How To Invest in Airbnb Properties

If you’ve been putting off buying an investment property, probably due to the Covid-19 pandemic, now is the time to do so. Recently, we’ve been witnessing a surge in demand for Airbnb rentals due to the safety these secluded properties offer compared to hotels.

This means an increase in people renting with Airbnb, making Airbnb investment properties a profitable venture.

If you’re an investor looking to add a short-term rental property to your portfolio, this guide provides a basic understanding of how to invest in Airbnb properties. We’ll also share why you should choose Airbnb investment over traditional rental properties.

What Is Airbnb Investment?

Airbnb investing is when an investor purchases property for the sole intention of renting it to short-term tenants through Airbnb. With the average Airbnb host earning $13,800 in 2021, and with over 6 million active listings in 220 countries, Airbnb has become a lucrative business.

Typically, most hosts start managing an Airbnb property as a part-time job but end up owning multiple properties they manage full-time. The best part is that you don’t need to have knowledge of real estate investment to start this business. Anyone can make Airbnb investing work for them.

How Does Airbnb Investment Work?

Unlike a conventional investment rental property that involves buying property and letting it for a very long duration, renting out an Airbnb property works quite differently:

• Rent duration: For starters, Airbnbs are short-term rentals that can range anywhere from a single night to several weekends on end. This means more property management from your side. However, you can opt to hire a property manager to handle the management side for you.
• Guests and pricing: Airbnb investing gives landlords more flexibility when it comes to how much they can charge for the rental property. Since you rent out to more people per year than conventional renting, you have the freedom to adjust your pricing strategy to suit the season, the neighborhood, and so on.
• Host responsibilities: Guests expect the Airbnb property they book to come as advertised. That means maintenance, housework, decorating the property, furnishing, and providing amenities like TV subscription services, among other things.

Airbnb operates an online marketplace for people looking for accommodation in the properties they find appealing. It connects travelers with Airbnb hosts interested in renting out their homes.

On the one hand, Airbnb provides guests with affordable temporary housing options for vacations and so on. On the other hand, it offers hosts extra income from their properties. 

Top Reasons to Invest in Airbnb Properties

Now, you’re probably asking yourself, “Is Airbnb a good investment in 2023?” “Is Airbnb profitable?” To answer these questions, here are the top reasons why you should consider Airbnb investing.

More profitable than conventional real estate investment

As mentioned earlier, Airbnb allows you to host many people per year compared to a traditional rental property. You don’t have to rely on a single tenant with a fixed monthly payment. This means you can generate more money per year than renting your property out for a long duration.

Less effort to find renters

Since Airbnb has its own website where it advertises listings, you don’t have to go looking for renters. In other words, the company offers a ready market for your property. However, finding guests will depend on many factors, like location and demand.

In addition, Airbnb offers a Host Guarantee Program, known as AirCover that provides:

• $1M Host liability insurance
• $1M Experiences liability insurance, and
• $1M Host damage protection, which covers deep cleaning, pet damage, and more.

Flexibility

Listing your home or property on Airbnb isn’t permanent. If the investment turns lucrative and profitable, you can continue to list your property on the platform. However, if it turns out to be a bad idea, you can pull it from the site and find other ways to monetize the property.

More control over your property compared to traditional renting

While an Airbnb requires more input from you, especially maintenance, you can inspect the property and quickly detect areas that need maintenance with each transition. Since guests come and go more often, you can also perform any repairs with ease before the next guests arrive.

Drawbacks of Airbnb Investing

While Airbnb rental property can be profitable, it also has some cons:

• Airbnb regulations and short-term rules in some regions can affect Airbnb investing.
• Higher initial costs in setting up the house to provide guests with a great experience.
• Irregular income due to changes in seasons.

Best Ways to Invest in Airbnb Properties

Below is a guide to help you invest in Airbnb real estate property rental.

Step #1: Identify the Best Location for Airbnb Investing

Location is the name of the game when planning to invest in Airbnb rentals. The location, along with the Airbnb occupancy rate, are the key metrics that will determine your ROI.

For example, if you choose a location that isn’t heavily affected by seasonality and your property doesn’t stay vacant for long, then you can make lots of profit from your Airbnb rental.

How to choose the best place to invest in Airbnb property

Typically, you want places where demand for short-term rentals is high, such as travel destinations. To find popular travel destinations, use neighborhood heat map tools available online on websites like AirDNA and Mashvisor.

It may also be convenient to choose a location that’s not too far from where you live. However, don’t limit yourself. The most profitable cities may be hundreds or thousands of miles away, and you may want to consider hiring a property manager.

Step #2: Check Local Airbnb Rules and Regulations

An Airbnb rental may be in demand in a city, but is it legal? That’s why it’s critical to investigate the rules and regulations affecting short-term rentals in your city or country of interest.

Some regions have banned Airbnb rentals, while others don’t allow non-owner occupied rental properties. That is, an investor isn’t allowed to purchase an investment property and rent out the entire unit.

Check out local government websites, local newspapers, and other online sources to fully understand how Airbnb investing works in a given market. Some of the places that don’t restrict Airbnb rentals include:

• Columbus, OH
• Eugene, OR
• Phoenix, AZ
• Dallas, TX
• Milwaukee, WI
• Atlanta, GA
• Cleveland, OH

In areas where non-owner occupied properties are allowed, you should research more about:

• Licenses and permits required
• Zoning laws
• Airbnb Occupancy Limits
• Airbnb Taxes
• Rental Property Codes

Step #3: Decide the Property Type

Obviously, you want a property that will bring the most profits. To achieve that, you’ll need to choose the most appropriate property. What do we mean by “appropriate” property? The property you choose should match the nature of your market.

For example, in a city that’s usually flooded with business or solo travelers, a small apartment or condo may be the best option. A single-family home in such a location can be too expensive to afford.

If you want a property that can host families or friends, a single-family home on the outskirts of cities or a beach home can be the smarter choice.

Generally, you want to choose a property that makes you the most money. You should also account for issues like proximity to shopping centers and amenities. 

Step #4: Know Your Budget and Plan Your Financing

Once you’ve identified the most appropriate property in the best place for Airbnb investing, your next step is to start looking for listings that fit your budget. Buying property in a central location will be costly, which will require paying for mortgages and taxes.

This can be problematic during low seasons, and you’ll risk defaulting in payment and consequent foreclosure.

That’s why you should consider your budget and choose a property you can comfortably afford. Once you find the ideal property, you can choose conventional financing options like banks, or look for alternative financing options.

Keep in mind that to qualify for a loan, your credit score plays a huge part. Plus, banks will require you to provide a larger down payment, of at least 15 percent.

You may want to consider creating a Limited Liability Company (LLC) if you’ve decided to turn your Airbnb rental into a business. That way, your business and personal loans will be kept separate.

If you’re just starting on short-term rentals, look for foreclosed, bank-owned, or off-the-market properties, as they are usually low-priced.

Step #5: Analyze Your Airbnb Investment and the Potential ROI

You’ll want to perform an in-depth analysis of your Airbnb investment to determine your income and ROI. This will be fundamental in helping you determine whether you’ll reach your Airbnb real estate investment goals.

However, determining your ROI can be tricky given the seasonality nature of tourism, travel trends, and other factors that might affect real estate rental properties. Some of the things to look at include:

• Comparative market analysis (CMA) to compare a property’s listed value to similar properties nearby which were recently sold. This can be useful when making an offer.
• A list of startup costs and other expenses, including mortgage, taxes, utilities, furniture, insurance, cleaning, and maintenance services. The total expenses should be greater than your monthly cash flow.
• Calculate your expected income on the Airbnb rental. You can use Airbnb analytics software like Rentalizer to calculate your Airbnb potential income.

 Step #6: Create a Listing on Airbnb

You don’t get charged to create a listing on Airbnb. However, in the US, the host is charged 3% of the booking subtotal, and guests are charged up to 14.2%, based on various factors. Creating a listing on Airbnb is straightforward, and you decide the type of guests you want and set your own house rules.

Be sure to provide plenty of photos of the property and mention the amenities available. In addition, you’ll need to strategically price your Airbnb. Keep in mind that there is no fixed price. The price might change depending on the day of the week, the season, and supply/demand in the market.

Step #7: Plan How to Manage Your Property

While Airbnb rentals provide passive income, managing an Airbnb property isn’t going to be easy. You have to put in regular work and must prepare to deal with all sorts of people. You’ll need to constantly communicate with guests, prepare for their arrival and exit, plan swaps, and so on.

The good news is that there are tools that can help make the entire process less stressful. A short-term rental management tool will save you time, manage guest communication and bookings, and handle other aspects of the business with ease.

Managing the property also involves creating a house manual that explains where to find everything and how to operate some devices, like Wi-Fi gadgets and security cameras. Likewise, you’ll need to establish clear guidelines about pets, noise, property damage, and illegal activities on the property.

If you don’t have time to manage the property or live far from the property, you can outsource some of the tasks to a property manager.

Can I Invest in Airbnb Without Owning Property?

Yes, you can! 

You may have given up on investing in Airbnb real estate because you don’t own or can’t afford to buy property. The good news is that you can invest in Airbnb without owning property through various ways:

• Rental arbitrage. This refers to renting properties and subletting them. It might take some convincing to get the property owner to agree to such an agreement or find an owner who’s open to such an idea. But, if successful, you could profit by making money from other people’s properties.
• Airbnb loans. If you don’t have sufficient capital to buy an Airbnb property, you can apply for an Airbnb loan. This is a loan facility designed specifically for rental property investors who can use it to invest in a property to rent out on platforms like Airbnb. Unlike a mortgage, which finances the purchase of property that will serve as the borrower’s primary residence, the Airbnb loan is awarded to an investor to buy a second property.
• Home equity loans: Also known as the second mortgage, a home equity loan is a financing option secured by your home. You will receive a lump sum or line of credit based on your home’s equity. This loan holds your primary residence as collateral, meaning the lender can take away your home if you default on payment.

Key Takeaways

Airbnb investment can be an excellent source of income. However, to maximize your investment, you must:

• Understand the expenses and additional costs of managing an Airbnb property.
• Understand the market, including the best Airbnb property to buy, location, occupancy rate, seasonality, and rules governing short-term rentals.
• Run your Airbnb rental property like a business. That way, you’ll ensure you offer guests the best experience and show that you care about them and their enjoyment.
• Outsource. Managing a property all on your own can be overwhelming. You may need to outsource certain services like cleaning, interior designing, maintenance, and so on to keep the business running smoothly.