Investing In Rental Properties For Airbnb 101 ~ The Pros And Cons

  • 04/11/22

Investment properties can be a lucrative way to earn passive income and build wealth. Short-term rental properties can be a great investment, especially if you live in areas where people frequently travel for vacations or business. Airbnb rentals continue to be a popular choice for travelers who don’t want to stay in a hotel. More people are buying a home for Airbnb rental investment properties now because of this trend. They know that renters prefer a home-away-from-home feeling. If you want to get in on this trend, there are some things you will need to know to make the decision. 

The Pros Of Owning An Airbnb Property

Aside from the tremendous earning potential, there are many pros to owning a home to rent with Airbnb. For starters, Airbnb makes it easy for hosts by allowing you to list your home for free. Owners don’t have to pay any fees to use their platform to list their rental property. They will include a host profile about you, a description of your property, and photographs. They basically do the marketing for you!

As a host, you would be protected from damages. Airbnb offers host damage protection if your home or belongings are damaged by a guest during their Airbnb stay. This includes unforeseen cleaning costs and income lost due to canceling future rental bookings because of damage caused by guests. As an Airbnb host, you will also have access to reviews that other hosts have written about guests. This will allow you to learn about the potential renter before agreeing to allow them to rent your home. And let’s face it, if you rent to a bad tenant, they won’t stay long! You won’t have to deal with evicting bad tenants like you would with a long-term investment property.

You really can’t beat the flexibility of renting your home through Airbnb. You control when and for how long you rent out your space. You manage the property schedule and can keep the occupancy times shorter. 

The Cons Of Owning An Airbnb Property

There are certainly a few cons to owning a home to rent with Airbnb, as with just about anything. While listing your home on the Airbnb platform is free, they do charge hosts a service fee of at least 3% when a booking is confirmed. You will also have to pay income tax on every booking because you earned income. 

There is also more risk involved with renting your home through Airbnb. Long-term renters typically will go through a background check and credit check before they are permitted to rent a home. While Airbnb does offer guest reviews and processes the payment for you at the time of booking, they do not require background checks on guests. And while Airbnb does offer the host damage protection of up to one million dollars, it is still a huge hassle if your home is damaged and you have to make repairs. If there is a lot of damage, you may not be able to rent out your home for weeks or even months while repairs take place.

Renting your home through Airbnb can be a bit time-consuming. You will be in the hospitality business, and guests can be picky. If they give you a negative review, it may prohibit others from choosing your home to rent. You will need to keep your home clean and stylish and offer great amenities to keep the guest list growing. If your property is successful, you will do a lot of work and upkeep. You will be responsible for communicating with guests, coordinating cleanings, restocking essentials, handling any repairs, and managing the schedule. You may want to consider hiring a property manager if this is too much for you to do alone.

The Financial Pros And Cons

Many people make a great passive income renting their homes through Airbnb. If you live in a popular destination and get consistently good reviews as a host, you can potentially make a significant amount of money. You can charge more per night, potentially earning more than if you used the home for a long-term rental. With a steady stream of tenants, you will likely have a high return on investment (ROI). You can use the earnings to pay your mortgage, taxes, cleaning, and repair costs and still have money in your pocket!

If you have a steady stream of renters, you will regularly collect income from many different tenants. If one cancels now and then, it may not have a huge impact on your income. Unlike long-term rentals, there is the risk that the tenant will stop paying their rent or leave without giving you notice, which could lead to a big chunk of time you do not earn income. 

Keep in mind that you may experience irregular income from rental properties at times, such as off-season for travel. You may also get off to a slow start until you start booking renters and they post their reviews. The more excellent reviews your home gets from renters, the more people will want to book your home.

There are also more expenses with Airbnb than long-term rental properties. As an Airbnb host, you must pay for all utilities, WiFi, cable, and regular cleanings in between guests. You will need to supply all furnishings and supplies, like linens, towels, and basic toiletries. You will also need to make sure all appliances are working and repairs are handled immediately. It’s wise to set a home maintenance budget specifically for the unexpected that can happen. Guests will rate your home, so to keep your earning potential high, you'll want to make sure your property is in quality condition at all times. Make your guests feel welcomed and feel like they are getting the biggest bang for their buck. Remember that you are competing with other Airbnb properties as well as hotels in your area. 

Are Airbnb Rental Properties The Right Investment For You?

Before you make this investment, research the legal requirements. For example, in some regions, you can’t list a property as an Airbnb rental. For others, you may be required to get special permits and licenses before renting them out. 

Know the financial risk involved if there is ever a lawsuit if a renter is hurt while renting your property. You may also need to check with your Homeowners Association (HOA) if this is applicable, as their bylaws may have specific rules against short-term renting. If you are ready to purchase an investment property and considering renting it on Airbnb, your real estate agent can be a valuable resource to answer any questions you may have. Contact us to start your search in the DFW area today!

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