The financial returns of owning an Airbnb can be rewarding, but it also comes with a certain amount of risk. Now, in the post-pandemic world, people tend to be even more careful before starting their career as a vacation rental host. However, as travel is picking up, Airbnb’s CEO Brian Chesky is sure that the company will need millions of new hosts to meet the increasing demand for short-term rentals.
In any case, before taking the plunge and investing in a vacation rental property, it’s advisable to weigh up all the pros and cons that come with it. Let’s dive in and explore the benefits and challenges of owning an Airbnb home.
On average, before the pandemic, Airbnb hosts used to earn around $924 per month from hosting and between $10 and $12,000 per year in total. It’s clear to see then that owning an Airbnb investment property can indeed be profitable with consistent, hard work and dedication.
If you are a prospective host or property manager, you shouldn’t expect to start generating revenue instantly. It takes time to market your rental to attract guests, receive reservations, and generate revenue.
However, the COVID-19 pandemic has influenced short-term rental profits. In some locations, vacation rental businesses had to shut down and cease operations. In other places, however, businesses managed to survive and even thrive due to the changing travel habits of guests.
According to our findings in our 2021 industry trends report, the average nightly rate increased in comparison to 2019. Analysts predict that once travel resumes, the profits of vacation rental hosts will increase due to the surge in bookings.
Traditional renting refers to buying a property to rent it out for a longer, fixed period (usually 6 or 12 months) to a single tenant or group of tenants. In contrast, short-term renting is the practice of buying a property and renting it out to guests rather than tenants for a much shorter period (typically several days up to 4 weeks).
Both Airbnb and traditional renting have their pros and cons. Although traditional renting offers a more consistent flow of income, owning an Airbnb has unique benefits that regular leasing does not:
A benefit of owning Airbnb properties is earning more rental income compared to regular property leasing. While traditional rental properties work with fixed pricing, Airbnb hosts are able to adjust their pricing when they see fit. It’s an accepted norm and guests are willing to pay more to book Airbnb rentals, allowing hosts to earn more than landlords.
In traditional renting, a tenant occupies a property and has little contact with their landlord, leaving minimal opportunity for the latter to earn any additional revenue outside of rent. However, for hosts, owning an Airbnb rental property provides the potential for earning extra income by offering additional services.
These services can include breakfast, transportation, laundry services, and offering Airbnb Experiences to guests. This can help boost your income and can be reinvested into the business.
With traditional renting, landlords generally lease out their properties to the same tenant or tenants for 6 months to a year. With vacation rental hosting, hosts generally see a turnover of several guests a month (unless they offer a long-term rental).
Having a greater guest turnover creates a more diverse portfolio of guests that you can host at your property. Hosting a greater variety of guests also allows you to meet and interact with a diverse array of people from all walks of life around the world.
Owning an Airbnb rental allows you more control over your property compared to traditional renting. Having a greater guest turnover means you can conduct more regular inspections of the property and pick up on potential problems sooner than later. You can also do maintenance work more frequently than if you had a long-term tenant occupying the property.
Another benefit of owning a vacation rental is that you’re more free to adjust and increase your prices, giving you greater control over your pricing policy. This is in contrast to traditional renting where you are often locked into a set price for 6 to 12 months or longer. You also have the option to stay at your property yourself by blocking several nights in your calendar.
The short-term rental market is extremely competitive. As a host or property manager, you will need to work hard consistently to keep your business visible and keep reaching your target audience. You will also need to keep an eye on what your competitors are doing and monitor what marketing strategies they are implementing. Doing this will ensure you don’t get left behind by the competition.
Different cities and zones have unique Airbnb regulations and restrictions imposed on them. Depending on where your Airbnb property is located, you will have to adhere to the regulations relative to that city, zone, or neighborhood. These regulations can be mild to moderately restrictive, relating to how often you are allowed to host guests and how many guests you may host at a time.
Managing a vacation rental takes a lot of time, and you will need to be capable of juggling several different tasks at once. It’s also an ongoing process that requires your full attention. Make sure you are willing and able to handle a consistent inflow of work that you’ll have to put in to keep the property up and running.
It’s highly unlikely that you will see a return in revenue instantly. In order to see results, you will have to consistently work hard and refine your management strategies where they might need tweaking. On average, it can take between 1 to 3 years for a business to become profitable. This is, of course, an estimate but keep in mind that success does take time.
An unfortunate challenge that you may have to face as a host is dealing with difficult guests. Guests may make complicated requests or throw an unauthorized party at your rental. On top of that, they can also break or damage things in your property, by accident or on purpose. Thankfully, difficult guests tend to remain in the minority, and you can prevent them from booking with you by charging a security deposit.
Needless to say that, as with any entrepreneur, hosts face risks, challenges and as a rule tough competition. However, there are some steps you can take to help ensure long-term success:
Firstly, you will need to decide on your business goals. What do you want to achieve? Turn those goals into achievable, actionable targets that you can work towards. Remember to be realistic about them and the timelines necessary to achieve them.
The next step is to draft a plan that covers every step of creating your business. Include your short and long-term goals, as well as potential setbacks and obstacles, and how you plan to overcome them.
Starting a business costs money, and you don’t want to underestimate your expenses. Consider consulting with an Airbnb business consultant who can review your plan and give recommendations on your initial capital.
Another important calculation to get right is your monthly recurring expenditure. Make a list of the monthly fees you pay for cleaning, maintenance, marketing, internet, insurance, services, and a property manager (if you work with one). Tally all these fixed charges and you will get your monthly recurring costs.
Once you have worked out what your fixed monthly charges are, you can work out what rate of occupancy you will need to hit to cover them, and what pricing strategy you should employ to meet your target. Any bookings on top of that will generate the profit that you earn.
Every rental property has a high season and a low season, as well as quieter periods. To stay afloat during these times, you’ll need to make sure you have enough savings to cover your recurring fixtures so that you will not be making a loss.
When it comes to finding your ideal Airbnb rental property, there are no hard rules you have to follow. It’s a good idea, however, to follow some known best practices:
Before you start seriously looking at real estate for potential Airbnb properties in an area, you need to have an understanding of the area’s Airbnb and zoning regulations. Some areas may limit the number of guests you can host or may prohibit Airbnb rentals altogether. That’s why it’s important to first assess an area’s zoning laws and decide if they work with your goals.
If you’re a first-time investor or have no background in property management, consider partnering with an estate agent or company that specializes in short-term rental real estate.
Working with an expert will help you rest assured that any decision you make will have a professional backing. You can communicate all your needs with the agent or company, who will then turn their efforts towards finding you the perfect real estate investment property.
If you’d prefer to work on your own, make use of analytics and data to make smart, informed decisions. Tools you can use include heatmaps, investment property search engines, and Airbnb calculators to make the best investments for your vacation rental business.
Inputting your personal data and requirements into them helps generate relevant metrics for you, such as a property’s cash flow, its cash-on-cash return, and potential occupancy rate.
AirDNA is one of the premier companies specializing in vacation rental data for prospective and current rental owners. AirDNA offers valuable data and insight of over 10 million rentals in over 80,000 locations around the world, allowing investors to plan and select the best properties for their businesses.
Mashvisor is a renowned rental data analytics company. Offering a heatmap, real estate finder, and rental property calculator, Mashvisor helps thousands of hosts around the globe to conduct market research and access the most lucrative investment opportunities in high-demand areas.
AllTheRooms offers insightful short-term rental, hotel, and other accommodation information and metrics. Offering 3 key metrics — Market Intelligence, Property Score, and Competitive Intelligence, AlltheRooms offers invaluable insights to unlock the full potential of your short-term rentals.
It may be tempting for hosts to purchase a larger property to accommodate more guests and thus earn higher profits. However, it’s very important to note that bigger isn’t always better when it comes to vacation rental homes.
A larger home will require more upkeep than an apartment or smaller house, which will up the maintenance price. Before investing in larger real estate, make sure you have the time and finances to support its upkeep, especially during slower months and low seasons.
Keep in mind who your target guest is when looking for investment real estate. Your property should appeal to your target guest and so should offer features that suit their requirements.
If you want to attract work travelers, consider the location of your investment property, as they will likely look for Airbnb properties near the airport. If you want to appeal to families, opt for a slightly larger property that can accommodate at least 4 people.
Another important consideration is deciding how you are going to manage your property. You should plan this out before investing in real estate, as it could affect your management strategy.
If you are thinking about managing your property remotely, remember that you will need to factor in the costs of hiring a local onsite manager or management company. Other things to take into account include cleaning, maintenance, and emergency responses.
Are you interested in having your own Airbnb business but you don’t own or have the means to purchase real estate? Never fear, because you don’t necessarily have to own a home to do so. Take a look at some of the most popular ways of how to start an Airbnb business without owning a house:
One of the most popular ways to start an Airbnb business without owning any property is with Airbnb rental arbitrage. Vacation rental arbitrage is the practice of renting a property to sublet them to guests. Keep in mind that for this endeavor to be successful you will need to charge more than what you pay as the registered tenant.
You will also need to have written permission from your landlord that you are allowed to sublet their property. If the property is in a housing complex, you may need to get permission from the related homeowner’s association to sublet an Airbnb rental.
Becoming a property manager is another means of starting your Airbnb business. It’s not an easy task to become a property manager, and you will need to undertake a registered course in order to become certified.
Make sure you are willing and able to put in the time and effort before committing to a property management course. You can also offer your service as an amateur property manager. However, you will not be able to earn as much, and it may be more difficult convincing clients to trust you with their properties.
Another way is to start your own Airbnb consultation business. It’s ideal to incorporate your unique professional qualification to offer as a niche specialization to hosts.
For example, if you come from a marketing background, you could offer specialized services to help hosts improve their Airbnb marketing results. Knowing what your unique selling point is will help you to attract the type of clients you want to work with.
Owning an Airbnb can present many challenges and, as a host, you will need to find smart solutions to overcome them. One of the best ways to overcome these challenges is automating daily tasks by utilizing vacation rental software, such as iGMS. iGMS helps hosts and property managers take their rental businesses to the next level. Harnessing automation functionality, you’ll be able to:
Phoebe Gunning is a content writer in the Marketing Department at iGMS. She is passionate about the vacation rental industry, notably helping hosts make the most out of their vacation rental businesses. Some of her hobbies include reading, traveling and drinking a good cup of coffee.