How to Invest in Airbnb Rental Properties

Last updated 03/20/2024 by

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Summary:

If you’re in the market for an investment property, you might want to consider an Airbnb rental over more traditional rental properties. While there might be a bit more work and upfront expenses involved in being an Airbnb host, you could potentially make more in rental income with short-term rentals than you would with longer-term rental properties.

If you have some extra money to invest, real estate is rarely a bad idea. After all, real estate investments are relatively safe compared to something more volatile like futures, options, or cryptocurrencies. If you’re new at the game, you might want to talk to some experienced real estate investors about the current Airbnb rental market before taking the plunge.

There is no denying that Airbnb has done a lot to change the travel industry. It’s not just about vacation rentals and saving money on hotel costs. Guests get to stay at more spacious and unique locations than what most hotels can offer. So how do you go about investing in Airbnb property? How does an Airbnb rental property even work? Read on to find out the ins and outs, as well as the advantages and disadvantages, of being an Airbnb host.

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How does an Airbnb rental property work?

When Airbnb started out, it was mostly a service to rent out a room in someone’s primary residence. However, it quickly expanded to include pretty much any type of dwelling. You can rent out an entire house, condo, or apartment — even a converted garage, a treehouse, or a mobile home. Plus, you can do this all over the world. Almost every country has Airbnb properties, so you’re not restricted to the United States.

Aside from having a clean, pleasant, and unique place for people to visit, there are some basic essentials for being an Airbnb host. As encouraged by Airbnb itself, these essentials include:

Being responsive. Try to respond to guest requests and questions within 24 hours. This is just good business and keeps your response rate high.
Accepting trip requests. If your space is available, accept your guest’s booking as often as you possibly can.
Avoid canceling. Cancelations are a huge inconvenience for any guest, but especially for those who may be traveling from far away to enjoy your Airbnb rental property.
Maintaining a high rating. Guests should be able to expect consistent quality and it’s up to you as the property owner to live up to those expectations.

How do I start investing in Airbnb?

The first thing you’ll want to do is talk to a real estate agent with experience in Airbnb investments near where you plan to buy. Rules and restrictions vary by region, so it’s important to find out the local requirements for your area. You may also want to ask:

Do I need any type of permit or license?
Are there any tax implications
Are there any zoning issues for this type of rental property?

Before purchasing your property, check to see whether Airbnb rentals specifically have any restrictions. Some areas only allow for owner-occupied Airbnb rentals, while others have banned Airbnb rentals entirely (often in popular tourist destinations). Be sure to check for both before you buy.

Explore your financing options

Once you’ve found the location you think you want to buy in, you can start shopping! Also at this point, if you’re planning to finance the Airbnb property, you will want to get pre-approved for a mortgage before you start looking.

Once you’re pre-approved you can really start looking. However, before you make an offer, you might want to do a little analysis of the other Airbnb properties located nearby. Your real estate agent should be able to help you out with this as well. You definitely want to purchase a place that’s going to be competitive with other properties in the general vicinity.

Pros and cons of Airbnb rental properties

There are a lot of good reasons to invest in the Airbnb market, but it’s not without its challenges as well. Like any investment property, there is some work involved, but the rewards can be well worth it.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and drawbacks to consider.

Pros

Earn passive income. Once you obtain a property and list it with Airbnb, there’s not a lot to do. Keep it clean and maintained between guests and watch the money roll in. The extra income you make on an Airbnb rental should also more than cover extra expenses and utilities.
Short-term rentals. The beauty of renting for short periods of time is you can charge more by the night while still maintaining a competitive edge over hotel accommodations. In some cases, you can rent out your unit for a fraction of the year and earn the same amount of money as you would with traditional renting to long-term tenants.
Flexibility. Since you don’t need to rent out your Airbnb 365 days a year, you have the flexibility to block out certain times for yourself or friends to use the place. Or, if it’s a part of your primary residence, there may be times when you want more privacy or only want to rent it out when you’re away (or, conversely, when you’re home).
Choose your price. You can also be flexible on the rental price and still make more than a long-term rental. Let’s say you own a duplex and rent out half of it on a yearly lease at $1,500 a month. That would bring in $18,000 for the year. If you used that same space as an Airbnb investment and charged $200 a night, that would come to $36,000 even if you only rented it out for half of the year.

Cons

Space must be furnished. Unlike a long-term investment property, you will need to furnish and decorate the place yourself, including dishes and other culinary items if the space has a kitchen.
Must clean between guests. You will also need to clean and maintain the rental property in between guests. If your rental property is far from your home, however, you may need to hire a property management company to do those things for you.
Remain competitive. Though you can be flexible with how much you charge, you have to compare what you charge to the other rentals or hotels in the area. You’ll want to research comparable Airbnb rentals in your area to remain competitive.
Added expenses. With traditional investment properties, property owners generally only pay the mortgage, while tenants take care of the rest of the bills. Airbnb hosts, on the other hand, will need to cover all the utilities as well as any expenses that relate to cleaning, maintenance, and repair of the property.

Single tenant vs. multiple tenants

There are definite advantages to having a long-term rental versus an Airbnb investment. There is security in having a single tenant who pays you a set amount every month. However, the potential for much higher Airbnb income is a powerful motivator.

Yes, there is some upkeep and hassles when dealing with multiple tenants coming in and out of your investment property. That being said, the revenue could well make it worthwhile. Who doesn’t want to make money for a little extra effort?

How to get started on the Airbnb site

Once you’ve found an Airbnb rental or decided to use a portion of your primary residence as your investment property, you’ll need to create a profile of your Airbnb investment.

First, make sure your rental is clean and ready to go. You must pay a service fee when your place is rented out, but otherwise, it’s free to list on the Airbnb website.

Photos

Take high-quality pictures of all the rooms and amenities. You want to make the dwelling look as nice as you can, but you also want to be transparent so people know exactly what they’re getting.

We’ve probably all stayed in a place before that did not live up to its hype — don’t be that person.

Written description

In addition to the photos, you will also want to write a physical description of the place. Again, try to be as transparent as possible and include as much information as you can.

Capacity. It’s obviously important for guests to know how many people your space can sleep. Is there a pull-out couch or a single bed? Are there any shared rooms? Also, be sure to clarify whether the Airbnb property is its own private unit or a part of your home.
Features. Let your guests know about any features the space comes with. For instance, is there a kitchen? Or should guests be prepared to see a mini-fridge and a microwave?
Location. It can also be useful to specifically describe the location you’re in. Is it in a high-rise condo near a thriving urban area? Or is it a secluded cabin on a lake ten miles from civilization? Maybe somewhere in the middle? Either location could be desirable for many tenants, but you’ll want to make sure you attract the right renter.
Activities. It’s also a good idea to detail the activities in the area, such as hiking, swimming, fishing, dining, or shopping options. This section can also highlight area attractions like amusement parks, concert venues, and museums.
Rules. Finally, be sure to include any rules you have for the property, such as no pets, no smoking, or similar. This may be especially important if you live in the space as well. Are there any quiet hours? Trash or recycling requirements?

Amenities

Aside from the physical description, you’ll definitely want to list any amenities the property has. Below is a list of just a few of the many possibilities you might want to include. In addition to listing everything available, you can choose which ones you want to highlight the most on your profile.

Water view and/or water access
Wi-Fi
Cable or streaming services (if you provide a TV)
Parking on premises or free street parking
Washer and dryer onsite
Indoor fireplace or outdoor fire pit
Private patio, balcony, or backyard
Security system on property
Air conditioning
Boats or other sporting equipment
Board games

Calendar

When you fill out the calendar portion of your online profile, you should first block out the dates you prefer not to have tenants. You’ll also need to set your nightly rate, plus the cleaning fee. Keep in mind that if you live in an area with a peak season, you may want to adjust your rates accordingly to optimize your chances for bookings during off-peak times

You also need to lay down any other rules, such as a minimum stay of two nights and your cancellation policy. To protect their rental income, many Airbnb hosts require guests to cancel a number of days before their arrival. If they cancel later than that, guests may get only a partial refund or none at all.

Pro Tip

To help your Airbnb investment stand out, consider offering something free with every rental. A complimentary bottle of wine, a fridge stocked with water and soda, or a box of gourmet chocolates can all add a nice personal touch and enhance your guest’s Airbnb experience.

FAQs

Is it worth investing in Airbnb?

It certainly can be if you’ve done your research and chosen an area where you are likely to see enough traffic to make your investment property worthwhile. An Airbnb income can go a long way towards meeting your investment goals and giving you the means to earn money for retirement or future investments.

How do I invest in Airbnb with little money?

If you don’t have enough money for a down payment, but still want to invest in an Airbnb property, you have a few options. Maybe you have a friend or family member who wants to split the investment with you. Splitting the costs and responsibilities between two property owners will help ease the burden of expenses as well as your time.

Or, for a less expensive investment, you don’t necessarily need to have a property exclusively used for renting. Another possibility is to assess the property you already have. Do you have a spare room, a guesthouse, or a basement with a private entrance? One of those options could get you started as an Airbnb host without a large investment.

How to invest in Airbnb stocks (ABNB)

To buy Airbnb shares (ABNB), you will need to open a brokerage or investment account. Go with a brokerage that has no trading fees and low investment minimums. If you aren’t sure where to get started, the brokerages below are a good place to get the ball rolling.

Once you open an account do a search for ABNB shares, fund your account, and buy the shares. Visit our brokerages and investment advisors’ comparison pages if you would like to do some more research.

Key Takeaways

Whether you’re an experienced real estate investor, or just getting started, purchasing an Airbnb rental property can be a great way to start you on the path to further real estate investing.
Airbnb properties can be an entire unit or a part of your primary residence.
Before you purchase a property, learn the local rules and regulations for the area you plan to have your Airbnb investment.
Real estate investing can be a lucrative strategy for expanding your portfolio of assets. Airbnb investing specifically can be even more lucrative than a long-term rental strategy.
You can also invest in Airbnb (ABNB) shares by opening a brokerage account.

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