As your overall net worth increases, you may be looking for greater diversification in your investments. If you have all of your money in the same type of investment, then if that investment loses money, it affects your entire net worth. Some people choose to diversify their investments by choosing different types of investments. Real estate has been a popular choice for investing, and there are many different ways to invest in real estate. One way to invest in real estate is AirBnB investing.
AirBnB Investing vs. Conventional Renting
If you’re wondering how AirBnB investing works, it shares a lot of similarities with conventional renting, but there are a few important differences. With both types of rental investing, you own the property and are renting it to one or more tenants. With a conventional rental, it is typical to rent for a year or more. On the other hand, it is not uncommon for an AirBnb tenant to stay in your place for a week or even shorter. That means you are likely to have many more tenants if you do AirBnB as compared to a conventional rental.
Another difference between AirBnB and conventional renting is that most conventional rentals are rented unfurnished. In contrast, most AirBnBs not only have furniture but it is also common for short-term rentals like AirBnBs to have other supplies like toiletries or kitchen items. As the owner, you’ll also likely be responsible for utilities when renting with AirBnB, whereas many conventional rental agreements have the tenants responsible for some or all of the utilities.
How to Invest in AirBnB (and Other Short-Term Rentals)
If you’re looking to invest in owning a short-term rental like an AirBnB, one of the most important things to consider is location. Choosing the right location for your investment property is one of the non-negotiable items when evaluating different properties. Keep in mind that what makes a good location for your personal residence may not necessarily be the same location that makes for a successful and profitable short-term rental.
Once you’ve purchased a property, there are still a few other things you’ll need to do to get your AirBnB up and running. In most cases, you’ll need to fully furnish the unit and provide a basic level of supplies (toiletries, kitchen utensils, etc.). You’ll also want to make sure that you have your systems in place before opening your doors. This includes making sure you have a plan for cleaning the unit in between tenants, automating check-in and check-out procedures and deciding how you will handle maintenance requests.
Pros and Cons of AirBnB Investing
Investing in AirBnB or other short-term rental properties comes with a variety of different pros and cons:
Pros of AirBnB investing
- Higher profits – AirBnB can come with higher overall profits. This is especially true if you are in a prime location where you can have a high overall occupancy rate.
- Easier to find tenants – Because you’re advertising on AirBnB (or other short-term rental websites), they do much of the heavy lifting involved in finding tenants. It is still important to screen any potential tenants.
- Additional flexibility – Operating a short-term rental gives you additional flexibility, since you’re not tied down by any long-term leases. If you decide to sell the property, convert it to another use or move in yourself, you can often do that with minimal entanglements.
Cons of AirBnB investing
- It’s an active investment – if you’re looking for a passive real estate investment, AirBnB may not be the right choice for you. While it is possible to reduce your ongoing involvement if you have the right management in place, there are other ways to invest in real estate more passively.
- Higher overall costs – While AirBnB often comes with higher profits than conventional rentals, it also usually comes with higher overall costs. Cleaning and turnover costs between each guest, utilities, furnishing and potential higher damages are some of the additional expenses that you might experience.
- Added risk – Since you are likely to have a higher number of tenants with a short-term rental, you are taking additional risk as well. Even if you have 95% model tenants, that 1 tenant in 20 that’s less than ideal is a risk you’ll need to prepare for.
Is AirBnB Investing Legal?
Certain municipalities restrict or prohibit short-term rentals. Make sure that you check with your local city or county to see what you need to do to operate a short-term rental in your area. More and more jurisdictions are requiring licenses and remittance of occupancy taxes to operate a short-term rental. If your building is in a homeowner’s association (HOA), you’ll also want to check the HOA bylaws to make sure short-term rentals are allowed.
The Bottom Line
AirBnB investing is a form of real estate investing, and it can be potentially quite lucrative. But while it often comes with higher profits, it also can come with higher expenses and additional risk. Carefully consider the pros and cons of AirBnB investing to decide whether or not it’s the right move for your financial situation.