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So, you've decided to dive into the world of Airbnb hosting and If you've ever asked yourself Should I Airbnb my home or invest in a new property?, then you are in the perfect place. I'm here to help you navigate this exciting but sometimes convoluted process. Let's explore how to choose the best property type, what location it the best choice for you, make sure your budget game is strong and set you up for success to start making money with Airbnb.
Mastering Market Research: How to Choose the best type of property for Airbnb
Before you start scrolling through real estate listings, it's crucial to understand your local market. Different areas attract different types of travelers, and this can influence which property type will be most profitable. Smaller properties like condos or apartments tend to be favored by where they are located but they normally attract higher turnover, so you need to make sure your cleaners are ready to support this high demand. On the other hands, larger properties tend to favor big groups and longer stays, but the occupancy may be lower. Understanding your specific needs and options in your specific market will define what's the best choice for you.
- Urban Areas: In the heart of the city, apartments and condos are hot commodities. Business travelers and couples often prefer these for their convenience. These properties tend to favor same day turnovers; this is when a guest checks out and another one checks in on the same day. You don't have to accept same day turnovers, you can setup your listing to automatically block the rest of the day after that checkout to give you time to set your place up, but same day turnovers is great for these type of properties as you can maximize occupancy as long as you are prepared for the demand and have reliable cleaners. This is where KwickTurn and automation comes in ;)
- Suburban Neighborhoods: Townhouses and single-family homes appeal to families or larger groups seeking more space. Guests that prefer these type of properties normally also prefer longer stays, so you can set up healthy minimum stays requirements and won't shy away these type of guests.
- Tourist Destinations: Near beaches or attractions? Vacation homes or unique properties (like cabins or cottages) can be a hit. These locations are a guest vacation destinations and can ensure you have high occupancy. On the other hand, properties around these areas tend to be very expensive.
- College Towns: This is hidden gem that no many hosts look into. College towns tend to attract many guests that are visiting students. Although seasonality is a factor, as your bookings and occupancy may not be the same across the year, it's not a bad idea to look into these locations.
The best recommendation I can give is before you settle on a property, it’s key to research occupancy rates in the area. How often are similar listings getting booked? For this, the simple tool to use is Airbnb app! look at listings nearby and ask yourself, how often are they booked? how in advanced they get bookings? how much they can charge at night? is the price per night affected by seasonality? are there any gaps in the market you can fill? This can give you a solid idea of whether or not your property will stay busy and gauge your potential revenue.
Researching your competition in your target area is not only important from a property type standpoint but I also recommend looking into the listing reviews and read those comments out. What is it that you can do better than them?
Property Types for Airbnb: Pros and Cons to Maximize Your Rental Income
When it comes to Airbnb market, it's important to think what would be your best property type for Airbnb. An condo could be a great option for hands free maintenance and add-on amenities, but it comes with more regulations and restrictions that you need to consider, on top of association fees. On the other hand, single family homes may be a great option, but they tend to not be near the center of the city (at least the affordable ones) and increase maintenance. Let's dive into different pros and cons based on Airbnb property type that you need to consider.
1. Apartments and Condos
These can be a great option, especially for those looking for a low-maintenance property. Typically, external maintenance like landscaping and repairs are handled by the building management, saving you time and effort. Another big perk is the access to amenities like gyms, pools, or concierge services, which can be a major draw for guests. Plus, the added security of secure entrances and on-site staff can give both you and your guests peace of mind. On the downside, though, many condos come with HOA restrictions, and some associations have strict rules against short-term rentals—so always double-check before you list. Apartments and condos also tend to have limited space, which might not work for larger groups, and noise concerns can arise due to close proximity to neighbors. If you're considering this type of property, make sure to get written permission if required and highlight those great amenities in your listing. Also, keeping house rules clear can help maintain good relations with neighbors.
Pros:
- Low Maintenance: Typically, external maintenance is handled by the building management.
- Amenities: Access to facilities like gyms, pools, and concierge services can attract guests.
- Security: Secure entrances and on-site staff add an extra layer of safety.
Cons:
- HOA Restrictions: Homeowners associations may have rules against short-term rentals. Always check!
- Limited Space: Smaller living areas might not suit larger groups.
- Noise Concerns: Close proximity to neighbors can lead to noise complaints.
Tips:
- Ensure you have written permission to host if required.
- Highlight amenities in your listing—they can be a big draw.
- Be mindful of house rules to keep neighbors happy.
2. Townhouses/Duplexes
These properties offer more space compared to apartments and condos, making them a great choice for families or groups. Guests will also appreciate having their own private entry, which adds an extra layer of privacy, and a small yard can be a nice bonus for guests who enjoy some outdoor space. However, townhouses can still come with shared walls, which means noise might be an issue, and HOA rules can also apply, so keep that in mind. To make the most of a townhouse listing, emphasize the home-like feel and consider adding family-friendly amenities like cribs or high chairs to attract a broader audience.
Pros:
- More Space: Often larger than apartments, suitable for families.
- Private Entry: Guests appreciate having their own entrance.
- Small Yard: A little outdoor space can be a bonus.
Cons:
- Shared Walls: Noise can still be an issue.
- HOA Rules: Like condos, there may be restrictions.
Tips:
- Emphasize the home-like feel in your listing.
- Provide family-friendly amenities (cribs, high chairs) to attract a broader audience.
3. Single-Family Houses
This is my preferred property type. Single-family houses are another great option, especially for guests looking for maximum privacy and they’re ideal for larger groups or families. The outdoor space is an opportunity to become a big selling point, giving guests an extra place to relax and enjoy. Of course, with more space comes more responsibility. Maintenance, lawn care, pest control and repairs will be on you, and utilities can add up, so be prepared for those costs. One way to manage this is by investing in smart home devices to help control energy usage and automations.
Pros:
- Maximum Privacy: Great for guests wanting the whole place to themselves.
- Multiple Bedrooms: Accommodate larger groups or families.
- Outdoor Space: Yards, patios, or decks are big selling points.
Cons:
- Maintenance Responsibilities: You're on the hook for lawn care, repairs, etc.
- Higher Costs: Utilities and upkeep can add up.
Tips:
- Consider investing in smart home devices to manage utilities efficiently.
- Create an outdoor oasis—BBQ grills, seating areas, or fire pits can enhance guest experience.
4. Renting Out a Room on Airbnb
If you're considering renting out just a room in your home, this can be an easy way to dip your toes into the world of Airbnb without a large investment. Using space you already have means low start-up costs, and you have the flexibility to block off dates when you need the space for yourself. Many guests even appreciate the personal touch of interacting with their host. However, sharing your space means you'll need to be mindful of privacy for both you and your guests, and setting clear house rules for shared areas will be crucial. To make guests feel more comfortable, you could provide amenities like a mini-fridge or coffee maker in the guest room for added convenience and privacy.
Pros:
- Low Start-Up Cost: Utilize space you already have.
- Flexibility: Block off dates easily when you need the space.
- Personal Touch: Opportunity to interact with guests, which many appreciate.
Cons:
- Shared Space: Privacy can be a concern for both you and your guests.
- House Rules Enforcement: You'll need to set clear expectations for shared areas.
Tips:
- Be transparent in your listing about the living arrangements.
- Provide amenities like a mini-fridge or coffee maker in the guest room for added comfort.
5. Airbnb OMG!
Lastly, we'll talk about the unique Airbnb "OMG!" category. This category captures the most luxurious, unique and exclusive accommodations listed on the platform. These are unique properties like boats, treehouses, yurts, or tiny homes. If you can land one of these uniquely curated properties, you'll ensure occupancy and premium rates. However, they can come with unique challenges like special regulations, zoning laws, and safety codes may apply, so it’s important to do your homework beforehand. Although creating one of these unique places may sounds expensive at first, don't forget that you can get creative in these initiatives. Use your imagination and sky could be the limit. Some Hosts have used old Mills that they refurbished for guests to have a unique experience, old school buses, containers properties, etc. Let's dive into some examples:
Glamping Tents or Yurts
Instead of building a traditional structure, setting up a glamping tent or yurt in a beautiful location can provide a luxurious, unique stay. With some cozy furniture, string lights, and a wood-burning stove, you can create a memorable experience without spending a fortune.
Tiny House or Converted Shed
Convert an old shed, shipping container, or build a tiny house. These spaces require minimal materials but can be transformed into stylish, functional properties with the right design and decor.
Treehouse or Cabin in the Woods
A small treehouse or simple off-grid cabin can be affordable to build with basic materials. Emphasize the natural environment by adding large windows to connect with the surroundings.
Repurposed Vehicles
Convert a vintage Airstream, camper van, or school bus into a quirky, mobile Airbnb property. It's a fun way to provide a unique stay without a full construction project.
Eco-Friendly Geodesic Dome
Geodesic domes are affordable and offer an interesting, futuristic design. By incorporating solar energy, rainwater collection, or composting toilets, you can create an eco-friendly retreat with minimal ongoing costs.
Hobbit House
Build a hobbit-style underground home using earthbags or other eco-friendly, inexpensive materials. With creative landscaping, this type of property stands out and can be a dream destination for guests seeking something truly unique.
Upcycled Shipping Container
Shipping containers are affordable, sturdy, and easily transformed into modern living spaces. With some creativity, you can stack or combine containers to create a multi-room structure with a distinctive industrial-chic style.
Each property type offers distinct advantages and challenges, so it’s important to consider what aligns best with your budget, hosting style and the guests you want to draw in.
Renting (Rental Arbitrage) vs Owning an Airbnb: Which is Right for You?
Entering the Airbnb hosting arena presents two primary pathways: renting a property to sublet on Airbnb, a strategy known as rental arbitrage, or owning a property outright. Each approach has its own set of advantages and challenges. Below we'll dive into the differences between both and what would be the best for you.
What is rental arbitrage?
Instead of owning a property to list on Airbnb, rental arbitrage involves leasing a property and then listing it on Airbnb or other short-term rental platforms. The goal is to earn more from guests than the cost of rent and expenses, pocketing the difference as profit.
Pros and Cons
Let's break down the main differences across different aspects of renting vs owning.
Financials
Numbers don't lie, this is a technique that I always use. Whenever I 'feel' that something works on a specific way, I run the numbers to know the truth. A lot of the time I get surprised that the obvious choice is not exactly what I needed. When it comes to know which option is best for you, I would recommend doing the same. Below are some financial considerations that can help you make a decision.
Upfront costs
Rental arbitrage always have lower entry costs. Items you need to consider are security deposit, first/last month of rent and furnishing costs. When it comes to owning a property, you need to consider the cost of the property if you are buying cash or mortgage downpayment if you finance, plus furnishing costs. In either case, owning a property could be cost prohibitive for some people.
Profit Margins
Profit margins tend to be slimmer when it comes to rental arbitrage, but they are also more scalable. On the other hand, when you own you also build equity plus tax benefits. Below is a simplified comparison of potential monthly profits from rental arbitrage vs. owning a property.
Note: These figures are illustrative. Actual numbers will vary based on location, property size, and market demand.
Trends
- Popularity: As of 2023, a significant number of Airbnb hosts opt for rental arbitrage due to lower entry barriers.
- Growth Potential: Rental arbitrage allows for quicker scaling, as hosts can manage multiple leased properties.
- Ownership Preference: Many hosts still prefer owning property for long-term investment benefits and control.
According to industry reports:
- Approximately 60% of new hosts start with rental arbitrage.
- Hosts who own properties tend to have higher net worth growth over a 5-10 year period due to property appreciation.
Which Should You Choose?
Consider Rental Arbitrage If: You have limited capital for investment, you are looking to test the market without a long-term commitment and you prefer flexibility and scalability. Consider Owning If: You have sufficient funds for a down payment, you're interested in long-term investment and equity building, you want full control over the property.
Legal and Regulatory Considerations
Before you Airbnb your home or invest in a new property, make sure you're compliant with local laws. In the next section of this guide, you will learn in depth about rules and regulations around Airbnb listings. In my personal experience, when I started with Airbnb I was surprised of the amount of requirements from a regulatory standpoint around the communities I was looking into. Not only there are city, county and possibly state regulations to comply with but also business licenses and permits to get. Here are some of the important topics to consider, I'll just mention them but we'll dive deep on those in the next section of this guide.
- City and County rules and regulations.
- Permits and licenses: Many states require you to obtain a business license in order to operate a short term rental.
- Safety requirements: Each community has its own rules around short term rentals.
- Rules: Most cities/counties will require you to post informational rule signs around the property.
- Short term rental bans: Some cities, counties and states have passed total short term rental bans on those areas. Beware of these regulations.
Before I invest in a new property in a new area, one of the first things I do is do a quick search on Airbnb to make sure there are active listings in the area. If so, the next thing I do is search the City's website for their Short Term Rental (or Vacation Rental) policies. Best case scenario is I find the policy and it has favorable terms (good occupancy limit, no restriction on the minimum number of days that can be booked, no requirement for a full time host on site, affordable fees, etc.). If I don't find the policy, then I call the City to confirm. But if I find the policy and it has major restrictions like 30-day minimum bookings, or requires a full time host on site, or worse, it flat out says short term rentals are not allowed, I move on to look for another property in another area.
Financial Considerations for Your Airbnb Investment
When it comes to Airbnb investments, there are many financial considerations. Luckily, it's not rocket science. You just need to make sure that you add up all expenses and consider all hidden costs to make sure that you business is as sound as it can be. Because this topic can be lengthly, I have created a separate article that talks about all the financial considerations when it comes to Airbnb investments and provides helpful resources that you can use to calculate your ROI (Return on investment).
In summary, being realistic about costs will save you a ton of headaches down the road. First, when it comes to the purchase price or rent of your Airbnb property, it's crucial to stay within your means. Sure, you may be tempted by that dream property with ocean views, but if it’s going to stretch your budget too thin, it’s best to reconsider. You don’t want to end up stressing over payments each month. Remember, financing for investment properties can come with higher interest rates, so be sure to explore all your options before committing. On top of that, it’s a good idea to crunch the numbers with a return on investment (ROI) calculation. Estimate your potential earnings against the expected expenses, like maintenance, utilities, and property taxes. This will help ensure your Airbnb adventure is actually profitable and worth the effort.
Additionally, remember that Airbnb investments are not only a cash flow type of investments, if you own the property you also get access to all the real state benefits like property value appreciation and tax benefits. Make sure you check out the financial section of this guide for all the info.
Move-in Ready vs. Fixer-Upper: Which is Best for Your Airbnb Investment?
This is another question that comes up often. When I first started with Airbnb and was looking at properties around my neighborhood, my initial thought was that a fixer upper property would be a good deal. I have background in construction and have done a reno before so that can save me ton of money by the post reno appreciation plus cash flow for Airbnb. What I learned soon after is that, even though this strategy is sound, it may not be the best one for my particular use case. My cash budget was tight so I was looking into financing a property, that means a healthy downpayment (20-25%) is required for most Investment mortgages. On top of that, I would have to get a loan for the renovations, that depending on the conditions of the property, it could take anytime between 2-4 months. In total, I would have to get a mortgage for the property, plus a loan with lesser than ideal terms for fixing up the house, plus carrying costs during renovation as there would be no income during that time frame.
When comparing that strategy with a property that is move-in ready that I can not only start bringing income in 1 month, but also having only 1 loan (mortgage) with better terms that a fixer upper loan, made so much sense for me.
Now, it is true that I missed out on the post reno appreciation and the savings I could have had on the reno itself, but at the same time, for my specific budget, a move-in ready was the best choice.
It's important to understand your specific needs and budget. If you have the budget to afford a full reno and go through the fixing up process, then go for it. You will be able to enjoy not only the reno appreciation but also the cash flow that would come after that. Plus you have the freedom to make design decisions that would best suitable for your listing. But, on the other hand, if you have limited budget and are trying to generate revenue as soon as possible, a move-in ready property lets you hit the ground running, allowing you to start hosting almost immediately without any major renovations or delays.
Sometimes it's just not possible to find that perfect property that has it all for a price you can afford. So the goal is to find a property that at least has the potential to get there. From there, it's a balancing act to find the sweet spot between move-in ready and making affordable, and quick upgrades that have a major impact.
Finding the perfect property is as much an art as it is a science. Sure, data and research play a huge role, but never underestimate the power of trusting your gut. When you walk into a space and it just feels right, that excitement and enthusiasm you have for the property will naturally translate to your guests. They’ll pick up on that energy, and it can make all the difference in creating a welcoming and memorable experience.
It’s also important to stay flexible along the way. No matter how much planning you do, things may not always go as expected. Be open to adjusting your approach based on feedback and your own experiences. Maybe a certain layout isn’t working, or guests keep suggesting the same improvement. Taking these insights and making small changes can keep your property evolving and improving over time.
And above all, remember to have fun! Hosting on Airbnb is an incredibly rewarding experience and choosing the right property is a crucial step on your hosting journey. So roll up your sleaves, be bold, and get to it. Your perfect property is around the corner and it's not going to find itself. Happy hunting!