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You can’t deny the success stories of people who have made big money from short-term rentals like Airbnb. Thus, many investors are considering putting their money in such a property investment.
However, there are typical questions that these investors have. Examples of such queries revolve around the level of risk of a short-term rental property investment. Will it be worth the effort and money to operate an Airbnb? Do the returns really that good to enter into such a venture?
There are five things to consider to determine whether investing in Airbnb rentals will benefit you. Read this blog post to enlighten you in your decision-making.
Legalities
Check the laws and regulations in your county or city whether it allows for the operation of short-term rentals. Visit your local government’s website and read about planning and zoning information. Some counties or cities have dedicated pages about STRs, and others provide a link to an ordinance governing STRs like Airbnb.
If there’s no information on the local government website, you can call the planning and zoning department of your county or city and ask about such laws and regulations. Make sure your property meets the requirements to use it as an STR legally.
There are local laws that require STRs as a primary residence, ruling out the possibility of using them solely as an investment property. Others put a limit on how many days you can rent out your STR. Some localities only permit STRs to operate 30 days a year.
Financial Risks
There are always risks in investing. Thus, you should determine how you’re willing to take risks. Investing in STRs like Airbnb comes with two types of risks: financial and property damage.
If your STR doesn’t get enough bookings, prepare for financial instability. That’s the risk you have to consider if you want to manage an Airbnb. Some days seem like a boon, while others seem like a bane. Taking calculated risks by doing market research and seeking advice from seasoned STR owners is crucial in managing a short-term rental.
Another potential risk is property damage. You can’t avoid having short-term guests that cause problems. Even if you read the house rules to them, some tenants might get careless with using your property. Make sure your guests undergo screening to avoid this from happening. Require valid IDs or put limits on the age or number of guests.
Net Operating Income
There’s more potential for monthly income for a short-term rental compared to a long-term rental. However, monthly income isn’t a good metric because you have to consider the additional expenses associated with STR. As an STR owner, you’ll be paying for expenses typically covered by long-term tenants.
Consider the maintenance, insurance, taxes, inventory/supplies, water, electricity, gas, internet, landscaping, property management fees, and other operating expenses. So, instead of calculating the monthly income alone, consider your net operating income or income minus operating expenses.
Managing the Property Yourself
Consider if you have the time to manage the property by yourself. Ask yourself if you can handle the duties of an STR landlord. You have to furnish your STR and list it on platforms like Vrbo or Airbnb. It’s crucial to be hospitable to your guests and master your communication skills.
You can use property management software to help you in your duties. Consider tools like HostAway, Guesty, and TurnoverBnB.
While it’s possible to juggle a full-time job and manage your Airbnb, it can be difficult for you to handle your obligation as a landlord. Even if you use property management tools, you still have to put in extra effort to handle your landlord's obligations. Be sure that you’re ready for the challenge.
Hiring a Property Manager
Consider getting the services of a property manager if you don’t have the time to run your short-term rental. An STR property manager will take care of setting up and furnishing your property, listing it on platforms like Airbnb, interacting with guests, supervising maintenance, ensuring supplies are sufficient, and handling finances.
However, STR property managers charge more than traditional property managers. The fees may range from 15% to 30% of the property’s gross income. Think hard and be sure that hiring one doesn’t go against your financial goals.
Your STR has more chances to be successful if you hire a property manager whom you can trust. Build your network of like-minded individuals who can recommend you to a trusted person or company to manage your short-term rental.
Final Thoughts
If you want to convert your rental property into a short-term rental like Airbnb, you should consider the things that will help you in your decision. First, you have to know the laws and regulations for setting up an STR in your city or county. Next, understand the risks in terms of finances and property damage. Moreover, consider your net operating income and whether you’ll hire a property manager or run the rental business yourself.
