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The Pros and Cons of Airbnb as an Investment Strategy

Person holding mobile phone with airbnb logo in front of living roomRegardless of whether you are interested in tech startups or not, then chances are you have heard of the meteoric rise of Airbnb. From 2007, when its founders first set up a simple website to advertise their apartment as lodging for people attending a conference, the site now has a valuation of $35 billion (2019).

What is Airbnb, and is using the platform a real estate investment strategy something you should be interested in?

What is Airbnb?

trendy apartment with large windowAirbnb is an online platform where you can list your home or rooms as a vacation rental and connect with potential renters from all over the world. It is a connector between people who have space to lease and travelers or tourists who need accommodation in that area but mostly focuses on short-term rentals.

It is considered the Uber of the hospitality industry. Just as Uber disrupted traditional taxis, Airbnb is disrupting the hotel industry. It has opened the field to more players than at any time in history. Anyone can rent their home on the platform, and travelers can access more variety than is offered by traditional hotels.

But does this make Airbnb a great platform for rental property success? Is it better to list your home on Airbnb, or should you stick with your traditional rental strategy?

First, many people confuse the platform’s success with the fortunes of those who use the platform. As with car owners who rely on Uber’s ride-hailing service, renting on Airbnb comes with drawbacks and advantages. The only way to know if becoming an Airbnb host is a good idea is to weigh the pros of using the platform against the cons.

The Pros of Airbnb as an Investment Strategy

trendy bedroom with orange and blue accentsConvenience

The biggest reason for becoming an Airbnb host is the ease with which you gain access to millions of people worldwide. Listing your home on the platform is free, and the platform is recognized and trusted around the world.  Users of the platform don’t have to spend money advertising.

It may be more profitable than traditional renting

A traditional landlord makes $2,000 a month and $24,000 a year, from leasing to a single long-term tenant, an Airbnb host can make $150 a night and $40,500 per year if they rent to short-term renters for only 270 days in the year. The host can potentially make $16,000 more than the traditional landlord if they are solidly booked.

Access to a wider pool of potential renters

A traditional renting strategy limits you to people who live in your city or who are about to move into it. Airbnb gives you access to travelers, tourists, and business people in the area for a few days but wants the warmth of a real home versus a hotel room’s sterile environment.

Flexibility to set prices and choose dates

Airbnb hosts can set their prices; the platform does not dictate prices. As an Airbnb host, you may also choose the dates when your property is unavailable. Traditional landlords cannot afford this luxury; they want to maximize rent by renting every day of the year.

Host protection

Depending on the country where your Airbnb is, you can take advantage of the host guarantee program’s protection. This ensures that if guests damage your home, the platform will compensate you, up to a maximum of $1,000,000.

The Cons of Airbnb as an Investment Strategy

apartment with gray and yellow accentsHigher costs

If you choose to rent via Airbnb, you will need to spend more money on your home than a traditional landlord would. Airbnb serves as the renter’s home for the short duration of their stay. Therefore, it must contain everything needed in a home, such as furniture, decor, appliances, amenities, Cable TV, Wi-Fi, and even food.

More work and more time consuming

Operating an Airbnb puts you in the hospitality business. That means you have to do a lot of work to keep the rental in top shape. Hosts need to clean, mow the lawn, carry out repairs, stock the cupboards, constantly keep in touch with guests and handle occasional emergencies.

Income is not certain

Even though an Airbnb host can earn more money than a traditional landlord, this does not always happen. There are inevitable vacancies and slow seasons. Even if hosts increase their charges during the high seasons, it may not cover the losses they already sustained.

Exposure to more risks

Bringing strangers into your home poses a risk to you, your family, and your property. Comprehensive screening of guests is necessary when operating an Airbnb rental. Though most guests are nice people, having so many people using your home will increase the property’s risk of damage.

Municipal regulations

Some cities have created laws to regulate short-term rentals, with some setting a maximum number of days that homes can be rented to travelers or tourists. A few cities have even barred the use of any home other than your primary residence as an Airbnb rental. This imposes severe limitations on how much investors can earn on an Airbnb.

There you have it, the pros and cons of Airbnb as an investment strategy if you’re thinking of diversifying your portfolio. If you’re thinking of diving into the industry, contact us today to see how we can help you reach your goals.

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