Renting a property on Airbnb can be a great way for real estate investors to diversify their portfolio or make more profit on their current properties. It can also be an excellent way to get started as an investor. Although the travel industry as a whole has taken a hit during the pandemic, trends are showing that traveling is beginning to pick up post-vaccine. Americans are itching to venture out after over a year of quarantines, lockdowns and the stresses of the pandemic.
The type of property and its location is key to deciding whether to take a property out of long-term leases and become an Airbnb host. If tourism is high in your area and Airbnbs are expanding, it may be a good idea to see if you can gain more by listing the property as a short-term rental. However, if your area isn’t a spot for tourism or you rely on a consistent, steady rental income to pay your bills, Airbnb may not be the right choice for you.
Here are some pros and cons to consider when deciding whether to list your property on Airbnb.
One of the biggest perks to renting your property on Airbnb is its flexibility. You’re free to give it a try and convert back to a long-term rental or even sell if you find it’s not for you. Alternatively, if you sign a one-year lease with a long-term tenant, it can be difficult to jump ship before the year is up.
Airbnb rentals are also great for summer homes or lake houses in which you may wish to use the property yourself while on vacation or over certain seasons. You can create blackout dates during weekends or weeks you’d like to stay there and make a profit by renting out the place during other times. Airbnb can be a great way to afford a luxury second home.
If you’re looking to use a 1031 exchange to avoid depreciation recapture on an investment property you’re selling, you may be able to purchase an Airbnb rental property with the income. Always check with your accountant or CPA before making any decisions related to taxes, though.
If you do it right, renting your property on Airbnb can actually generate you more income than a long-term rental and increase your CAP rate (capitalization rate). For example, you may make $1,000 per month on a 3-bedroom long-term rental. The same property could generate $150 per night as a short-term rental on Airbnb. If rented out every day of the month — which isn’t always a reality — it would generate $4,500 per month. Be sure to do some calculations with your specific property — including all expenses — to put real numbers to this example.
If you put a bad tenant in a long-term rental, it can be incredibly hard — or nearly impossible — to get them out before their lease expires. And even then, they can cause trouble. With a short-term rental like Airbnb, they’ll usually be gone within a few days, and you can give them a low rating and block them from future stays in your property, meaning you won’t ever have to deal with them again.
Airbnb rentals are generally more risky than a long-term rental. With a long-term rental, you can run a tenant through a strict background and credit check, as well as verify employment and check with past landlords to get a full picture of the tenant and how well — or how poorly — they’ll take care of the property.
With a short-term rental, you don't truly know who's staying in your unit, aside from some basic reviews. While you can always deny an Airbnb tenant for not having enough ratings, you may find yourself being left with few requests if you are too stringent. There may also be less incentive to treat an Airbnb property well since a tenant will be leaving in just a few days and not making it their home, as with a long-term tenant.
Although you have the opportunity to make more money through Airbnb, it’s unlikely your unit will always be filled to capacity. In fact, stays can be intermittent and hard to predict beyond holidays and large events. This results in inconsistent income for the owner, which can be hard to plan for.
With a long-term rental, you're guaranteed the same income every month of a lease and can plan repairs and upgrades accordingly. This also gives the landlord peace of mind that they will be able to afford their mortgage payment each month.
Every landlord knows how much time and money goes into a tenant flip for a long-term rental. Not only do you need to clean the property, do some painting, and inspect for any needed repairs, you will need to coordinate with the new tenant on how you’ll be paid and when you’ll exchange the keys.
The process can be even more tedious with an Airbnb. Every time a tenant leaves a short-term rental, you will have to clean it yourself or pay a professional cleaner to do the job. While you can charge a small fee for this cleaning on the Airbnb platform, it can get cumbersome if you’re flipping the unit every few days. You’ll either be spending most of your time at the Airbnb rental or spending a pretty penny paying someone else to do so — which cuts into your profits.
While you can cut down on logistics by coming up with a solid, automated check-in system (maybe through a keypad or lockbox), you’ll still spend a good chunk of time communicating with guests surrounding their upcoming stay and asking questions about the accommodations or local attractions.
Whether to list your property on Airbnb depends greatly on your local area, your property and how much time you have to invest in being an Airbnb host. Airbnbs are typically more hands-on than a long-term rental, but they payoff can also be much greater!