Have you ever wondered what it would be like to have your own Airbnb investment property? Here is a guide to help you take the first steps.
Short-term rentals led by Airbnb have changed the hospitality industry. Since the platform became popular, travelers have preferred staying in Airbnbs instead of hotels because of their lower cost, convenient locations, and household amenities. Some Airbnb guests enjoy feeling like they are home even when they are away from home.
If you have stayed in an Airbnb rental before, you might want to know what it is like to be an Airbnb host. Aside from a fun gig, is it also profitable? Will it help you gain another source of income without the need to take additional classes or acquire new skills? The answer to both questions is yes.
In this article, we will take a closer look at what it would be like to have an Airbnb investment property:
- How it works
- Pros and cons of having an Airbnb investment property
- Trends and forecasts for Airbnb investment in 2022
- How to find the perfect Airbnb investment property
- The five best cities for Airbnb investment 2022
If you want to know whether an Airbnb investment is right for you and how you can find the right property, keep reading to learn more.
How Does an Airbnb Investment Property Work?
While investing in real estate is generally a great option for those who are looking for a passive income source, it does not apply to every investment strategy. A great example of this would be Airbnb investment. To better understand how it works, let’s compare it to traditional rental investment.
An Airbnb investment is when you rent out either a part of or an entire property on the Airbnb platform. These rentals are usually short-term, with a minimum one-night stay, though it is also possible to put up your property as a monthly rental. Meanwhile, traditional rental investments are long-term rentals, in which the tenant stays for at least six months.
Number of Guests and Pricing
Because of the short duration when renting an Airbnb, you will be hosting many guests in one year, compared to a traditional rental where the landlord has one or two sets of tenants. This gives you an opportunity to be more flexible with your pricing. While landlords have to follow the monthly rent indicated in the lease agreement, you can use different pricing strategies and adjust your rates as often as every day to match the demand.
But since your guests are only staying for a short while, they expect you to keep the property in tip-top condition. This means fully furnishing the unit with tasteful decor, supplying items such as snacks and beverages, and cleaning the place after guests leave. Meanwhile, landlords do not have to fully furnish their traditional rental property. Instead, they could rent it out as a bare unit or with basic appliances.
Depending on where you buy Airbnb property, there may be certain seasons when you get a lot of bookings and other months when it is quiet. For example, short-term rentals near the beach may get fully booked in the summer but struggle to book half of the calendar month during winter. Because of the long-term duration of the traditional rental, on the other hand, landlords have more income security.
Pros and Cons of Having an Airbnb Investment Property
The market for short-term rentals like Airbnb has become more competitive now. So before you start searching for an Airbnb property to invest in, you must first know about the risks that go with the benefits and decide if you can handle them.
Pros of Investing in an Airbnb Property
#1: Potentially Higher Profits
In the best Airbnb markets, the nightly rate of an Airbnb can lead to more profits than you would get with traditional renting. For example, in Kirtland, OH, where the Airbnb cash on cash return has been 10%, the average traditional rent is $1,380. This means you could make around $16,560 if your tenant signs a 12-month lease.
But short-term rentals usually charge more per night: according to Mashvisor’s analytics, the average daily rate for an Airbnb in Kirtland is $143, with units typically occupied for 70% of the year. This means you could make over $36,000 per year off of your Kirtland Airbnb–more than two times the annual income of traditional renting in the area.
#2: Pricing Flexibility
Airbnb hosts have the opportunity to adjust their pricing as often as every day. You may lower your rate for longer stays or midweek bookings or charge more during peak seasons, weekends, or when there is a popular event in the area. This lets you try out different pricing strategies and find which one can maximize your income potential.
#3: No Lease Agreement
Unless you are subleasing your place on Airbnb, you do not need to ask your guest to sign a lease agreement. Airbnb’s terms and conditions as well as your house rules are often enough to protect you and your property. If a guest breaks your house rules or damage your property, you can reach out to Airbnb for support and mediation instead of suing your guests, which tends to drag for too long.
For added protection, consider drawing a vacation rental agreement for you and your guests. Although this might turn off some of them from booking your property, the ones who do end up signing are often great guests.
Cons of Investing in an Airbnb Property
#1: Higher Upfront Costs Due to Furnishing and Decor
Guests expect the Airbnbs they book to have a combination of coziness that they get from their own homes and the cleanliness, comfort, and quality assurance they can get at a hotel.
Because of this, you need to fully furnish your property with fine appliances and tasteful decor, and stock it with items that your guests would appreciate such as coffee, tea, and snacks. And unless you are skilled in decorating, you might want to hire an interior designer to handle this project to make sure that they can capture the vibe that attracts guests.
You should also consider getting a professional photographer to take photos of the property so you can show it off on your listing. Photos are what catches guests’ attention when looking for a rental and can help them decide whether to book your place.
#2: Potentially Higher Operating Costs
Despite the higher potential for profit, having an Airbnb investment requires unique expenses, including:
- Restocking items like snacks and beverages
- Cleaning and maintenance
- Amenities like subscriptions to streaming services
- Insurance that tends to be more expensive
You will also have to pay your property manager (if you hire one), cleaning crew, and other people who are helping you maintain the place.
#3: Success May Be Gradual
Even if you are able to buy an Airbnb property in a tourist hotspot, bookings for your property will not happen overnight. First, you have to get a few five-star reviews to establish a good reputation. The more positive reviews you receive, the more bookings you will get. But since you are starting out with zero reviews, you might have to lower your prices than your more established competitors to attract guests.
Once you get five-star reviews and have an occupancy rate of 90% or higher in one month, you may start increasing your daily rate to match the demand.
Airbnb Investment Trends and Forecast for 2022
Before buying an Airbnb investment property, you must first look at the market and any external factors that may be impacting it.
For the third year in a row, the number one factor affecting Airbnbs is the COVID-19 pandemic. After struggling in 2020 due to lockdowns that prevented people from traveling, Airbnb rentals in certain markets have started recovering the following year. Airbnbs in rural and less-crowded areas, for example, saw a surge in bookings as travelers who were tired of staying home have started seeking out safe travel destinations.
Another trend we witnessed in 2021 was the increase in long-term stays on Airbnb in urban areas. According to Airbnb’s travel report, 62% of summer nights booked in New York were for long-term stays. Seattle and Los Angeles Airbnbs also had long-term bookings filling 40% and 43% of their calendars, respectively, throughout the summer. This is likely because of more people working remotely. Instead of working from home, they chose to do it elsewhere.
Unfortunately, in 2022, COVID-19 remains a fixture as the Omicron variant continues to impact travel plans. But despite record COVID cases in the US and massive flight cancellations over the holidays, Americans’ overall travel sentiment has improved from previous months. According to Destination Analysts, more people are open to traveling for conferences or conventions. Residents are also warming up to having tourists in their communities.
With these trends and sentiments, it looks like the best places to own an Airbnb in 2022 are found in rural areas, where families and big groups who want to travel safely prefer to visit. However, Airbnb rentals in the cities can keep their occupancy rates high by accepting long-term bookings to accommodate remote workers.
How to Find the Perfect Airbnb Investment Property
Now you know the pros and cons of investing in an Airbnb property as well as the trends and forecasts for the industry. If you have decided to proceed, here is a step-by-step guide to help you find a rental home with high-profit potential.
Step 1: Finalize Your Budget
As previously mentioned, an Airbnb investment property can be more lucrative than a traditional rental home. However, it requires a higher upfront cost. When deciding on your budget, do not just think of the highest property price you are willing to pay. You must also take into account your one-time setup costs like:
- Inspection fee
- Closing costs
- Repair and remodeling
- Other expenses to get your income property ready for listing
If you want to check how the upfront costs will affect your overall returns, you can use a tool like Mashvisor’s Airbnb rental calculator. This feature estimates your expenses and takes them into account when calculating your cash flow over the next 10 years.
To get access to our calculator and other real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.
Step 2: Identify Up to Five Cities for Your Search
You do not have to limit your search to your immediate proximity when finding an Airbnb rental. Even though having your investment property near where you live would be more convenient, there is a chance that your area may not be optimal for short-term rentals. If this is the case, real estate investors would look for other cities within and beyond their state.
As you filter your search down to a few cities, the most important thing to consider aside from profit potential is the legality. Each county, city, or even neighborhood may have different requirements for short-term rentals. Some of them are very strict: for example, you can only rent out your primary residence, or you can only accept bookings for a certain number of days in a year.
If you are a beginner investor and are just testing the waters, investing in an area with such strict regulations can be a good start. But if you want to earn a steady income while maintaining the privacy of your home, then you are better off looking in localities that allow non-owner-occupied short-term rentals.
Not sure where to start looking? Tools like Mashvisor’s Property Search can help you. Use the heatmap to highlight the areas that meet your criteria: cash on cash return, rental income, or occupancy rate.
Step 3: Decide on What Type of Airbnb Investment Property to Buy
What is great about Airbnb becoming popular is that it turns out you do not need to have a vacation home like a cabin, lakehouse, or beachfront property in order to get bookings. The best markets for Airbnb are not just tourist hotspots. Here are some types of Airbnb guests we found by looking at the top listings in the US:
- Business travelers
- Destination wedding guests
- Families visiting someone in a military complex
- Long-distance movers looking for a place to stay the night
- Remote workers who want a temporary home
While this opens up a lot of possibilities, it is better to minimize your risk by looking at the data to find what types of properties are popular among Airbnb guests in your chosen city. Mashvisor’s neighborhood analytics show which property types (studio, one-bedroom, two-bedroom, etc.) in the area get the most bookings. We use data straight from the Airbnb platform to give you accurate and up-to-date analysis.
Step 4: Search for and Analyze Properties
Now you know which cities to search and what type of property to buy. But how would you know which house or apartment is profitable? If you think that just because Airbnbs in a city have high returns means every property in that area would generate a lot of rental income, you would be wrong. Different factors can affect an individual home’s profitability.
Using Mashvisor to Analyze Airbnb Properties
So as you search for the perfect house to turn into an Airbnb rental, you would be more efficient if you use an online tool that allows you to analyze every listing. Mashvisor’s Property Finder tool displays properties for sale in up to five cities and sorts them by profitability. You can also filter your search by setting your budget and number of bedrooms and bathrooms and selecting your rental strategy and property type.
Clicking on a house that interests you will direct you to its listing page, which contains everything you need to know:
- Property description
- Selling price
- Investment property analysis
Under property valuation analysis, we estimate the rental income, expenses, cash flow, and returns if you buy this house and turn it into a traditional rental or Airbnb rental. This way, you can tell which rental strategy is optimal for the property.
Scroll down the listing page and you will see our Airbnb rental calculator. Here, you can play with the numbers to see how a higher or lower rental income, expenses, or occupancy rate can affect your returns in the next 10 years. If you plan to pay with a mortgage, our mortgage calculator will factor your loan into the rental calculations. The results are then summarized at the bottom of the page, which has the 10-year investment payback balance.
In this section, you can see your accumulated earnings (or losses) each year. This complete analysis will help you decide on whether the property you are looking at is worth investing in.
5 Best Cities for Airbnb Investment 2022
As COVID-19 continues to disrupt many travel and accommodation trends, the top markets for Airbnb are not the same as before. Using Mashvisor’s analytics, we found what the best cities are for Airbnb investment this year based on their performance in 2021:
#1: Kirtland, OH
- Median Property Price: $508,422
- Average Price per Square Foot: $178
- Days on Market: 63
- Airbnb Rental Income: $5,113
- Airbnb Cash on Cash Return: 10.00%
- Airbnb Daily Rate: $143
- Airbnb Occupancy Rate: 70%
- Walk Score: 14
#2: Westville, NJ
- Median Property Price: $168,633
- Average Price per Square Foot: $151
- Days on Market: 84
- Airbnb Rental Income: $1,992
- Airbnb Cash on Cash Return: 9.98%
- Airbnb Daily Rate: $76
- Airbnb Occupancy Rate: 83%
- Walk Score: 45
#3: Pulaski, VA
- Median Property Price: $144,613
- Average Price per Square Foot: $126
- Days on Market: 51
- Airbnb Rental Income: $3,483
- Airbnb Cash on Cash Return: 9.88%
- Airbnb Daily Rate: $241
- Airbnb Occupancy Rate: 58%
- Walk Score: 63
#4: Spring Grove, IL
- Median Property Price: $253,617
- Average Price per Square Foot: $150
- Days on Market: 29
- Airbnb Rental Income: $7,171
- Airbnb Cash on Cash Return: 9.80%
- Airbnb Daily Rate: $328
- Airbnb Occupancy Rate: 66%
- Walk Score: 21
#5: Osceola, WI
- Median Property Price: $268,695
- Average Price per Square Foot: $218
- Days on Market: 155
- Airbnb Rental Income: $3,670
- Airbnb Cash on Cash Return: 9.24%
- Airbnb Daily Rate: $254
- Airbnb Occupancy Rate: 55%
- Walk Score: 56
Disclaimer: At the time of writing this article, the cities mentioned above allow non-owner-occupied short-term rentals. However, we encourage you to double-check with the appropriate local government to make sure that you are following their regulations.
If you are looking for a lucrative investment, an Airbnb investment property is a great option. But first, you need to understand how it works, how it will benefit you, and what the potential risks are.
Unlike a traditional rental, an Airbnb rental requires shorter stays of at least one night, though monthly Airbnb rentals are increasing in popularity these days. Because you will be hosting multiple groups of guests, you have the flexibility to adjust your pricing as often as every day. This will help you take advantage of the high demand or ensure occupancy in the low seasons. However, if you mess up your pricing strategy, you might see low occupancy rates.
Since Airbnbs operate like hotels but are homier, you have to furnish and decorate your property appropriately. Stocking the place with basic amenities would guarantee you five-star reviews as well. While this responsibility means you have to deal with a lot of expenses, doing it right would mean earning three times the income than you would with a traditional rental.
Despite COVID-19 continuing to impact the travel industry, Airbnb hosts are still bound to make money this year. If you want to get a hold of this opportunity, you need to learn how to find a property with high profitability. You can choose to buy a house in a rural area to cater to families looking for a safe getaway, or you could invest in a growing city that remote workers would want to live in for a month.
Whichever you choose, make sure that you base your decision on accurate data. Learn more about how Mashvisor can help you find profitable investment properties by scheduling a demo.