Searching for an Airbnb investment property is an exciting time. You’re launching your property portfolio and could see a great return on investment. There is a process to follow and many items to consider, that’s what we explore here:
Pros and Cons Of Airbnb Investment Properties
There are benefits and disadvantages to owning an Airbnb investment property. The word has gotten out and the market is getting more and more competitive, exploring the pros and cons beforehand is worth the time:
- Higher profits than long-term rental: In most locations working on a 70% occupation you can get a considerably higher (nearly 2x) yield than via traditional long-term rentals.
Flexibility in pricing and rental: The flexibility with Airbnb is so much more than via traditional renting. Don’t want to rent for a week or weekend? You don’t have to! Plus you get to vary the price whenever you like.
- No tenant agreement: If there are ever issues with your property, because the agreement is with Airbnb, you can reach out to their support if there are any issues rather than having to go through legal means in court.
- Fitting out is expensive: Many long-term rentals are unfurnished as tenants bring their own items including furniture. Not the case with Airbnb, so startup costs are considerably higher.
- High monthly costs: You need to cover cleaning and maintenance, utilities, local tax, building expenses, and insurance, much of which is usually covered by tenants in long-term rentals.
- It takes time: Your Airbnb might not feature high in the listings without good reviews and a track record. It’ll take time to build a profile of your property.
What To Look For In An Airbnb Property
Location, Location, Location
Whenever you’re buying property location has to be at the top of your list. It is the absolute golden rule of real estate and purchasing an Airbnb property is no different. In fact, you might argue that an Airbnb location is even more important. When buying a long-term home you might slightly compromise, but with guests who are staying only a short while, they won’t compromise.
Consider the area as a whole, then the neighborhood, and then the street itself. Are there great local amenities? Is it close to attractions? Is parking simple? Put yourself into the mind of a guest and think about what you’d want from a stay.
Local Rules And Regulations
It seems that across the US (and beyond) the stratospheric rise in vacation rentals and the reduction of affordable housing has led to some local authorities imposing strict rules and regulations on Airbnb homes. Before you commit to purchase it is imperative that you confirm you can rent it out.
Finding out after purchase would be an incredibly costly mistake. Check local government websites, landlord associations, and local resources for more information.
Determine Your Budget
This should probably be the first thing that you do before you consider location, rules, and anything else. Determine what you can afford and attribute a budget accordingly. Remember that you’re treating this as an investment and therefore this should be seen as a business plan. It’s not sensible to get emotionally invested in a business, look at it purely from a fiscal sense.
Financing this venture can be secured through a number of different channels. You could choose:
- Classic conforming loans
- Portfolio loans
- Shorter term loans
- Your own savings
- Family investment
- Angel investment
- Bank loans
Whichever option you choose, ensure that you have everything in place and determine what the cost of financing will be when writing up your budget and financial strategy. If you’re opting to work with a third party (mortgage provider, bank, investor, etc) then you’ll need to be completely clear about your plans and likely provide them with detailed forecasts and financial planning.
Choose A Property Type
Picking the property type is almost the same choice as picking your audience. The type of property you purchase directly influences who will stay in it. If you’re opting for a convenient condo or apartment near transport links, you will find that the majority of your bookings are business travelers. These bookings are a steady stream but aren’t necessarily high margins. Perhaps you’ll choose to get a larger house on a lake, this is more likely to attract families or groups of friends. The bookings will be more seasonal but you can charge higher prices.
You can judge the most popular types of property by searching on Airbnb, Vrbo, or similar and seeing what the market has to offer.
Analyze Potential ROI
Your return on investment (ROI) is critical in having a successful Airbnb business. If you’re sourcing property through a real estate agent they will happily assist you with this and chances are they’ll be able to give you these estimated figures before you even view a property.
Plan How You’ll Handle Bookings
Managing the bookings for an Airbnb investment property can be a lot of work. Many owners decide to work with a local agent. These agents can then handle things like check-in/out, issues during the stay, and bookings. They’ll also keep the property in good condition for you. This does come at a cost and will need to be factored into your budget. There are lots of marketing avenues, Airbnb/Vrbo are great starting points, other property portal websites, social media, and your own website are great too.
There’s a great deal to consider when searching for an Airbnb investment property. When done the right way, chances are you’ll have a profitable investment in a relatively short period of time.
- Don’t be afraid to turn to professionals for advice, that’s what they’re there for!
- Do more research than you think might be necessary, being armed with the facts always helps.
- Get your finances in order from the start, and be realistic with your projections.