The real estate investment industry is continuing to change at a very fast pace. Today, there are many unique investment real estate opportunities that can be a great option for you to consider including the option to buy a vacation rental property and lease it on Airbnb. While there is a lot of potential that comes with owning a property that you will lease on Airbnb, there are also a variety of unique factors that need to be properly considered.
Similar to when you are buying any type of investment real estate, you first need to make sure that there is a demand for your Airbnb rental property. An Airbnb will have a different type of demand needs than a traditional rental property. While a traditional rental property will need to have a consistent level of demand from one month to the next, an Airbnb will need to have daily demands.
A good Airbnb rental property should be located in an area that not only has long-term rental demand, but also has higher demand for certain times of the year. For example, major cities may have higher demand for Airbnb properties when a conference, sporting event, or other attraction is in town. During these higher demand periods, you may be able to lease the property out at a much higher rate. These higher rental rates could end up covering your costs even if it is vacant the rest of the week.
Consider Local Rules and Restrictions
When you are considering whether or not you should purchase an investment property as an Airbnb, one important factor to consider are whether there are any local rules or regulations that prevent it. While Airbnb and other vacation rental properties are accepted in most areas of the country, there are town and communities located all over that restrict them as well.
Before you purchase any property, it is very important that you review all town regulations and association documents to confirm that the short-term rentals will be acceptable. It would also be beneficial to research recent meeting minutes to confirm whether or not there is any proposed legislation or rule changes that you need to be aware of.
Tax and Insurance Consequences
Once you convert any home into an investment property, including short-term rentals, there are a variety of different tax and insurance consequences that need to be considered. Any income that you incur from your rental property will need to be considered income. This can then be offset by any utilities, maintenance, interest, or other operating expenses when determining your taxable income. Furthermore, properties that are leased as Airbnb units also come with additional risk that is considered by insurance companies when figuring out your new insurance rates.
Will You Ever Use It?
When you are looking for a place to buy and rent out as an Airbnb, it would also make sense to find a place that you would want to use yourself. If you have a favorite vacation destination that is also popular with other travelers, it would be very convenient to own your own place that you can use when you are taking a trip. You can then offset much of your costs of ownership by renting it out on Airbnb the rest of the year. This will also give you the flexibility to enter into long-term leases if you do not plan on using it yourself for a period of time.
Before you buy any type of real estate, you need to make sure that you have a long-term strategy in place. While an Airbnb is focused on shorter-term leases, all real estate investments need to be considered long-term investments. Because of this, you need to make sure you have a long-term plan and goals. This can including planning on renting it out for a period of time and eventually converting into a full-time second residence or it can include trying to purchase the property at a discount and eventually selling it for a profit. No matter what your goals are, you should make sure that you have a plan and that the market and asset align with your investment strategy.
How Will it Be Managed?
While there is clearly potential for an Airbnb to be a good investment strategy, it also comes with many different challenges. One of the biggest challenges is figuring out how you will manage it. Since there will be constant turnover with the property as it will be a short term rental, you will need to be able to find a way to keep it cleaned, fully stocked, and ready for the next tenants. Unless you have a lot of available time to dedicate to it, managing a portfolio or Airbnb properties on your own can be a near impossibility.
Due to the property management challenges that come with running your own Airbnb, it is important to consider hiring a property management firm for the short term rental. There are a variety of valuable services that the company can provide to Airbnb owners. While much of the Airbnb rentals will be completed online, a management company such as Casago can be hired to ensure the operations run smoothly. This can include making sure that the units are cleaned on time between tenants, ensuring that the property is damage-free at the end of each rental, and being able to handle any maintenance needs that arise.
Having the property management company on your side will ensure that you are able to provide good service to your customers and that the property stay in good condition. Overall, this will help to lead to higher occupancy, better cash flow, and will make it a much better investment overall.