Today's article is on how to start investing in Airbnb rental properties. This is such an interesting niche with so much possibility. So what are the pros and the cons of investing in Airbnb rentals?
Check out this comprehensive article and decide for yourself.
Short Term Rentals
Short-term rentals have exponentially grown in popularity in recent years since the establishment of Airbnb.com and other similar platforms. Renting out on short-term basis quickly spilled over the boundaries of the idea of sharing your own home and became a full-blown real estate investment strategy. The success of Airbnb rentals pushes many traditional rental property investors to start thinking about a switch in their rental strategy and exploring the available options. Other investors remain hesitant as they are not sure how to go about this change in strategies, missing out on an opportunity for major profits. This guide aims to help real estate investors who have been focused on long-term rentals – or even flipping or wholesaling – take the leap and become successful vacation rental investors in 6 doable steps.
1. Decide if You Are Cut Out for the Short-term Rental Industry
One of the best advantages of real estate investing is the diversity in options which you can choose from. However, this doesn’t mean that any investor can succeed in any real estate strategy. Airbnb rentals are no exception.
Before you enter the field, you have to know what it takes to succeed in it. First and foremost, Airbnb hosts have to have a friendly, hospitable, and dynamic personality. When you rent out on long-term basis, you need to find a new tenant only every few years. The rest of the time you just have to maintain your property and collect rent. The situation is very different with short-term rental properties where you need to market your property all the time and to be on a constant search for new guests. Being polite and friendly will definitely help in attracting new guests.
Moreover, you have to clean and restock the rental on weekly or even daily basis. Of course, there are tools which can help you in this endeavor. You can market your rental on listing platforms like Airbnb, HomeAway, VRBO, Booking.com, and others which have access to millions of travelers from around the world. Moreover, you can hire the services of a professional vacation rental property manager to deal with the day-to-day tasks associated with renting out in this way. However, you still need to keep a close eye on your business to make sure that your Airbnb rental property is being taken good care of and is bringing you the maximum profit possible.
2. Identify a Profitable Market for Airbnb Rentals
If you decide that you have what it takes to become a successful short-term rental property investor, the next step is to choose the best market to invest in. But what does a good market for short-term rentals look like?
First, you need demand, which means that the best markets to invest in are those with a lot of visitors. These could be tourists, business travelers, or parents visiting their children at college or university. However, don’t make the mistake which many first-time Airbnb rental investors make – namely, don’t necessarily go for a large city and ignore small towns. Many small towns and villages offer high Airbnb occupancy rates, which is a must for success in the business.
Property prices have skyrocketed in most metropolitan cities, making real estate investing there nearly unaffordable. And affordability is the second factor which makes for a good market. Of course, affordability is a relative concept, but if you want to succeed with a short-term rental, make sure you choose a market which will not drive you bankrupt and get you into a foreclosure. Indeed, small towns tend to exhibit significantly lower property prices, which is another reason why they can be a top choice for buying an Airbnb investment property.
Third, a good market is one which offers a high return on investment. After all, regardless of whether you go for short-term or long-term rentals, you are into real estate in order to make money. And the more the better. Thus, you should check out which US real estate markets have the highest return on investment for Airbnb rentals, in terms of cap rate and cash on cash return.
While this might sound like a daunting task, Mashvisor’s investment property calculator will help you locate profitable markets and the best neighborhoods to invest in Airbnb rentals. For example, according to analysis by the real estate data analytics company, Joshua Tree, a census-designated place in the San Bernardino County in California with a population of 7,000, has been one of the top locations to invest in a short-term rental in the US housing market. At the moment the average cap rate for this rental strategy is 6%, significantly above the level in many other hot markets. This proves that a small town or village can be the best place to start out your Airbnb rental business.
3. Explore the Short-term Rental Regulations
The growth of the short-term rentals business has met some serious opposition by the hotel industry and local residents in a number of markets. Local authorities have felt pressured to start issuing restrictive and sometimes even prohibitive regulations. This is why the next step in the process of becoming an Airbnb investor is to check the local legislation in the market you have selected to make sure that short-term rentals are legal and to know exactly how much you will be expected to pay in taxes and fees.
For instance, as one could have expected, Anaheim and Las Vegas used to be among the best places to own an Airbnb rental property as they enjoyed one of the highest returns on investment, according to data from Mashvisor. However, both cities voted in favor of laws which essentially put an end to this industry.
So, do not assume that you can just buy and operate a vacation rental in any market. Do your due diligence and research to assure you are not breaking any laws and regulations.
4. Find an Investment Property with a High Return on Investment
Once you’ve selected a market and made sure it allows short-term rentals, it’s time for the most exciting step of the process: searching for a profitable property for sale. In addition to exciting, this step can also be very tiresome and time-consuming. It can take months to locate a property which fits your requirements and expectations as you have to perform investment analysis on dozens of them. Alternatively, you can use rental property analysis software, such as Mashvisor, which turns 3 months of research into 15 minutes. The platform allows you to search through numerous properties to find the ones which match your budget, preferred property type, and expected return.
If you are relatively new to real estate investing, it is recommended to start out with a small, simple, and cheap rental property. Such properties are easier, more straightforward, and less costly to maintain and operate. Moreover, real estate investing is very much learning by doing, so in a couple of years you should be ready to transition to a bigger, more luxurious, and more expensive investment property. Don’t overwhelm yourself from the beginning.
5. Market Your Airbnb rental Efficiently
The best way to market your short-term rental property and to secure guests is to list it on a platform such as Airbnb, HomeAway, or VRBO. There are so many of them that you will need to do some research to compare the services which they offer, the price which they ask for, and the results which they deliver. However, because of their increasing popularity, you should know that your chances of succeeding in marketing your rental on your own are only minimal, unless you already have a well-established, reliable network of potential guests. Otherwise, you are better off listing your property through a platform.
Buying an Airbnb investment property and renting it out is not the end of the journey of being a successful real estate investor. It is just the beginning. You should continue keeping a close eye on your business to make sure everything runs smoothly. In particular, continue checking for any major updates on the local short-term rental regulations. Even if your market is Airbnb friendly at the moment, this can change at any minute. One of the last things you want as an investor is to operate illegally.
If a few years down the road your market becomes illegal for vacation home rentals, you need to remain flexible. Switching to a traditional rental strategy should always be an option. Thus, when choosing your market and buying an investment property, it is best to select a location and a property which can make for a profitable long-term rental as well.
If you’ve been tempted by the recent success of Airbnb rentals, now is the best time to give this real estate investment strategy a try. The demand from travelers is only expected to increase in 2019 and beyond. As both property prices and mortgage rates are set to rise this year, you should find a property and close the deal soon. The 6 steps above will help you join the community of successful Airbnb rental investors in the US housing market.
Thanks so much to Daniela Andreevska of Mashvisor for this comprehensive article.
To Find out More
To start looking for lucrative Airbnb rental properties (or traditional ones) in any US market today, get a special 25% discount from your first subscription to any Mashvisor plan with promo code SVORNHOLT25 or just click here.
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Daniela Andreevska is Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors quickly find traditional and Airbnb investment properties. A research process that usually takes 3 months can now take 15 minutes. We provide all the real estate information in easy to understand visualizations.