Airbnb investments are a newer—and often quite lucrative—way to invest in the real estate market. Airbnb is an online platform that allows travelers to book a stay in a private home, or room, owned by a total stranger.
Although this sounds a little crazy, it has become a very popular way to travel, both domestically and internationally.
Benefits of Airbnb vs. Traditional Rental Property
One of the biggest benefits of Airbnb over traditional rental property is that you avoid much of the legal landlord/tenant restrictions. Many states favor tenants and when you own a rental property, you can find yourself in hot water very quickly. The Landlord Responsibilities You Should Know About gives a great overview of these.
Another benefit of this type of investment is that it can require low overhead. You can rent all or part of the home you live in. You can select the time frame, the amenities, and even determine the rules for the guests. Many people are using their own homes to make money on AirBnB, but others are buying additional properties for this specific purpose.
Some people are using their current home as an Airbnb rental, renting out a room or part of their house, while they live in the rest of it. This is a great way to make some extra money, as long as you don’t mind sharing your home with strangers. If you are fortunate enough to have a home with a guest house, or in-law apartment, this is even easier.
Consider purchasing a small apartment in or near a big city. Many travelers seek a more authentic experience and find that staying in a “home” is preferable to a hotel. Airbnb provides the best of both worlds. Before investing in a property that will be used for Airbnb, you will want to do the math.
Rental Income Vs. Expense
Just like any rental property investment, you will want to calculate your costs and potential income, to ensure that you will make a profit. You should include not just the cost of the property, but also furnishing it, paying a cleaning service (unless you’re going to clean it), and other miscellaneous costs.
A good way to estimate rental potential is to search current AirBnB properties that are the same type and are in the same general vicinity. This will give you an idea of what you can expect to earn on a nightly basis. You’ll need to keep in mind that there is no guarantee your property will be rented every day of the month and include this in your calculations.
If you are a newer investor, you may want to start with a smaller property, which means lower carrying costs. If you purchase a big home on the beach in a ritzy place like Miami, and it goes a week without being rented, you’ll need to have the money available to pay the bills that week.
Investing in Seasonal Properties
Hotspots for AirBnB investment are usually places that are considered a vacation destination. These locales are almost guaranteed to be popular, but depending on the weather and the climate, the bookings may only be high during certain times of year. For example, Cape Cod in Massachusetts is a favorite beach destination for may New England families, but it’s really only warm enough to visit May-October. Or consider a chalet near a ski resort. It’s likely to only be popular when there is snow. These may still be very worthy investments, just things to consider.
This can be a great idea if you are already considering purchasing a vacation home for yourself but aren’t sure you can afford it. You can buy a home in a place where you like to vacation but rent it out with Airbnb during the time that you won’t be there. Chances are that it will more than pay for itself, and you’ll have a new vacation home! We’ve discussed this more in-depth here: Buying a Pied-a-Terre Isn’t as Indulgent as You’d Think.
Before you purchase a property with the intention of using it as an Airbnb, you should make sure to double check the building or neighborhood regulations as well as the city ordinances. Many condominium buildings have rules in place that prohibit short-term rentals or provide a minimum number of days that a unit may be rented for.
A larger issue is that some cities are now instituting regulations. Most recently, the City of Boston has approved strict regulations (and limitations) on Airbnb rental properties. Airbnb is challenging this, but it still may affect the owners of these Airbnb investments. Even if there are not currently any restrictions on Airbnb properties in the state or city you are considering a purchase, you will want to keep in mind that this could change in the future. You’ll want to have a backup plan in case this does happen.
Overall, if you are interested in real estate investing, starting out with AirBnB investment property may be a great way to go. It’s important that you do your research and your homework to make sure that the numbers make sense and that there aren’t any regulations that would adversely affect you.