Should You Airbnb Your Investment Property?
Most investors who use a buy-and-hold strategy are interested in one thing: long-term tenants who pay rent like clockwork each month and renew their lease every year. But there’s another way you can utilize this type of investment property, and it’s a method that’s grown immensely popular over the last several years.
It’s called a short-term rental, and it usually refers to properties that are rented out on a weekly basis to vacationers. Sometimes “short-term” can mean longer periods of time, even up to 6 months, but for this post, I’m focused on the places that rent by the week and are used mainly by travelers.
There are a number of reasons people decide to use this short-term strategy, and many investors have found great success with it. However, there are some definite pitfalls that can come with this strategy. Before you decide to Airbnb your investment property, it’s important to examine all the pros and cons.
- Money – Weekly vacation rentals go for a premium. If you’re in a desirable area that attracts a lot of tourists, you can charge a lot more for a property than what you might get on a similar property that’s being used as a long-term rental. For example, a buddy of mine has a 3-bedroom bungalow in coastal Texas, and during peak periods, he’s able to rent it out for upwards of $2,000 per week. PER WEEK. That’s some serious cash, my friends, and way more per month than what he’d get on a similar long-term term rental in, say, Dallas.
- Appreciation – Appreciation is another benefit of owning a vacation rental. Again, these properties are located in desirable areas that tend to appreciate over time, so long as you care for it properly. If you choose a location with a history of appreciating homes and that will continue to attract visitors (coastal areas, resort towns, etc.), you’ll likely see a decent increase in your property’s value over the course of your ownership.
- Experience – Another benefit many short-term rental property owners claim is that of the experience. If you live in the same market as the property and decide to manage it yourself, you’re in for quite the experience because you get to interact with people from all over the world. This can be an exciting and even life-changing experience, and it’s one of the benefits that many of these property owners love most.
- Cost – Unfortunately, many of these properties have a big price tag. Remember that appreciation I mentioned? Well, the values of properties in big vacation markets can be pretty high – a lot higher than what you’ll see with traditional long-term buy-and-hold rentals. There’s also the added cost to keep the property in tiptop shape 24/7/365 so it continues to attract renters. This is an expense that many investors don’t consider when they’re considering this type of property.
- Vacancy – Vacancy is another factor. You’re not asking people to commit to year-long leases here. You’re renting by the week, so to keep making money, you’ve got to ensure your place is rented week after week. During peak seasons, this may not be an issue if you’re got a good property and positive feedback from visitors, but in the off-season, you could run into vacancies that will eat away at your profits.
- Upkeep – Because of the high turnovers with travelers, vacation rentals typically see a lot of wear and tear. To keep your property in good shape and keep it occupied, you can’t slack on the upkeep. There’s also the matter of preparing the property between visitors, which is often a cost you can bundle into the rental rate, but is still a cost nonetheless and something you’ll have to arrange for.
Buying an investment property for the sole purpose of renting it out to vacationers is a great way to boost your income. If you choose wisely in terms of location and the property itself, and then maintain it in a way that is appealing to travelers, you can make A LOT of money. However, there are definitely some downfalls and risks you must consider as well, with the upfront cost and vacancy being the two biggest, in my opinion.
For me, I’ll stick with my long-term rentals. I like the steady income and being able to be more selective about who’s in my property. But at the end of the day, the decision is yours, and the best strategy is one that fits your lifestyle and meets your investment goals while netting you a profit each year.