The Airbnb craze is sweeping the planet, with more than 4 million property owners using the site to rent out everything from tent sites to medieval castles. We’ve all heard the success stories of folks who’ve turned this leader of the “sharing economy” into a full-time income. But is investing in an Airbnb rental a good solution for you?
I remember when I first heard about Airbnb. I thought it sounded crazy — why would I want to rent a bed in a stranger’s private home? And on the flip side, why would I want to become a host and let someone I don’t know brush their teeth in my sink?
However, since then, I’ve been won over by the website. I have used Airbnb for short stays both here in the U.S. and overseas, in Ireland and the U.K. One of my favorite stays was in an old one-car garage that had been converted into an adorable little suite with a sleeping loft. The price was $250 a night, and the host has no problem renting it out every weekend. I have to admit that turning an unused space into a relatively hassle-free $2,000 per month sure sounds appealing.
I’m always on the lookout for smart and safe ways for our readers to invest. So I took a closer look into Airbnb to help you decide whether or not you should explore it as a side or even main income source.
More Than Just Airbeds Now
First off, a little bit about the company. Airbnb is relatively young — it was established in 2008. Brian Chesky and Joe Gebbia were two roommates with a loft apartment in San Francisco, one of the most expensive cities in the U.S. In fact, they quickly discovered that they couldn’t afford their rent. So they inflated an air mattress in their living room (hence the company’s name) and set up a website to rent it out to travelers as an alternative to pricey hotel rooms.
I don’t think Chesky and Gebbia would have much problem renting an apartment even in San Francisco today. Their company has been valued at $31 billion and is likely to see an IPO in the coming years.
There are currently more than 4 million Airbnb listings around the world. And Airbnb has bought several smaller companies — from European villa rentals to payment processing technology firms — to strengthen its holdings and systems.
But not everyone is a fan of Airbnb. The hotel industry has been trying to curb Airbnb’s success for years. The American Hotel and Lodging Association has been lobbying both federal and state governments to impose new regulations on the company. And in 2016, The New York Times wrote that a Federal Trade Commission investigation into Airbnb’s impact on housing costs was part of the association’s plan to bring down the upstart website.
Rent Your Property for a Lot More Per Night
It’s true that Airbnb has had a negative impact on local housing costs. That’s because property owners are using Airbnb to rent out entire homes (rather than just an airbed) for short lengths of time at per-night prices that are far higher than what a house would rent for on a monthly basis.
For example, say that someone rents out an entire house for $500 per night. On a monthly basis, that would equal around $15,000. However, on the long-term housing market, the same house might fetch only around $1,500 per month. Most people would eagerly take $15,000 over $1,500.
So investing in an Airbnb property is a no-brainer, right?
Well… it depends.
What to Consider Before Becoming a Host
Certainly, if you own a property in a high-demand area (such as the beach or a popular tourist destination), owning a property dedicated to Airbnb or another short-term rental system could make good sense. However, the price you charge per night must be commensurate with the money, time and labor you put into the rental.
Unfortunately, if you want to buy a property in a tourist hotspot, be prepared to spend a hefty sum. It’s possible that what you make on Airbnb might not even cover your monthly mortgage payment. In addition, unless you hire a management company to help, you’ll need to spend time and money maintaining the property and cleaning up after your Airbnb guests. That’s not to mention the possibility that the furnishings and decor you put into the property to make it attractive and desirable could be broken or trashed by your guests. Although you can charge a cleaning fee and Airbnb will insure you against property damage, those are hassles you might not want to deal with.
In addition, before becoming an Airbnb host, it’s crucial that you find out which local rules might apply to you. Because affordable housing is hard to find, many local governments have established regulations in an effort to encourage more long-term affordable rentals rather than short-term pricey ones.
These regulations might include required licenses as well as extra fees and taxes. And in Charleston, South Carolina, for example, renting out a vacation home is illegal unless the owner-operator lives on the property full time.
Long-Term Rentals Might Be a Better Investment
Renting out a property via Airbnb might not make sense if there’s little demand for short-term rentals in your neighborhood. In fact, if you live in a residential area rather than a touristy one, using the property as a long-term housing rental will be a far better choice. The demand for affordable long-term housing is at a new high. Although you won’t be able to list your property for $500 per night, you also won’t be worrying about the whims of the market.
In general, if you live in an area where there’s a bustling tourist trade, using a property for Airbnb can make you a fun and nice side income. Likewise, if you want to rent just a room or two in a house you live in or, say, your converted garage, and have always found the idea of running a B&B appealing, it may be a good solution for you. But if you’re looking to buy a property for a long-term investment, it’s not a particularly great choice.
Here at Investor Junkie, we’ve written about other great real estate investing strategies, including using your property in a rent-to-own agreement and as Section 8 housing. (It’s safer and more lucrative than you may think.) Check out all of our ideas here.