Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].

Question. Dave and Erin from Las Vegas write: Hi Brian, we’ve never invested in real estate beyond our own home. We’re thinking we want to start small and we also want to take advantage of our location in Las Vegas as a weekend and vacation destination. That has us thinking that an Airbnb rental could be the right starting point for us. What do you think?

Answer. Hello Dave and Erin. Your thinking seems to be solid and wise. You’ve hooked into the number one rule about real estate investing – location, location, location. But before you jump all of the way in, you need to consider the pros and cons. As you can imagine, you’re not the first people to realize the profit potential of short term rentals in Las Vegas. Unfortunately, there is a really big CON that will likely stop your efforts before you go any further. In December of 2018, the city of Las Vegas passed major restrictions on new short term rentals.

This might be a trend developing for short term rentals with restrictive new regulations across the country. Like Las Vegas, Washington D.C. is restricting full-home rentals on sites like Airbnb if the owner doesn’t live in the residence. The thought is having an owner in the residence reduces the chances of the main complaints short term rentals cause – partying, loud music, excessive street parking, and large amounts of trash left behind.

Dave and Erin, these seem to be particular problems in Las Vegas where events like bachelor and wedding parties are popular. Other cities are prohibiting short term rentals in the most desirable areas. For instance, New Orleans prohibits short term rentals in historic residential neighborhoods. Specific to you, reports are that Las Vegas is working to strictly enforce the new regulations with a $500 per day fine for violations. The fines in some cities are much steeper.

But these ordinances don’t make short term rentals unrealistic everywhere. There are still big profits to be made in desirable places without strict restrictions. There are still cities where occupancy rates are 85% with rentals earning upwards of $250 per day. That comes to over $6,300 per month. Of course, in some locations the occupancy rate is seasonal meaning profits aren’t consistent every month of the year.

Short term rentals make sense for investors – as long as there is a plan B. According to Realtor.com, short term rentals have averaged a 97% growth rate over the past three years in America’s 100 largest cities. However, every investment should have a backup plan. This especially makes sense with an Airbnb type rental because there is real risk that plan A could be legislated out of business. As always, it comes down to doing the math and due diligence. Cash flow as a long term rental, anticipated value appreciation, and potential for resale should be at the top of plan B.

Here is a more traditional Pros and Cons list that applies to short term rentals.

Pros –

• Money is it at the top of the list because a well-run, short term rental, in the right location generates more cash than almost any other real estate investment today.
• Better upkeep and maintenance because the short turn around demands more cleaning. You can also expect the high turnover of visitors to point out every item needing repairs. Staying current with the “To-Do” list keeps your property ready to sell or rent long term at all times.
• People engagement. Real estate is a people game and Airbnb hosts often talk about meeting people from all over the world and from every walk of life. People willing to share their world travel stories or intimate details of the Japanese culture.

Cons-

• Less free time. This is a hospitality business. It’s not difficult work but it can mean scrubbing toilets 2 or 3 times a week if you don’t use a property management company. You need up front communication with guests before you agree to rent to them. Both to be sure you meet their expectations and to assure the guests’ plans are acceptable to you. And you have to arrange and meet to hand over the keys. You have linens to wash and stocking to keep up with. A detailed checklist becomes your friend for every guest visit.
• Less predictability. With a long term rental you can be reasonably sure of collecting a monthly rent check. With a short term rental you might go weeks without a paying guest. Or you might be booked every day from April through Labor Day but vacant much of the remainder of the year. Cash flow can be sporadic and undependable which leads to budgeting difficulties.
•  More risk. The sheer number of guests visiting your property increases the chances that a bad apple will come along sooner or later. If it isn’t a guest deciding to have a once in a lifetime party at your expense, it could be accidentally broken appliances or furniture by someone who simply didn’t know how to operate something. Kind of like the rental car business where renters don’t take care of your things the way they take care of their own.

Dave and Erin, there you have it. I’m sure not everything was covered but those are the biggies. Being an Airbnb host/investor can be great and highly profitable. It also comes with more risks than being a long term landlord. Risk and reward always go together.

This trending topic will certainly benefit by you adding your thoughts. Please leave your comments. Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].

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Brian Kline

Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years with articles listed on Yahoo Finance, Benzinga, and uRBN. Brian is a regular contributor at Realty Biz News

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