Should You Start an Airbnb Business or Is It Too Late?
Just like any business, there are pros and cons to starting an Airbnb business.
Because of the popularity of vacation rentals, the industry is much more competitive than it was five years ago. This means that while hosting an Airbnb can be lucrative, there is a lot of work required from you. It’s important to understand and weigh the risks and challenges before deciding in entering the Airbnb business market.
Airbnb can certainly be a money-maker, but there are also plenty of horror stories and myths about vacation rentals. Before deciding whether or not to start your own Airbnb, keep reading to learn nine important considerations when entering the Airbnb rental market.
1. Airbnb Can Be More Lucrative Than Traditional Renting
Unlike traditional rentals, Airbnb rental is often more profitable as you’re able to charge more on a nightly basis. For instance, if you look at an average apartment in Seattle, rent is $2,190 a month, and the total gross income for a year would be $26,280.
But if the same apartment was rented out on Airbnb, the average daily rate in Seattle is about $160 per night with an occupancy rate of 77%. So if you calculate $160 per night for a total of 270 nights per year, you’d have a gross revenue of $43,200. This means you’d make $16,920 more than you would through traditional renting.
In short, you can double your income with a fully rented Airbnb. In some cases, Airbnb hosts can work full-time if the income is good enough.
2. Hosting Takes Work
In comparison to traditional renting, Airbnb takes more work and effort. With that in mind, hosting is not only a job in keeping your property maintained and in attractive condition at all times, but it also takes a lot of time and energy especially if you own more than one or two properties.
Airbnb is in the hospitality business, which requires you, as a host, to be available to respond to guests at any time — and if a guest is staying at your property, you need 24/7 availability. To be an effective host, you need to also be skilled in customer service, communications, property management, and more.
Additionally, when cleaning your Airbnb property between guests on your own, especially when you have more than one or two properties, it’s a lot of work. If you choose to use a cleaning service, be aware that this adds to your monthly costs. Not to mention, the right cleaner is hard to find.
Lastly, Airbnb is a competitive business, and the basic amenities may not cut it. If you want a lot of bookings, be prepared to spend extra money to ensure the property looks attractive to guests and also stands out from the competition.
3. Expenses May Be Higher
Managing your property could be minimal if it’s long-term and rented out to a single tenant. However, with Airbnb, not only do you need to perform property maintenance and handle the occasional emergency but you are also required to pay bills regularly, keep the place clean, and manage the property.
There are also many expenses to keep in mind, including:
- High-quality furniture, décor, appliances, and amenities: To stand out and impress potential Airbnb guests, you’ll be required to invest money in ensuring the property looks and feels classy and provides a unique experience. Depending on your target niche, guests may prefer staying in a high-end unit.
- Cable TV, Wi-Fi, and more: Airbnb guests ideally expect these amenities in place during their stay, so you’ll have to budget for the costs of the services and maintenance.
- Welcome basket, welcome book, and snacks: Providing amenities like snacks, welcome books, and welcome baskets can go a long way in keeping guests feeling welcome and happy — resulting in great reviews.
Other than that, with starting an Airbnb and standing out from the competition, you’ll need a great description, professional photography, and an attention-grabbing title in your listings.
To save time and work, you can purchase a vacation rental software like Hostaway. These tools will handle all of these tasks by automating and streamlining every aspect of your Airbnb business, but keep in mind that they’re an added cost.
4. You’ll Have a Diversified Portfolio of Tenants
With traditional renting, you are solely dependent on a single tenant paying, which can be perfect if you do your diligence and things work out. However, you also need to weigh the risks.
What happens if the tenant loses their job? Or decides to stop paying? Your income takes a toll, and evicting tenants could take months.
If you go with the Airbnb route, you are collecting income from various tenants regularly, which is a small part of your monthly cash flow. Therefore, even if one or two guests cancel last minute, the minimal effect on your income is low in comparison to traditional renting.
On that note, also be aware income depends on the location of your Airbnb property. There are many jurisdictions that place strict restrictions on Airbnb, making it almost impossible to rent out property other than your own residence. Restrictions are placed to ensure there is enough housing supply for residents.
Furthermore, many homeowner associations (HOA) have restrictions on using homes for short-term rentals. This means it is important to first check with your HOA and see if your rental is legal.
5. Beware of Fake Gurus
Although Airbnb offers an incredible rental learning opportunity, there are a lot of scammers out there. If an “Airbnb guru” makes you pay for information that you can learn for free online, it’s likely best to stay away.
Instead, BiggerPockets, Airbnb Automated, and Richard Fertig are just a few examples of companies and individuals that give out free information about the rental industry.
Another way to grow your vacation rental expertise is to use Facebook groups or communities in your area. That way, you can ask the group members for public opinion and take those responses with positive criticism.
6. Arbitrage vs Ownership
So, you own or are planning to own a property and are trying to decide what to do with it. If you can handle the hospitality aspect, Airbnb will make more money in comparison to a long-term rental.
With long-term rental income, you’ll probably collect 50% to 100% of your mortgage on top of your expenses. However, with the Airbnb approach, you may collect 4 to 6 times your mortgage, which is not normal in a long-term market.
That said, you could make more money in the arbitrage market than by owning a property — and you’d make a profit sooner. If you aren’t good at being dedicated to maximizing revenue and maximizing profit, however, buying a property would be an easier way to still be profitable.
Since Airbnb is a competitive market, it is possible not to make money. Therefore, owning a property is a way to get into the rental market, but it’s also cost restrictive. With that in mind, maybe you opt for rental arbitrage for part of the year to see if it’s right for you.
7. Risk of Being a Landlord
In general, there is a risk involved in being a landlord. This is especially true if you give someone a lease for a year and they decide not to move or to quit paying. Then, you’ll have to evict them, which can be frustrating.
Further, in a situation where the tenant leaves but destroys the property, you may not be able to quickly fill the vacancy with a new tenant and recover your missing income.
Once a tenant damages your property, you’ll have the trouble of renovating. If you do not have experience as a landlord and know how to protect yourself against tenant damages, the possibility of losing money is high and, again, the eviction process is no fun.
8. Unsteady Income
If you own a property and rent it to a single responsible tenant long-term, each month you’ll receive rent that can provide you a regular source of income. However, as much as Airbnb can be lucrative, there are times of the year, especially in the off-season, when there’s no guarantee of a steady income stream.
Moreover, Airbnb rentals may be far more inconsistent. In theory, you can rent out a property 365 days a year, but you’re likely to have many vacant dates on your calendar. As an Airbnb host, your occupancy rate depends on several factors, including the weather, time of year, and location.
Therefore, be sure to get comfortable with earning less money part of the year when starting an Airbnb business.
9. Success May Be Gradual
When starting an Airbnb business, it is very unlikely to get booked nearly every night. Keep in mind that bookings come largely from your past guest reviews and ratings. The higher rating and more positive guest reviews you have, the more likely it is for your Airbnb to attract potential guests.
With that said, at the start of your Airbnb business, you may need to offer potential guests incentives or lower prices to get them to stay and experience your Airbnb — and leave raving reviews.
Get More Helpful Advice on Airbnb Hosting
Starting an Airbnb business is a learning process, a lot of work, and a huge decision. That said, it can be a rewarding and lucrative experience.
Surely, you’ll have to commit a lot of your time to learning this industry. But if you can survive the cons and are willing to put in the effort to overcome the challenges you face, then starting an Airbnb may be right for you.
For more tips and advice on hosting a short-term rental, visit Hostaway’s informative blog.