.

Here are some pointers: 

Post High-Quality Photos

Your listing’s photos can either attract or repel potential guests. You’d want to use high-quality photos that shine a spotlight on your short term rental. If you have a high-quality camera, you can decide to take the photos yourself or hire a professional photographer.

Here are some tips to help you take high-quality photos of the property:

• Clean the space
• Open the windows and doors to let natural light in
• Don’t use portrait orientation. Use landscape instead
• Capture unique amenities and features, such as artwork or bathtub

Use a Catchy Description

Create a catchy title and craft an irresistible description to summarize what your property has to offer. Don’t forget to mention the great features and amenities. Also, include keywords to optimize the listing for search.

Include a list of the house rules and check-in details. Communicating everything upfront ensures a smooth experience for your guests.  

Keep in mind, though, that when describing your accommodation space, it is important to select meaningful words. They should be designed to create a vivid experience of what’s offered at this particular spot—a great way to lure guests into making reservations!

Use a Strategic Pricing Strategy

Pricing an Airbnb rental correctly is a balancing game—you’d want to make a decent profit but not set a high price that pushes potential guests away. Begin by checking out the nightly costs of similar listings at multiple properties around you to gain an understanding of the market rate for your property.

When deciding on a price, consider the amenities, location, and customers’ desires so that rates can be adjusted according to seasonal trends or local events.

Use specialized tools, such as those provided by Mashvisor, to perfect your vacation rental pricing strategy while staying competitive. Mashvisor’s Dynamic Pricing tool allows Airbnb hosts to automate setting the nightly rates for their Airbnb rentals. 

The tool uses AI-powered algorithms to calculate the best nightly rate for any short-term rental and help maximize the monthly rental income.

Also, make sure to stay up-to-date with industry trends to adjust prices accordingly.

Utilize Airbnb’s Tools and Features

Take full advantage of Airbnb’s resources and functionalities to maximize the profitability of your listing. Utilizing features such as Instant Booking or earning Superhost status can make sure people find, recognize, and book with you more easily.

Consider using vacation rental management software, which manages listings on multiple online travel sites while also automating pricing, messaging, and booking.

Keeping a watchful eye on business performance is just as important. Use reporting tools from Airbnb so decisions are made based on facts, not instinct. Implementing data-driven insights into your business operations removes any limit to how much success you could achieve when running a short term rental business.

10. Manage Your Airbnb Business

Successful Airbnb ventures require good management. From building your support team and fostering great customer relationships to regularly monitoring progress for optimization, it is essential to reap the rewards of your Airbnb business plan.

With the following tips, you’ll be ready to tackle any potential issues or successes related to an Airbnb business.

Build a Support Team

An organized team of professionals is critical to the success of your Airbnb business. Hiring local specialists for housekeeping, maintenance, and other related chores, such as washing, gardening, or pool upkeep, will help provide guests with a remarkable experience during their stay.

Keeping up with all the relevant details can require full-time dedication. By having dependable support services like cleaning companies, you’ll be able to guarantee this efficiency.

When employing assistance, consider factors such as property size, expected occupancy levels, and amenities available so you obtain quality service providers who fit what’s necessary.

Establish clear performance expectations and consistent feedback. Quickly addressing any questions or concerns is a surefire way to exceed the targets set when organizing Airbnb business’ ancillary staff requirements.

Guest Communication and Customer Service

Great customer service ensures your guests get a positive experience and boosts repeat bookings. You can boost your customer service by streamlining the check-in process, outlining house rules clearly, and being quick to answer questions during their stay. Such customers are likely to return and write favorable reviews.

Meeting guest preferences or expectations also shows that you value them. Customer service should always be your top priority if you want to generate more successful bookings.

Performance Monitoring and Improvement

It is important to remain up-to-date with your Airbnb business performance by routinely tracking metrics such as Airbnb occupancy rate, ADR, ALOS, RevPAR, and net operating income for continued growth. Monitoring the said metrics while making consistent decisions based on observations is key when aiming for success.

Utilize customer feedback and market trends to identify possible improvement areas and adapt services accordingly. Staying informed on relevant data can ensure the success of any operation against competitors in this ever-changing landscape.

Final Words

Airbnb rental properties have become popular in investor circles. They have been proven to offer a higher monthly rental income than long term rental properties. Besides, short term rental investors have more flexibility regarding pricing and using the property when they want.

While these benefits are mouthwatering enough, there are some potential downsides you need to know about. The startup and running costs are quite high since you need to keep up with maintenance, repairs, and cleaning. Bookings and income can also be erratic, which could push away investors looking for consistent income.

But these downsides shouldn’t discourage you from investing in Airbnb rentals. With the right investment partner, you can find ways to counter the weaknesses and turn them into strengths. That’s why Mashvisor is here.

To learn more about how Mashvisor can support your Airbnb investing journey, sign up for a 7-day free trial now, followed by 15% off for life.