Airbnb investment has had a considerable effect on the travel industry. The platform facilitates short-term rentals in over 100,000 cities across the globe. With over 7 million property listings on the site in 2021, many investors are starting to understand that short-term rental properties can make a great investment.
In this article, we’ll look at the pros and cons of Airbnb and answer the question, is Airbnb a good investment?
Are Short Term Rentals Good Investments?
Yes, buying an Airbnb property can be profitable; however, like all ventures, it comes with an element of risk. During the pandemic, stay-at-home orders and travel bans hit the hospitality industry hard. However, now that things are returning to normal, Airbnb rentals should see a surge.
On average, Airbnb hosts make about $924 USD per month. Obviously, this number heavily depends on location and city. The average Canadian mortgage payment is around $1,483.
This of course can be misleading because many of these Airbnb hosts are renting out rooms in their houses or only making their property available part time. In some areas a large house can rent for >$1000/night.
Of course as more investors realize how much can be made via short-term rentals, house and condo prices reflect this. For example, in Canmore a 2br condo that is zoned in an Airbnb area can often sell at a 25%+ premium over a comparable 2br condo that is zoned for residential.
Are Short Term Rentals More Profitable Than Long Term Renting?
The best way to evaluate an Airbnb investment is to look at it through the lens of Airbnb vs renting. Rent to buy properties generate a fixed income, typically over contract periods of six to twelve months at a time. However, Airbnb investment allows for a lot more flexibility.
For example, you can change Airbnb prices based on seasonality and demand. During the holiday season or summer months, Airbnb hosts can charge a premium. If, for example, the location hosts a festival or is a holiday destination, investors can raise their nightly rates considerably. This flexibility isn’t really possible with your typical rental property.
In the areas that S&T Properties operate (mountain towns like Kimberley, Canmore and Golden) holidays such as Christmas and family day are often priced at a 1.5-2x premium over a typical weekend.
Of course, Airbnb typically comes with extra expenses that need to be considered as well such as cleaners, Airbnb fees and additional wear and tear.
Airbnb Expenses
Airbnb and short-term rentals typically come with higher costs than a traditional investment property. Excluding monthly mortgage payments, there are other costs to consider.
Airbnb Startup Costs
There are a few costs involved in setting up an Airbnb investment property. For starters, you’ll need to get the property up to a certain standard. You might already have furniture there, but it could need to be updated to maximize revenue.
So, alongside furniture like beds, dressers, tables, etc., you’ll also have to consider the costs of a remodel. This cost can be small work, like a paint job, or something more extensive like a kitchen or bathroom remodel. Additionally, you’ll need different sets of linens and other consumables like coffee, soaps, and other kitchen items to get it up to a standard. Many hosts choose to install a password-protected key box to eliminate handovers. And of course, you’ll need to get some photos. Some hosts choose to stage their rental and use professional images.
All these items could run you into thousands of dollars. Remember, people are expecting a home-away-from-home type experience, so you’ll need to provide them with a fully furnished unit that is stocked out with all the necessities.
You can expect to spend anywhere from $5000 to $75,000 furnishing and decorating a unit.
Airbnb On-Going Operating Costs
Aside from getting your Airbnb setup, there are also ongoing operating costs to consider. You’ll need to pay for a cleaner between rentals. Some of the other things you’ll need to pay for are short-term rental insurance plus the Airbnb flat charges of around 3%.
You will need to factor in WIFI and cable or streaming subscriptions. Typically long term rentals the renter carries these costs.
Airbnb Dynamic Pricing
As we touched on above, Airbnb allows dynamic pricing. This facility can work in your favor in several ways. During busy periods like holidays, Airbnb hosts can put up the prices to take advantage of increased demand.
Similarly, during quieter periods, like winter in a beach town, owners can drop their prices to lure people looking for a bargain.
Pros and Cons of an Airbnb Investment
Airbnb investment can be a great money-making strategy. However, it does come with its own pros and cons.
Pros of an Airbnb Investment
Airbnb investing has many upsides. Here are the pros of an Airbnb investment.
More Profitable Than Renting
Several studies have shown that Airbnbs are more profitable than renting. This point is demonstrated by the considerable success of Airbnb over the last decade or so. Of course, to access these higher sums, Airbnb hosts need to do a bit more work marketing, cleaning, and dealing with the administration involved in renting a short-term property (or leave it to the professionals here at S&T Properties).
When renting out an investment property, much of the work happens annually, and from there, investors sit back and collect rent each month.
Flexibility of Property Use
Another plus with buying a shiort-term rental is that you have a lot of flexibility over the property. For example, you can choose when you rent the property out and when you use it. For a lake or beachside property, you can rent it out over the summer, but keep a week free so you and your family can enjoy it.
Additionally, you can choose to rent it out over longer or shorter periods, or weekends only.
Ease of Marketing With the Airbnb (or VRBO’s) Platform of Property Use
Once you’ve taken photos and posted some information about the site, you can sit back and let Airbnb connect you with clients. Traditional methods of marketing properties, like short-term rental websites or listings pages, often charge a fee to post an ad.
With sites like Airbnb or VRBO, your home is marketed to Airbnb’s huge customer base.
Additionally, you can choose to rent it out over longer or shorter periods, or weekends only.
Airbnb Acts as a Facilitator
Just like apps like Uber and Lyft, Airbnb acts as an intermediary in what is known as the “sharing economy.” The platform facilitates renters’ and rentees’ short-term arrangements for a small fee.
Additionally, Airbnb has an availability calendar. This feature saves a lot of time with communication because it clearly states which dates the property is available for and at what rate. These details save a lot of time for the host as you won’t get queries for dates when the property is already taken. Additionally, the prices are fixed, so there is no haggling involved.
Airbnb's Host Guarantee and Host Protection Insurance
While most rentals go without a hitch, there are rare occasions when you get a terrible guest. These scenarios could result in damages to your property. To help in these scenarios, Airbnb offers a host guarantee and host protection insurance, called AirCover.
Hosts can demand a deposit from guests of between $100 to $5000. However, this is optional. If damage is caused to the property and there are issues with the deposit, Aircover provides extra protection for your Airbnb investment up to $1m.
Airbnb’s Host Guarantee is free. It covers eventualities like damage, theft, and excessive cleaning costs that could occur when your property is rented. The insurance pays out the “actual cash value” of the damaged items. Actual cash value is the cost of an item minus depreciation. So, for example, if your TV were broken, you would not get the price you originally paid for it, but the cost of replacing it with a similarly aged model.
Cons of an Airbnb Investment
No money-making venture comes without some risks. So let’s take a look at the cons of short-term rentals as an investment vehicle.
More Work On a Regular Basis
Long-term property rentals are relatively hands-off for the majority of the year. However, Airbnb involves a lot more administration and interaction with guests.
For starters, you’ll need to manage inquiries for each guest. Then, you’ll need to get the place ready between each stay—new sheets and towels, cleaning, inventory checks, maintenance, and so on.
Of course, one way around this is to employ a property management company. These services will take care of the cleaning and replenishing of items. Additionally, they will report back to you with any issues. This option can save you a considerable amount of time. However, it will need to be funded from your profits, so that it won’t be for everybody.
Higher Expenses with Airbnb
A long-term rental is less hands-on. There is no day-to-day work for a long term rental and typically you’ll only be required in the case of an emergency.
However, hosting an Airbnb is a lot more involved. For starters, the renter’s expectations are entirely different. People expect an Airbnb to operate a bit like a hotel, which means you’ll need to meet higher standards than renting an unfurnished property.
Providing this hotel-like experience means excellent communication with guests, clean towels, bedding, nice decor, and even high-quality furniture. All of this is on top of other things we’ve mentioned like cleaning, utilities, food, WIFI, TV subscriptions, etc.
Income May Be Irregular
While Airbnb investments can generate higher yields, cash flow can be a little irregular. Long-term rentals can be relied upon to produce a regular monthly cash flow over the term of the contract. However, short-term rentals are affected by demand and seasonality.
In theory, you can make a return on your Airbnb investment 365 days a year. But in practice, there will likely be at least a few days a month where the property is vacant or sparsely used. Even popular holiday destinations have downtime; plus.
One tactic that you can employ is to offset these empty days by charging higher rates. Of course, there is a delicate balance here. Go too far, and you’ll be pricing your property out of the market.
Local Airbnb Regulations
Due to a shortage of rental housing in some cities, many local governments have started to crack down on home-sharing properties like Airbnb. Some of these regulations only allow hosts to rent a property for a certain number of days per year or month. Other laws force hosts to pay higher taxes. Some other things to beware of are HOA regulations or requirements that Airbnb’s are a primary residence.
So, before you rush out and buy an Airbnb investment property, check for local rules and regulations on home-sharing. These rules can vary widely between regions.
Buying short-term rental properties in areas like Canmore with established rules and regulations can often help avoid unexpected surprises.
Risks & Liabilities of Running an Airbnb
An Airbnb investment can quickly turn into a nightmare if things go wrong. For starters, there are rare instances where guests trash or steal stuff from your property. While insurance (Airbnb’s or yours) will typically cover this, it’s still a major headache.
On top of these risks, you’ll also have to consider your liabilities as a host. No matter how well you screen potential guests, things can go wrong when they are on your property. As mentioned above, this could result in damages to your Airbnb investment. However, other scenarios that could occur are injury to one of your guests on the property. Additionally, your guest’s actions could result in damage to a neighbour or their property.
As a result of these risks and liability, anyone renting out an Airbnb property should get the appropriate liability and insurance cover. While this is an extra expense, it could save you from significant costs resulting from a claim.
Buying Property for Airbnb
When you are considering where the best places to buy Airbnb property are, the main thing to consider is location. A central location in a good neighborhood with lots of amenities and attractions will never be short of interested customers. But of course, renting out property in booming cities isn’t the only strategy you can employ for your Airbnb investment.
Holiday properties in remote areas or near beaches and lakes can also be a great choice.
Other factors to consider are local rules and regulations. These vary from region to region, and some of them are so restrictive that it can be challenging to make a profit. For example, in Canmore, short-term rentals are limited to a specific area. In Kimberley you need to submit a floor plan and have a license to run a short-term rental.
What Type of Property to Buy for an Airbnb Investment
Now you know the best places to buy Airbnb property, it’s time to think about the type of property.
There are several types of properties:
- City centre apartments, condos or houses in large cities.
- Remote destinations, that are secluded from the hustle and bustle of daily life.
- Vacation towns like Kelowna and Canmore that attract visitors year round
- Mountain resort style areas like Kicking Horse or Whistler.
While we do operate a few short-term rentals in Calgary city centres can be difficult due to house pricing and regulations. Cities like Vancouver (and even Kelowna) have imposed regulations to prevent most short-term rentals because of their housing crisis.
Vacation towns and mountain style resorts typically have existing short-term rental regulations in place. This reduces risk.
What Type of Rental Property Investment Strategy is Best for You?
The best type of rental property strategy depends on a few factors
- How much time you want (or have) to put in. Airbnb requires a lot of work, cleaning, and high initial costs.
- Your budget. Units that are zoned for short-term rentals often sell for a premium to the market.
- Your location. If you’re planning on self-managing your unit being within driving distance is helpful in the event of an emergency.
If you are looking for a hands off approach our full service vacation rental management is a great solution. It means you don’t have to physically be near the property you buy as we operate in Golden, Kimberley, Kicking Horse, Whistler, Calgary and Canmore.
Overall, both strategies can work, but Airbnb investment requires a little more effort to realize those higher gains.
Should You Invest In a Short-Term Rental?
We are inherently biased but right now returns tend to favor short-term rentals versus long term rental properties. Even after factoring a slightly higher management fee to run a short term rental, they tend to yield better returns.
If you’re looking to invest in a vacation rental property we have extensive experience helping our investors navigate buying their first unit.
