Strong Rental Demand
The home sharing industry has grown exponentially in recent years after the establishment of Airbnb.com in 2008. Vacation rentals offer a cheap and accommodating alternative to hotels which attracts many guests. Indeed, there is strong demand for short-term rentals in both major cities and smaller towns and villages from tourists as well as business travelers. This is a fact which real estate investors should consider when choosing the optimal rental strategy.
As discussed above, once you have a long-term tenant in your traditional rental, it is difficult to increase the rent without losing them. However, this is not the case with short-term rentals. You can set a different rental rate for your Airbnb property for each day of the week to accommodate for weekdays and weekends as well for holidays and other seasonal variations. Lowering the price during the off season will allow you to still attract some guests and avoid 100% vacancy. During the peak season, on the other hand, you can increase the rate without losing visitors. Thus, you to develop an elaborate pricing system suitable for your particular location.
More Rental Income and Higher Return on Investment
Data from Mashvisor shows that in most US real estate markets Airbnb rentals yield higher rental income than traditional rentals. From an investor’s point of view, higher income translates into more positive cash flow and subsequently higher return on investment. This is a leading argument in favor of investing in vacation rentals over traditional ones as the ultimate goal of property investors is to make money.
Contrary to what most people imagine when they think about short-term rentals, owning and renting out an Airbnb property can be a form of passive investment. Just as the home sharing industry has been growing, so have property management companies specializing in vacation rentals. All you have to do is to buy an investment property, hire a professional property management company, and receive your income at the end of the month. Meanwhile, the property managers will take care of marketing your rental, finding guests, dealing with them, collecting the payments, cleaning the property and restocking it between visits, and maintaining it when necessary. As a professional company is capable of managing your vacation rental better than you, your return on investment will increase even though you have to pay them a monthly fee.
The main challenge associated with investing in an Airbnb rental is that these investment properties are becoming illegal or at least very strictly regulated and restricted in many hot markets. As a result of pressure from the hotel industry and complaints from residents, more and more local authorities have started imposing restrictive regulations on short-term rentals in the area. Even if you buy an Airbnb property in a location where it is legal today, there is no guarantee that this will still be the case in a few months. The best solution to this problem is to invest in a place which is good for both traditional and short-term rentals in case you need to switch your rental strategy in a year or two.
The Effect of Seasonality
Unlike long-term rentals, vacation homes are highly affected by seasonality. If you own a beachfront rental, you can’t expect many guests if any at all in the winter months. Similarly, if you invest in a ski resort location, you will get fewer visitors in the summer. Having your property vacant for some part of the year can negatively affect your rental income as well as your return. Of course, a possible way to overcome this obstacle is to choose a location which attracts tourists and business travelers year-round.
Another downside of vacation rentals is that they experience a significantly higher turnover rate than traditional rentals. You may have guests who come for just one night, so you have to welcome them and collect the key from them, clean after them, and restock on daily basis. This requires a lot of effort and can be costly. You can deal with this issue by hiring a vacation rental management company, as mentioned above.
Investing in both traditional rentals and Airbnb properties has advantages and disadvantages. Both options can be very profitable, low-risk investment strategies. Thus, before deciding which rental strategy to go for, you should consider your particular situation and most importantly the location where you plan to invest. After assuring that Airbnb rentals are legal in your area, conduct investment property analyses to figure out which rental strategy will bring you a higher return on investment.
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