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.
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].