Short-term rentals have become popular with both investors and travelers. Travelers love booking short-term rentals as they’re a cheaper option compared to hotels. On the other hand, Airbnb investors love them because they offer a huge income potential.
Whether you’re a good property manager or an excellent Airbnb host, you must understand that you can’t reach maximum profit potential without investing in profitable Airbnb investment properties first. How do you invest in lucrative short-term rentals? Let’s find out in five steps:
Step 1: Select a Top Location
Location is one of the most important pillars of any real estate investment. It influences your Airbnb occupancy rate, as well as the maximum daily rates you can set. Ideally, you should choose a location where your short-term rental can stay booked for most days of the year.
When it comes to selecting a top location for Airbnb investments, you need to choose a city that experiences high traffic of travelers or business professionals. High demand for short-term rentals will allow you to charge a high nightly rate. How do you know whether a market has a high demand for vacation rentals?
Airbnb occupancy rate data will help you establish whether your investment will enjoy high rental demand. You should look for these Airbnb stats for both the city and the neighborhood level to assure that you will be able to attract guests.
Step 2: Understand Short-Term Rental Laws and Regulations
The exponential growth the Airbnb industry has experienced in the past few years has led to some strict regulations. In certain markets, local authorities have even gone as far as banning short-term rentals outright in their jurisdictions. The last thing you want is to invest your hard-earned money only to get into trouble with the authorities.
Once you’ve selected a few potential locations, you need to research the areas’ Airbnb ordinances. You can check out the Chamber of Commerce website, local authority websites, magazines and newspapers, and other online platforms. You can also consult with your real estate attorney for more guidance.
Your main goal here is to understand what licenses you’re supposed to obtain, what taxes and fees you will need to pay, and under what conditions you should operate Airbnb properties.
Step 3: Choose a Property Type
The best thing about Airbnb properties is that you don’t have to buy a vacation rental, such as a log cabin, beachfront property, or lake house. You can invest in any other property type depending on location and the type of guests you want to host.
For example, if you want to host solo travelers or young couples, you can invest in a one-bedroom or studio apartment. If you want to host large gatherings or families, then it makes more sense to buy a single-family home with more bedrooms.
Keep in mind that the property type also affects the occupancy rate and, ultimately, your Airbnb revenue. To nail this step, you can look at what type of Airbnb properties are popular in your local market.
Step 4: Finalize Your Investment Budget
While Airbnb investment properties have high income potential, this is not guaranteed. If you fail to work on your budget well, you might end up running a loss-making venture. Nobody wants that. You want to pay your mortgage and maintenance fees comfortably while making a decent profit.
Budgeting carefully means considering all income sources and savings, as well as one-time and regular property expenses. Here’s a list of property and Airbnb expenses to guide you:
- Property inspection
- Closing costs
- Repairs and remodeling
- Property taxes
Set the maximum price you’re willing to pay for a property. Stick to it and don’t get tempted to go over it by perfect-looking properties.
Step 5: Comb the Market for Properties
Now it’s time to carry out the actual search for profitable Airbnb investment properties. The main advantage of living in the digital era is that you can find anything from the comfort of your home.
Ensure you’ve checked all possible listing platforms. Don’t only look for multiple listing service (MLS) listings. Look for off-market properties, foreclosures, and even bank-owned homes. These can offer a high Airbnb return on investment since most are sold at a bargain.
And don’t stop at that. Ask your friends, family, and any networks in the real estate industry. Also, look at local newspapers for real estate listings.
Lastly, remember to stick to your budget. Don’t buy a property you can’t afford.
Airbnb investment properties have become a lucrative investment option for investors who want to make money both in the short term and the long term. They have become popular since they offer a higher return on investment potential compared to monthly rental properties.
However, just buying a short-term rental property isn’t an assurance that you’ll generate handsome returns. You need to follow the five steps above to ensure you buy the right property.
This article was written by Mashvisor.
Mashvisor is an industry-leading source of residential real estate data and analytics in the US market. We help investors find profitable Airbnb and traditional rental properties quickly and confidently. We’ve turned 3 months of real estate research and analysis into 15 minutes.