What’s the big deal about Airbnb? Since it was founded in 2007, Airbnb has revolutionized the travel industry. Its unique concept of “vacation rentals for the sharing economy” changed the way travelers could find a place to stay.
Today, the platform boasts over 4 million hosts and more than 6 million active listings – in other words, it’s a travel industry giant. For hosts, the earning potential of Airbnb is significant. The amount of money earned by Airbnb hosts surpasses $180 billion, with the typical host making almost $14,000 a year from their rental.
These statistics show that there is a lot of opportunity for hosts of Airbnb vacation rentals. With this opportunity in mind, many hosts have taken it a step further by investing in their own properties to rent out to Airbnb guests.
What You’ll Find in This Airbnb Investment Guide
In this expert guide, we’ll break down what investing in Airbnb properties is all about: how it works, whether it’s worthwhile, and how to get started yourself. We’ll also let you in on the best cities for Airbnb investment.
Is Airbnb investment right for you? Read on to find out!
What Is An Airbnb Rental?
An Airbnb rental is a property that an individual lists on Airbnb with the purpose of renting it out as a short-term accommodation for guests. Think of an Airbnb rental as Uber for hospitality: an alternative to booking a hotel room, the difference being that the guest will be staying in a person’s (host’s) house or apartment.
Just like a hotel room, the Airbnb rental acts as a short-term lodging for the guest where they check in and check out of their stay. Hosts can rent out an entire home to the guest, or a single room, or even just a sofa to sleep on.
Airbnb is a great way for hosts to make some side money by renting out any extra space in their home, and for some hosts, it becomes their entire source of income. Airbnb has a solid reputation for being a trustworthy platform, so both the host and the guest can expect a pleasant experience.
How The Airbnb Rental Process Works
Travelers search Airbnb for the perfect accommodations for them, using filters to pinpoint their desired features. As an example, they might specify that they want the entire house, in a certain price range, that has a pool.
Once the guest finds the Airbnb rental property they love, they either book it on the spot using the platform’s “instant book” feature or send the host an inquiry. This is an opportunity for guests to ask questions they might have, and express interest in booking. The host either accepts or rejects the booking request.
When the guest arrives at the rental property, they check in just like they would at a hotel, enjoy a short-term stay, and check out in time for the home to be prepared for the next guest. For many Airbnb hosts, the flow of guests is constant.
Is Airbnb A Good Investment?
While some Airbnb hosts choose to rent out rooms of their own home or an entire property they’re renting themselves, others go further and purchase a property with the sole intention of using it as an Airbnb rental.
Is an Airbnb property a solid investment to make? Let’s look at the pros and cons…
Pros Of Airbnb Investment
It’s a Source of Passive Income
Passive income is always a good thing, basically allowing you to make money while you sleep. Airbnb investors make an initial investment that becomes a steady income source, while the host still has the time and energy to hold a full-time job if they want to.
You’ll Have a Diverse Selection of Guests
Renting out your property as an Airbnb means you won’t ever be stuck with a disappointing tenant. Instead, you’ll have a variety of guests, so even if a few guests cancel their bookings, it doesn’t cause a massive impact on your overall income.
Airbnb Does the Marketing FOR You
The ever-increasing popularity of Airbnb means you will have a good chance of getting guests without having to do any marketing of your own. Travelers already flock to the platform to find accommodations, so they find you rather than you trying to find them.
Some of Your Expenses Will Be Tax Deductible
With an Airbnb investment, you can write off some of your expenses as tax-deductible, increasing the earning potential of your property. State laws differ as to what expenses you can write off, but they can include overhead costs ranging from home insurance to repairs.
Peak Seasons Mean Higher Rates
If you keep a close eye on events happening in your city, such a big conventions and important sports games, you can raise your rates to reflect the demand for accommodations. That provides you with an even higher ROI.
You’ll Be Protected from Damages Caused by Guests
While most Airbnb guests behave politely, you might experience some disrespectful guests who cause damage to your property. Airbnb allows hosts to require a security deposit from their guests that will cover any damages. In addition, the platform has a resolution center where you can file a dispute to get reimbursed for the damages.
Cons Of Airbnb Investment
You’ll Likely Need a Higher Down Payment
Second-home mortgages are slightly different than first-home mortgages. There are different approval requirements when you’re getting a mortgage for a home you’ll be renting out for Airbnb. At least a 10% deposit is required, as well as higher credit than for a primary residence.
And There Are Other High Startup Costs
To get your Airbnb rental up and running, you’ll need to furnish and decorate it attractively, do any repairs needed, as well as get the utilities and wifi turned on. These expenses add up quickly, so be prepared for a high startup cost.
You’ll Have To Wear a Lot of Hats
When you’re running an Airbnb rental, you have to take on a range of responsibilities. You’ll need to be available to communicate with guests whenever they need you, take care of cleaning, and manage your property. (One way to save time and effort is to hire an Airbnb property management company.)
There Are a Number of Airbnb Rental Restrictions
It’s important to stay in the know about what the regulations are in your property’s area. For example, Las Vegas has a strict restriction on running an Airbnb rental within the city limits, but North Las Vegas, considered a separate jurisdiction, allows it. HOAs often forbid short-term rentals as well.
You Aren’t Able to Do a Background Check on Guests
Airbnb has a review system that gives you some insight into a guest’s behavior during other stays, but it’s not the same as a background check. While monetary protection is in place for damages done to the property, you never fully know much about your guests.
It’s Unstable Income
Renting your Airbnb investment property out to guests is definitely not a stable source of income – you can’t rely on bookings coming through consistently. There will be slow months and booked-out months, so you have to be prepared to get through the slow ones.
You’ll Get Some Bad Reviews
No matter how hard you try to create a pleasant stay for your guests, you will have some guests that are just too fussy. They found a hair on the bathroom sink, or the water took too long to heat up in the shower. These guests will often leave a negative review, which unfortunately impacts your visibility in Airbnb searches.
How does Airbnb stack up against renting your home to a long-term tenant? Here are some factors that are worth noting:
- You don’t have a lease agreement in place. When renting out your investment home for Airbnb, you don’t have to worry about entering into drawn-out legal matters if you want a guest to leave.
- You can adjust your rates day by day. Unlike renting to a long-term tenant, you have the freedom to change your rates of stay however you like with an Airbnb rental.
- You’re in charge of the home’s upkeep. When renting to a long-term tenant, it’s assumed that the tenant will stock their own household items and clean up their own mess. That’s not the case with Airbnb rentals, where you need to stay on top of those things.
- There’s more work involved. With a much higher turnover rate, Airbnb rentals require more attention. That means keeping up with customer service work, regular cleanings, and ensuring guests have a positive experience. It can get a little exhausting.
How To Invest In Airbnb
It can be a little daunting to get into the short-term rental space. To make things a bit easier, we’ve broken the process down into 4 steps.
Step 1: Find the Best Location for Your Airbnb
Take your time when it comes to choosing the perfect spot for your Airbnb rental home. The most successful Airbnbs are those that are located near tourist hotspots, nightlife, entertainment, and/or convention centers. Locations with good walkability are prime, as are trendy, up-and-coming neighborhoods.
Step 2: Do Your Research on Local Laws
Every city has different laws in place regarding short-term rentals. Get knowledgeable about the regulations that apply to your state, county, and city. By googling your city name + short-term rental laws, you’ll be able to find valuable information.
Step 3: Get Clear on Your Ideal Guest
Who is your perfect guest? Once you’ve determined what kind of guest you’d like to cater to, it will become much clearer what kind of home to invest in, what area it should be in, and what selling points your Airbnb rental should have. Hipsters? Choose a neighborhood with lots of coffee shops, record stores, and bookstores. Traveling nurses? Invest in a property near a major hospital.
Step 4: Do the Math
Take care to calculate all of the costs that will go into your Airbnb rental, above and beyond the mortgage. Think property taxes, insurance, maintenance, furnishings and amenities, and more. Does it all equal out to be a good financial move?
The only remaining steps are setting your price intelligently, creating your listing on the Airbnb platform, and providing outstanding customer service as the bookings start rolling in.
So where in Canada does it make the most sense to invest in an Airbnb rental property? The most profitable Canadian cities for Airbnb are:
- Whistler, British Columbia
- Canmore, Alberta
- Tofino, British Columbia
- Niagara Falls, Ontario
- Kelowna, British Columbia
- And Quebec City, Quebec
Want to get started with investing in Airbnb properties? There’s no better time than the present, with short-term rental growth projected to grow impressively in the coming years. Airbnb rentals can make highly profitable investments if you learn how to do it right.
You can take some of the pressure off of managing your new Airbnb rental investment by choosing a good Airbnb vacation rental manager. Let us take care of the hard work while you earn more from your investment home!