5 Things You Should Know Before Investing in Airbnb

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Investing in Airbnb is all the rage; there are over 660,000 listings across the country and that number is ever-growing. This popular way to earn passive income can be fun and relatively easy, but there are some key things to know before diving in.

1) Risk v. Benefit

Risky Business

While there are several benefits that we will get into shortly, there are also a handful of risks that need to be noted. According to iGMS, the top 5 risks for Airbnb hosts include liability risks, renting to squatters, changing regulatory environments, canceled bookings, and the negative impact on property values.

Liability means you risk any accidents happening on your property while guests are staying there. The best way to avoid any potential lawsuits is to invest in the correct Airbnb liability insurance. This will save you money in the long run and protect you from any personal liability.

Squatters are another problem many people with rental properties face. This is when someone rents from you and either doesn’t leave, doesn’t pay, or is a combination of the two. This can cause obvious problems but can be quite difficult to get rid of due to the whole eviction process. Not only does this result in losing out on renting to new guests, but it can also come with a handful of fines/legal fees. The best way to avoid this is to keep rental terms short so guests are not able to exercise their rights to stay.

With the number of Airbnbs on the rise, many cities are implementing new zoning laws and even rental restrictions on short-term rentals. This puts a lot of Airbnb hosts at risk of potentially not being able to rent out their property. The best way to stay on top of these changes is to keep up-to-date on new laws and regulations for your area. Then you’ll be able to have a say in your government through voting.

Canceled bookings are bound to happen. Setting up the proper cancellation policy for your property is the best way to avoid last-minute bookings that result in loss of income. However, it is important to note the possibility of a last-minute cancellation through Airbnb that can potentially go around your cancelation policy. This means Airbnb approves a cancellation and refund without your knowledge or consent. Though this is rare, it is important to keep in mind in order to avoid this happening and causing your property to go under. 

Lastly, the impact Airbnb has on property value is substantial. This is most likely in areas where there are a lot of properties being rented out on Airbnb—which are usually touristy cities. Locals may not love the fact that short-term rentals are in their neighborhood either due to the security risks and properties not being upkeep as well as locals. It is important to be aware of this risk and acknowledge that your property value and others nearby can lower over time.

Reap the Benefits

When it comes to the benefits of renting through Airbnb, there are so many. One of the top benefits is the popularity of the platform itself. In recent years, even with a pandemic, Airbnb continues to grow exponentially. This is due to its popularity and ease of booking from a consumer standpoint.

Airbnb is one of the most lucrative ways to invest in short-term rentals as opposed to a traditional real estate investment. It’s a win-win for both parties; you’re able to charge a bit more per night than traditional rentals, but it is still a cheaper option for renters when compared to hotels and resorts.

The most obvious advantage is that you have a property that you are able to utilize for personal use. It’s basically a second home that brings in money while providing a place for you, family, and friends to enjoy when wanted.

Another advantage is you’ll have full control over your property. This means you’ll be able to increase pricing during the busy season as well as reduce it throughout the off-season. You’ll also have full control over updates and maintenance as long as you adhere to the Airbnb host requirements.

You are also in full control over the types of guests you attract. This can be changed through the marketing of your property. The way it’s decorated and photographed as well as the description is what will sway people when booking. These might include things such as “family-friendly” or “bachelorette retreat” to entice specific guests into staying at your property.

2) Location is Key

The city or town in which you choose to invest in is huge. There are many different factors that will play into this decision including where you currently live, your travel preferences, and potential income by city. You might also consider looking into the top 10 most profitable cities for Airbnb in 2023.

When investing in your current location or a town nearby, it is easier to keep up with the maintenance on the property when getting into the swing of things. Most hosts will either stay local with their first property or choose a location they can travel to often. This is important when first starting out so you are able to work out all the details to get your place up and running.

There is a lot of prep work that goes into hosting. Some of these things will include cleaning, redecorating, and possible renovations. All of this must be done before you are even able to list and market your property through the Airbnb platform. Keep in mind that the bigger the property, the more prep that is needed. 

3) Private Room v. Private House

The size of your property is also something to consider before making a decision to invest. While some do have the means to invest in a 6+ bedroom house in Los Angeles, many hosts do not have the savings to fully invest in a private house but will offer up a room or two in their current home to help pay bills.

Financials will play a huge part in this decision, not only the amount needed to secure the property but the resources needed for things such as maintenance and amenities. A large house is going to cost much more to maintain than renting out a single room, but it will also bring in much more income.

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These are all decisions that require trade-offs and researching your specific area is key to be sure you aren’t getting over your head in this investment. It’s also smart to look into current Airbnb properties in your desired city to get a feel for the types of properties and the amenities, price, and overall aesthetic of the property.

4) Property Management

Property management is a huge thing to be well-informed about before making the leap into the Airbnb industry. There are many other things that go into maintaining a property, not just the basics of cleaning and checking in guests. You’ll need to be readily available for things such as repairs during a guest’s stay, restocking necessary items, and replacing anything damaged by previous guests.

The best tip is to automate as many of the tasks as possible. First, identify the tasks that you are willing to complete and the tasks that need to be outsourced. Then start hiring for those jobs; services like cleaning and regular inspections are what will keep your property in tip-top shape and keep your ratings high.

One last thing to note is that a good host is always available and able to respond to current and future guests quickly. If you aren’t able to answer questions and fix things when they come up, you most likely won’t survive in this industry.

5) Renovation/Design

Once you’ve secured your rental property and are ready to utilize Airbnb for passive income, it is time to determine the work that must be done before officially listing and renting out your property. Some projects to consider include updating the bathroom(s), furnishing the home, and creating an outdoor entertainment area.

Updates to the bathroom can be relatively easy and yield a large return on investment. A new and improved bathroom vanity might be all your space needs. There are a wide variety of options, but the best for a rental property would be one that has a lot of countertop space as well as storage space. This is where you’ll be able to stock things such as towels and toiletries for your guests to use during their stay.

Furnishing an entire home can seem overwhelming, but this is where you’ll be able to set the tone for your design. Incorporating furniture that is high-quality, but can be easily cleaned is key. Fabrics that can be wiped down quickly will allow you to have the place cleaned thoroughly without taking too much time in between guests.

Providing a space on-site for entertaining will give you the most bang for your buck. An outdoor entertainment space doesn’t have to be anything super fancy, but a nice fireplace and/or cooking space with outdoor seating is all that’s needed. You might even include things like lawn games and a beverage fridge. All these extra amenities are only going to mean more money in your pocket at the end of the day.

At the end of the day, Airbnb hosting is not for everyone. Be sure that you are thoroughly prepared and take all the necessary steps to ensure your property’s success.