The premise of renting out property to tourists and charging a daily rate has received more approbation as it has burgeoned in recent years. Real estate investors are looking now into more ways to generate profit within the short-term rental industry. Individuals who have utilized or are familiar with Airbnb are now buying investment properties for the sole purpose of renting out on Airbnb. They not only enjoy higher return on investment in real estate properties in the long run but also make money renting out on Airbnb on a short-term basis. Although renting out on Airbnb basis imposes higher upkeep and maintenance costs, it certainly exposes and hones one’s skills in guest service, finance, and marketing. And need you not worry about managing and following up on renters, Airbnb third party platforms offer services that enable you to manage your rental property remotely. Here’s what you need to consider when investing in property for the sole purpose of renting out on Airbnb:
Choosing Property
Buying an investment property and renting out on Airbnb can improve a real estate investor’s wealth significantly. The important attribute here is to pick and purchase a rental property that aligns with your investment plan. When scanning for a rental property, you are not only looking for a location with many tourists flowing in and out. You are also examining Airbnb occupancy rates, average rent prices, and utility prices. Locations with high utility costs can lower your profit margins, regardless of how much revenue (rental income) you are expected to make. It is important to check the competition in the intended area of purchase before making the purchase decision. Particularly look for competitors or home owners who rent their personal space for a night or two just to make extra cash. Watch out for these hosts because they are not concerned with return on investment and can therefore bring down rent prices and be a strong competition. Once you have picked an investment property, start thinking about financing. Will you need to take a loan to pay out the investment?
Airbnb Laws
Prior to buying a rental property, real estate investors are encouraged to look into local city and state laws governing home rentals and especially Airbnb rentals. There are no regulations against long term renting; however, many hosts have faced difficulties renting out on Airbnb and other short-term basis. New York and San Francisco, for example, have now enacted laws forbidding rental for less than 30 days when the host is absent. Laws, nevertheless, vary state by state. Additionally, Home Owners Associations (HOAs) have become vigilant of Airbnb renters, particularly those renting out for less than 30 days. They have thus developed policies against listing a property intended for short-term renting. To avoid such bottlenecks, a real estate investor might consider renting out for a minimum of 30 days. To date, however, there is no regulatory framework governing Airbnb; bills in cities like Washington, D.C. have been passed but await issuance for execution.
A Job to Maintain
Buying an income property and renting out on Airbnb is an investment that can generate you a lot of earnings in the form of rental income. However, it’s important to note that it is also a job that a real estate investor ought to dedicate the time to. You need to check guests in and out, attend to their needs, and clean the house in between bookings. Managing Airbnb investment properties gets challenging if you are doing it remotely, especially in times when you are checking guests in and out. However, Lockitron and other management platforms have made things easier. When you subscribe to Lockitron, you can virtually share key with renters and give a time window for guests to check in. Guests can unlock the space using their phone.
Related: The 6 Best Cities for Airbnb Investment
Reviews
Reviews are pith for the decision making when selecting a listing to stay in. When a listing has no reviews, guests become more hesitant to book. For a new rental property that has scored neither renters nor reviews, it is encouraged to set incentives. Lowering the rent rate, for example, will land you more guests at your door, thus positively driving reviews. Once you have had a few guests and positive reviews, you can slowly increase the rate to compete with other hosts in your location. To help expedite the booking process, Airbnb now offers a free professional photography service that you can take advantage of.
Financial Feasibility of Renting Out on Airbnb
Costs that follow renting out on Airbnb need to be taken into account when conducting the feasibility of investing in a real estate property for the sole purpose of renting out on Airbnb. These costs include:
- Monthly payment (if paying for the apartment through a loan);
- HOA dues that fluctuate around $500/month depending on the location;
- Cleaning fees of about $50 per booking;
- Supplies estimated at $150 to include complementary treats and snacks; and
- Utilities (internet, power, and cable TV) of about $200.
To save on A/C and electricity costs, you can purchase an auto-away system. Nest is of the many popular platforms that allow you to control heating and cooling when nobody is around.
Important numbers that you need to consider before starting your business include: the purchase price of the investment property, the down payment, the mortgage APR, taxes, and commission service fee of 3% to Airbnb.
Related: The Ultimate Guide to the Airbnb Investment Property
Today’s industries are offering more platforms that you could take advantage of to increase earnings. Buying an investment property for the sole purpose of renting out on Airbnb is a new way to grow a real estate investor’s wealth. Ensure that you exhaust all research whether by seeking out to a real estate broker, using a real estate lawyer, or even utilizing the internet. Moreover, location, legal laws, and costs comprise the most important attributes of a successful Airbnb investment. It is recommended that you also plan your investment meticulously to ensure a positive cash flow. When you are ready to become an Airbnb property owner, make sure to check out Mashvisor for thousands of available real estate properties across the US.