Pros and Cons of Airbnb as an Investment Strategy

It May Be More Lucrative Than Traditional Renting

A solidly booked Airbnb rental may be more profitable than renting the same property to a long-term single tenant. That’s because you’re usually able to charge more on a nightly basis. 

In Seattle, for example, the average apartment rents for $2,197 a month, according to October 2021 data. That represents $24,000 gross income if the tenant signed a 12-month lease. 

But what if you were to go the Airbnb route? According to vacation home rental agency AirDNA, the average daily rate for an Airbnb rental in Seattle is about $157, with an occupancy rate of 77%. If you were to rent out your Airbnb for $150 per night for a total of 270 nights per year, for example, it’s possible to rake in $40,500 in gross revenue from the rental. That’s $16,000 more than you’d make through traditional renting. 

These numbers only reflect gross revenue: Your actual amounts could be higher if the property appreciates in value. Your net revenue also could be much lower due to the different costs of owning and managing properties. 

The Worst Cities for Airbnb Renting

The worst locations for Airbnb are in well-known cities in large markets, such as Charleston S.C. and Las Vegas, Nev. The top three worst cities for Airbnb rentals are Savannah, Ga., Sedona, Ariz., and Miramar Beach, Fla.

Hampering Savannah is the lack of rental demand, while Sedona is limited by its investability—despite having some of the best rental revenue growth. Some of the best places in terms of revenue potential are severely limited by home prices. Miramar Beach is great from an investability standpoint but severely lacks in rental demand and revenue growth.

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5 Ways to Start an Airbnb With No Money

As mentioned, there are many ways for both property owners and non-property owners to open an Airbnb account and start making money. Now that we have covered some basic information on the platform, let’s go ahead and start looking at precise ideas as to how you can make money on Airbnb with no money. 

1. Becoming a Property Manager

Property managers are some of the highest-earning people on the Airbnb platform. Although many property managers own property themselves, this isn’t required. Property managers typically have a website that attracts property owners looking to save time on the tedious tasks that are required. 

Locally-based Airbnb property management companies like Whome in Portugal really stand out as great examples of this service. These sorts of companies handle all tedious tasks such as maintenance, helping you set income goals, cleaning, concierge and key service, and much more. 

2. Using Your Own Vacant Property

Do you have a vacant property that you want to rent out on Airbnb? Then you are already way ahead of the ball game! With vacant property, all you need to do is create a profile and start marketing away. 

Of course, this can be a lot easier than it sounds with Airbnb tools. If you want to start renting out your vacant property without investing any money, simply clean up the area, take nice pictures, plan out the Airbnb host checklist and get your listing up on Airbnb. 

3. Take Initiative on Open Rentals in your Area

Next time you are driving around your neighborhood and notice that there are open rental signs posted, think of this as a business opportunity. You can also make a little bit of money with rentals like this. 

Simply approach the owner of the property and ask them if they are interested in listing the property on Airbnb. Odds are likely that they might be, but simply not willing to invest the extra time. It is possible that you can start an Airbnb with no money in this fashion and start getting some extra income. 

4. Become an Affiliate

Airbnb has an affiliate program which offers money to people who bring others on to the platform. Refer your friends and family over to Airbnb and help make an account and their first booking. If they pass the word that you were the one who brought them to the platform, you get a nice commission in return.

Many affiliates that make money in this program will send out a personalized affiliate link to a large audience of people. This can be done safely and legally by having your own following, for example. Just don’t be the person who spams your link on social media!

5. Offer Airbnb Experiences

Airbnb Experiences is perhaps the easiest way to start an Airbnb account without money and soon start racking in profit. Airbnb experiences are local premium tours and experiences that are done in cities around the world. 

They can include trips to sites, one-of-a-kind experiences, and so on. If you know of activities in your area that people might be willing to book on arrival, you can set up an Airbnb Experience for it free of charge and start marketing away. 

Do I Need To Live Near My Airbnb Rental?

The short answer: no. Although it is more convenient to be located near your Airbnb property, it’s not entirely essential.

If you choose to invest in a property that is not near your primary residence, you will likely need a property manager – but that may not be a bad thing. Some experienced Airbnb hosts find great value in having the help.

“I wish I had known how often people flake on you after expressing interest in renting your place,” shares Welker. “I would have opted to hire a property management company from the start just to help with the frequent back-and-forths that end up going nowhere.”

Is An Airbnb Investment More Profitable Than A Conventional Investment Rental Property?

Because each investment is unique, there’s no quick answer to this question. But in high-demand areas, the nightly cost of an Airbnb can lead to higher profits.

For instance, let’s say you want to rent out a one-bedroom apartment in Los Angeles. As of March 2022, the average monthly cost of that apartment is $2,563, meaning you could make roughly $30,000 if your tenant signs a 12-month lease. But short-term bookings are able to charge more per night, which means you could make more.

According to AirDNA, the average daily rate for an Airbnb in Los Angeles is just over $190, with units typically occupied 67% of the year. This means you could make over $46,000 off of your Airbnb – a pretty significant $16,000 more than you would through traditional renting. Airbnb also charges renters a maintenance fee, which means you may save on necessary repairs.

Still, when considering the potential for a higher profit through Airbnb, you must also consider the key differences between these types of rental properties and how those differences will impact your wallet.

Unique Expenses Of An Airbnb Investment

Managing an Airbnb involves several unique expenses you should consider, including:

  • Furnishing and decorating the property
  • Maintenance
  • Utilities
  • Amenities such as television subscription services
  • Potentially different, more expensive home insurance

Other Things to Consider With an Airbnb Rental

Along with weighing the pros and cons, you have to take other factors into consideration.

Taxes

You might have to pay taxes on income earned from a short-term rental.

Typically you can avoid taxes if you rent the property for 14 days or less out of the year, and if you use the property for at least 10 percent of the total number of rental days.

If buying an Airbnb as a real estate investment, make sure you keep detailed income information.

It’s also important to set aside money for both state and federal income taxes.

Write-offs available

The good news about rental investments, though, is that you’re able to write off some of your expenses. 

Eligible write-offs might include: 

  • cleaning and maintenance fees
  • utilities
  • service fees charged by Airbnb
  • mortgage interest
  • property repairs
  • advertising 
  • guest amenities 

Speak with a tax professional for more information on eligible deductions.

Local rules may apply

Another thing to keep in mind is that short-term rental rules vary depending on where you live. 

Do you live in a community with a homeowner’s association? If so, check with your association to confirm whether it allows short-term rentals. 

Also, check your city government’s policy on short-term rentals. Some cities require their hosts to obtain a license before listing their properties on Airbnb. In other cities, you can only list your primary residence on Airbnb.

Insurance

Don’t forget to speak with your homeowner’s insurance company, too.

You’ll likely require additional insurance to protect yourself and the property.

3 – Research The Short-Term Regulations In Your Chosen Market

One risk that is unique to short-term rentals is that of regulatory changes. 

Every aspect of a market’s short-term rental regulations can change with the passing of one ordinance. Your city or county government could change the short-term rental licensing requirements, or perhaps they might stop issuing licenses altogether. It’s possible that they change the zoning laws so that short-term rentals are no longer permitted in your neighborhood, or raise the taxes payable on short-term rental hosting income by a substantial amount. Some locales might also require the property to be a primary residence. Be sure to check if any Airbnb investment properties you are considering are part of an HOA, as that can provide further complications.

The short-term rental regulations and tax laws that have been put in place in every market are all very new and subject to change, and that introduces some level of  risk to you as an investor in a short-term rental property. Long-term rental markets don’t have this issue, as the regulatory environment around long-term rentals is much more established and less volatile.

Researching Local Short-Term Rental Regulations & Taxes

Before making your final decision on a vacation rental real estate investment, you should research the local short-term rental regulations in the area. You must also take into consideration zoning laws, taxes on Airbnb, required licenses or permits, and rental property codes.

Be sure to check the local government resources so that you understand under what conditions you can operate an Airbnb business in the specific area and what taxes and additional fees you’ll be expected to pay, and then you can factor them into your projected expenses.

Airbnb Investments and COVID-19

Like many businesses, Airbnb took a hit during the COVID-19 pandemic. Although the company suffered initially, they saw an increase in customers looking to travel to remote locations that are secluded from large populations. This trend is beneficial for property owners in rural areas who are currently renting out their short-term vacation rentals on Airbnb, but it should not be expected to be long-lived. As the world slowly returns back to normal life, Airbnb expects the current spike in remotely located property rentals to lower while bookings in populated areas rise back once again.

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The Bottom Line

Airbnb and other short-term rental platforms can be very lucrative, especially if you are patient and willing to do the work to attract renters and keep them happy. However, your operating costs will likely be higher than for a traditional rental property, and regulations have made investing in Airbnb hard or even illegal in many places. Be sure to do your homework before taking the plunge into Airbnb investing.

Airbnb vs. Traditional Real Estate Investing: Pros and Cons

An Airbnb investment is not the only strategy that you can choose, as a real estate investor. You can also go for traditional real estate investing. Traditional real estate investing refers to buying a property with the purpose of renting it out on a long-term basis (usually for a period of six months and longer). 

Before you decide to jump into short-term rental investing, make sure to consider all the pros and cons of this strategy over traditional real estate investing. 

Final Word

Whether you’re a new real estate investor or a seasoned investor, listing a property on Airbnb can provide passive income and diversify your investments.

And the best part:

You might earn more from short-term rentals compared to long-term rentals. 

However, Airbnbs can have additional expenses and red tape, so make sure you understand how the process works.

Weigh the pros and cons and then decide whether it’s the right investment strategy for you.

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