There are a number of ways to build wealth and earn a sizeable income by investing in real estate. Investors have long been profiting from real estate investments, whether it’s from fixing and flipping, buying and holding, renting, and so forth.
But a more unconventional method of real estate investment that an increasing number of Americans are tapping into is leasing a property with Airbnb. You’ve probably rented out one for yourself, or know someone who has. It’s a very popular way to find a place to stay while traveling abroad rather than staying in a hotel, and often comes with a lower price tag and more “homey” accommodations and amenities.
Short-term rentals like these are growing every day and are changing urban neighborhoods all over the state and the country. The question is, should you start operating one yourself?
Here are 7 considerations to make before answering that question.
1. Understand the Laws in Your City
First and foremost, it’s important that you’re fully aware of the laws that govern the operation of an Airbnb property in your particular city. Getting familiar with the codes, regulations, and taxes that apply to your specific jurisdiction is critical in order to avoid running what may be considered an illegal business.
Some cities may require a business license to run an Airbnb, while others like San Francisco levy short-term rental taxes to 14% of the rental income collected. Los Angeles County also applies a “transient” occupancy tax on any unincorporated areas which applies to guest stays of no more than 30 days.
Further, Los Angeles is becoming somewhat stringent with Airbnb hosts and their properties and has been planning an enforceable system that’s meant to protect neighborhoods from amateur “hotel” operators. If Airbnb and its hosts don’t comply with specific regulations on short-term rentals, they can be slapped with hefty fines.
2. Find the Right Guests for Your Unit
The way you would market your Airbnb unit differs slightly from how you would advertise a traditional unit for lease. It’s critical to position your Airbnb listing in such a way that it targets those who are looking for a short-term stay as an alternative to staying in a traditional hotel or similar accommodation.
Appeal to those who are most likely to book with you. For instance, if your unit is located nearby amusement parks, you might want to target families with children. On the other hand, if your unit is close to the downtown core, you might be better off targeting traveling business professionals.
3. Decide Between Long-Term Versus Short-Term Leases
Again, this will come down to the type of guests that your unit will ultimately target. Business travelers will be more likely to stay for longer periods, while families traveling on vacation will probably rent for much shorter time periods. There are pros and cons to both.
For instance, short-term leases may be able to command a higher unit price, but you will be spending more time marketing your unit to find new tenants and cleaning up after each guest vacates. Long-term leases might not warrant the same nightly price tag, but you’ll be spending a lot less time finding new guests and cleaning between tenants.
4. Get Proper Insurance Coverage
This is a must, but is especially important if you are renting out your own home. The homeowner’s insurance policy that you currently have on your primary residence almost certainly does not provide coverage for any damage that happens as a result of your short-term lease.
The Airbnb Host Guarantee Program offers does offer $1 million in protection against theft and damages, but it does not cover any other valuables, including jewelry or expensive artwork. Taking out your own insurance policy will provide you will additional coverage you need – as well as some peace of mind.
5. You’re Responsible For Cleaning the Place
An Airbnb does not come with the luxuries of housekeeping services that hotels offer, nor does this arrangement leave the cleaning responsibilities in the tenants’ hands like a traditional lease. When operating an Airbnb, you are ultimately responsible for cleaning in between guests, which will be rather frequent considering the short-term stays that your guests will likely book. You can always hire a cleaning service to handle this job for you, but that’s an added expense that you will have to factor into your budget and profits.
6. Keep Up With the Market
Following the market closely is part and parcel to a successful Airbnb business, as is any real estate endeavor. Keeping up with changes or trends in the market is important to understand how to accurately price your unit, attract the right guests, and remain in compliance with any potential changes in the local law in your area. You’ll also have to keep up with different seasons that may warrant a totally different type of marketing position.
7. Time Commitment
Operating a profitable Airbnb property takes a lot of time and effort. You need to realistically assess the amount of time you are able to dedicate to running this investment property, as it can take a lot more time and effort than you might have originally thought. Between marketing, handling calls and bookings, collecting rent checks, dropping off keys, and dealing with last-minute emergencies, this is a big time commitment that you need to be open and willing to make.
The Bottom Line
There’s definitely money to be made operating a unit with Airbnb as an alternative to leasing for the long-term the traditional way. You can realistically charge quite a bit more on a nightly basis compared to what the daily rate would be on a long-term rental, even during the off-season. However, just like any other type of real estate investment, a certain amount of due diligence is required on your part. Make sure you’ve considered all aspects of running an Airbnb before you dive in.