Property Investing in the Era of AirBnB

November 1, 2019

Property Investing and AirBnB

In late 2008, a little company you may have heard about was introduced: Airbnb. Over the decade to follow, this on-demand hospitality platform has made a quick and steady climb into the international powerhouse that it is today. It is frequently lauded by solo backpackers, families, and business professionals alike, helping link travelers with unique, secure, and enjoyable lodging both local and across the world.

While not everyone appreciates the impact of Airbnb -- hotels, motels, and inns everywhere have felt the effects of its trending popularity, for instance -- there is one group that the home-sharing platform has really helped: property investors. Not only has Airbnb expanded the opportunities for profitable rental property options, but investors everywhere have often been able to enjoy even greater returns on existing properties by utilizing the platform.

Let’s take a look at how Airbnb has changed the property investing landscape in the last 11 years, and whether it’s still a good idea to jump into the home-sharing investment market.

Why Airbnb is Different Than Traditional Property Investing

In the past, the only way to make reliable money off of a residential investment property was to A) own a single- or multi-family home and B) find good, long-term tenants that you could trust. Yes, it is a tall order, but for many investors it can be very lucrative.

However, renting to long-term tenants can also be very tricky. There is the process of actually finding tenants, during which you risk the property being unoccupied for a period of time (losing money daily). Paying a realtor or property management company to do so can help speed the process, but will also cost you a pretty penny.

Additionally, owners are responsible for maintaining the home. Tenants are notorious for being rough on rental properties, which means that walls will need to be painted, carpets replaced, and window screens repaired regularly… among many other potential expenses. If you own a multi-family property, those potential expenses can add up very quickly.

Lastly, you may also encounter one of the most frustrating situations of all: the tenant who skips out. Whether their job moves them out of state, they lose their source of income and can’t afford rent, or simply choose to leave town, there is always the chance that your tenant bails on you without notice, leaving you scrambling to find a replacement income source.

How Airbnb is Different

Of course, choosing to rent out a property through Airbnb isn’t without risk. And Airbnb does bring with it some unique challenges and expenses. However, many of the most common frustrations as a property owner are alleviated by choosing to host on the home-sharing platform, versus renting your property out to a single tenant or family.

If your property is in an exciting or central location -- such as near downtown, close by a stadium or large attraction, or offers in-demand amenities -- you have the opportunity to catch the eye of short- and long-term travelers. Plus, finding someone who wants to stay at your property for a few days is typically much easier than finding a tenant to sign a years-long lease. 

Airbnb also offers investors a way to market their properties to an audience that might not have otherwise had their attention. Properties found through the platform (which now includes a mobile app) are being rented by an average of 2 million people per night around the world, and Airbnb offers these travelers an easy way to find exactly what they need (ideally, your property) within the area in which they need it.

Lastly, Airbnb facilitates the everyday nitty gritty of the property rental process. The platform vets renters, accepts payments on your behalf, allows for an availability calendar, and even gives you and your renter(s) a way to rate the experience from both sides. You can communicate with renters through Airbnb, too, as well as notify them of additional charges that you require -- such as a cleaning fee, pet fee, and the like.

If your renter leaves your property trashed or even damaged, you have recourse through Airbnb. Their host guarantee offers up to $1 million in property damage protection and compensation for property owners.

The Pros and Cons of Owning a Home-Shared Property

Thinking that Airbnb might be the right choice for you in your next property investment venture? Here’s what you need to know about going the home-sharing route.

The Pros of Choosing to Airbnb Your Property

As mentioned above, there are many reasons why home-sharing makes sense, from an investment perspective.

You don’t need a separate property. For many Airbnb hosts, it makes sense to purchase and list a property exclusively as a home-share. However, you can actually make money with your existing property, too! Many Airbnb hosts choose to rent out rooms, basements, and guest houses in their primary residence.

This gives you an opportunity to recoup some of your monthly housing expenses while also meeting new people. Whether you want to rent out your entire home (such as when you’re away on vacation anyway) or a single bed, Airbnb offers you the platform to do so.

You are protected from damage. In the off chance that someone causes damage to your home or your property, you are protected by up to $1 million in damage coverage for hosts. To be compensated, you will need to provide pictures and other forms of proof for the damage, but the protection is automatically there.

It’s easier to find renters for short-term stays. While this isn’t always the case (and depends on your home, location, etc.), it’s typically much easier to find a guest for a few days than it is to find a committed tenant for a year or two. Plus, Airbnb’s platform makes it easy to get visibility for your property, versus seeking out renters on your own.

Guests can be responsible for cleaning fees. Renting your property means frequent traffic and, therefore, frequent necessary cleaning. Luckily, cleaning fees are an expected part of the Airbnb experience. Guests are used to being charged for this, and you can use the funds to ensure that your property is always tidy.

You can rent to multiple guests at a time, maximizing your revenue. If you want to make even more money, you can split your property into multiple rentals. Divide a house by floors, rent the main house separate from a guest house or basement, etc. and multiply your potential income streams.

Cons of Airbnb Versus Traditional Renting

Opting for a home-shared investment property is pretty beneficial… but that doesn’t mean it’s without downsides.

Airbnb isn’t passive. If you’re looking for a mostly hands-off investment experience, Airbnb might not be for you. With traditional rental property, you are needed when finding tenants, getting them settled in, and managing issues that arise. With the turnover in an Airbnb property, though, you will need to facilitate guests’ arrivals and departures regularly, plus deal with any issues.

Many cities have strict regulations. Before shopping around for an Airbnb investment property, be sure to check your area’s laws and regulations. Many states have allowed for home-sharing crackdowns, which can limit your opportunities for tenants or result in higher taxes and fees.

More guests means more risk. It’s just statistics: the more people you welcome into your property, the greater the chance for trouble. Vetting a family for a one- or two-year lease is one thing; lucking out and getting 35 great guests each year is another.

The host coverage offered by Airbnb is great, but it’s not a total safety net. You’ll need to also purchase private insurance coverage. And crossing your fingers each time you hand over the keys doesn’t hurt, either.

Your Investment Property: Should You Go Traditional or Airbnb?

Purchasing an investment property is a great way to create a passive (or at least, mostly passive) income stream. It also allows you to build up a notable nest egg while someone else pays down your mortgage loan.

When considering an investment property, there are many different types to choose from; if you’re going the residential route, you can also choose between a traditional rental and home-sharing through a platform like Airbnb.

Airbnb has had an incredible impact on property investing since its introduction a decade ago. The platform not only gives investors another way to monetize their existing and future properties, but also expands the ease with which they are able to find renters and turn a profit.

Of course, home-shared properties aren’t for everyone, and they aren’t even for every property. It’s important to take an honest look at your preferred style of property management, as well as analyze whether your home would be a good fit for a platform like Airbnb. While Airbnb has made it easier than ever to market and monetize your property, you may find that traditional property investing is actually the better choice for you.