How to Invest in an Airbnb in 10 Steps

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Contributor, Benzinga
July 31, 2023

Airbnb Inc. offers substantial vacation rental business opportunities as part of a diversified investing strategy. 

Since 2008, Airbnb has served over 400 million guests. At any given time, guests book 1.9 million listings on Airbnb. In fact, the short-term rental market will surpass $228 billion by 2030. That’s a huge amount of potential revenue you could tap into. If you’ve done your research and are ready to invest, here is how to invest in an Airbnb. 

What Is Airbnb?

Airbnb is an online marketplace that connects travelers with people who have extra space to accommodate them. Airbnb has disrupted the traditional hospitality industry by providing an alternative to hotels and allowing individuals to monetize their spare space. It has become particularly popular among travelers seeking more personalized and local experiences during their trips, or those looking to rent entire properties.

Airbnb is one of the largest direct-to-consumer marketplaces for property owners and property managers. It offers a platform for homeowners to list and rent their properties to travelers looking for unique accommodations. 

In recent years, Airbnb has expanded its offerings to include experiences that can help hosts secure additional bookings. With a secure payment system, ratings and reviews and the opportunity to become a “super host,” Airbnb creates a strong professional platform for short-term rentals and investment properties. 

How Does Airbnb Work?

You can list a property on the Airbnb website. You’ll want to include photos, a description, property rules and other property information. When someone books your property, they’ll pay the nightly rate, a cleaning fee and Airbnb fees. Airbnb makes most of its revenue by charging a service fee for each booking.

Even if you don’t own a rental property, you could become an Airbnb host with “Airbnb arbitrage.” Airbnb arbitrage refers to renting a property from a landlord and subleasing it on a short-term basis on a platform like Airbnb, VRBO or Booking.com. In this way, you are both a tenant and an Airbnb host who acts like a middleman between the landlord (the property owner) and the Airbnb guests.

It’s important for both hosts and guests to familiarize themselves with the platform’s policies, safety guidelines and community standards to ensure a positive experience for everyone.

How to Invest in an Airbnb Property 

If you’re ready to invest in an Airbnb property, here are the steps to take.

1. Choose the Right Location and Property

Location and property type are essential for profitability. Conduct thorough market research to identify potential locations with high demand for short-term rentals with excellent occupancy rates. Look for popular tourist destinations, business hubs or areas with events and attractions that draw travelers. A real estate agent can help you with local market research and identifying investment opportunities. 

A property in a beach destination that’s far from the beach generally won’t perform well. Likewise, an apartment in an area where most tourists look for entire houses may have lower profitability. Consider areas with low vacancy rates and strong demand. 

2. Set a Budget 

It’s important to be realistic about your budget. If you can afford a property up to $200,000, don’t look for properties that sell for $600,000. Also consider whether you’ll take a mortgage or pay for the property in cash and how that will affect your budget. Then, determine your budget for the investment, including the property purchase price, closing costs and ongoing expenses.

When setting a budget, include purchase price, down payment and Airbnb operations, including maintenance, renovations (if needed), cleaning, property taxes and property management fees. Create monthly income and expense projections for an Airbnb budget to ensure the property investment can generate positive cash flow. 

3. Determine Your Financing Options 

If you need financing, you’ll need to secure a mortgage, personal loan, home equity loan or other funding option. Consider the cost of financing and how that will affect cash flow. 

Opening an LLC can make sense when investing in Airbnb as a business venture. Consider whether you want to start an LLC or purchase the property through a partnership, S corporation or as an individual. 

If you choose to purchase and operate your Airbnb through an LLC, your personal assets are protected in case of lawsuits related to the property, which offers an additional layer of security. 

5. Get the Necessary Local License and Permits

Before making any purchase, thoroughly research local laws and regulations regarding short-term rentals in the area. Ensure that the property you intend to buy is legally eligible for use as an Airbnb. After purchase, apply for any necessary local licenses or permits to begin operating your Airbnb business. 

6. Furnish and Prepare the Property

When looking at competitor properties, note the furnishings and decor of popular, highly rated properties. As guests book Airbnb largely based on photos, appearances matter. Modern decor and a friendly, non-cluttered and clean appearance can increase bookings. 

You can purchase new furnishings or check for used furniture at thrift shops or on websites like Facebook Marketplace and Craigslist. 

7. Set a Competitive Price

Pricing will affect the vacancy rate and overall property profitability. Market research can ensure you’re optimizing rental opportunities. Research competitor property prices, compare features and set prices at or below competitors to secure more bookings. When you’re starting out and don’t yet have positive reviews, setting a lower price can secure bookings and (ideally) positive reviews. 

8. List Your Rental Property on Airbnb

When you list your property on Airbnb, you’ll have to create an Airbnb account, complete your profile and become a host. Then, you’ll need to list property details with clear photos and property descriptions. You can select availability dates, pricing and set house rules, including the cancellation policy. You can also choose to accept instant bookings without your prior approval to potentially increase booking rates. 

To make your listing stand out, ensure you have excellent professional photos, a clear description and list all amenities the property offers. 

9. Market Your Rental Property

Once your property is listed, spread the word on social media networks to family and friends. You can also use Airbnb’s last-minute deals or specials to increase bookings. Other tips for marketing your Airbnb listing include:

  • Optimizing listing headlines to attract more clients
  • Highlighting positive guest reviews in the listing
  • Creating social media accounts for your Airbnb business with photos and local recommendations
  • Offering local recommendations in the listing or at the property
  • Offering Airbnb experiences with the property listing
  • Tracking and analyzing marketing performance to optimize channels that bring in more bookings

10. Manage Your Airbnb Property 

You’ll want to offer exceptional customer service to manage your Airbnb property well. This includes:

  • Responding promptly to all guest inquiries
  • Hiring a professional cleaning service
  • Streamlining the check-in process for guests or setting up automatic locks
  • Maintaining the property and repairing any damage quickly
  • Responding to clients’ needs and requests right away

Advantages of Investing in an Airbnb

The advantages of investing in Airbnb rental properties include:

High-Profit Potential 

Airbnb can provide you with a much higher income than a long-term rental property. Short-term rentals allow hosts to charge premium rates, especially during peak seasons or events, resulting in increased cash flow.

Flexibility and Control

Airbnb properties offer flexibility for investors to use the property for personal vacations or getaways when it’s not booked by guests. If you want to enjoy the property yourself while still earning income, you can easily block out weeks for yourself or your family with Airbnb.

Diversification

Investing in an Airbnb property diversifies your income stream and can provide additional cash flow. By creating an alternative source of revenue outside of traditional stocks, bonds or long-term rental properties, short-term rentals offer portfolio diversification that can act as a buffer against market downturns.

Property Appreciation

While earning rental income, Airbnb also has the potential for long-term appreciation. If property values in the area increase over time, the property’s overall value can appreciate.

Tax Benefits

Similar to other real estate investments, owning an Airbnb property can offer various tax benefits. You can take deductions for expenses related to the property, such as mortgage interest, property taxes and maintenance, to reduce your total taxable income. Speak to a certified public accountant (CPA) to understand tax advantages for your financial situation. 

Disadvantages of Investing in an Airbnb

While Airbnb investing offers many advantages, there are potential pitfalls to avoid. Here’s what to consider before buying an Airbnb. 

Many cities and municipalities have specific regulations or restrictions on short-term rentals, and these rules can change over time. You could face fines or legal issues if you fail to comply with local laws. And with changing laws, while you may be able to use a property as an Airbnb today, there’s no guarantee it will be allowed in five years.

Seasonal Demand

The demand for short-term rentals can be seasonal and subject to economic fluctuations. During low seasons or economic downturns, bookings may decrease, impacting rental income. If you budget for this in your financial planning, seasonal fluctuations shouldn’t be an issue, but you must account for them and price accordingly. 

Increased Wear and Tear

Short-term rentals can expose the property to higher risks of damage, theft or accidents. When renters are there for a short time, they generally aren’t worried about protecting the property. If you don’t properly vet clients, you could end up with additional damage to the property. Standard homeowners insurance may not cover all incidents related to short-term rentals, necessitating specialized insurance coverage or greater out-of-pocket expenses.

Competition

The competition among Airbnb hosts can be intense in popular tourist destinations or heavily saturated markets. This can lead to price wars, impact potential income or increase vacancy rates. Research competition and market saturation before making an Airbnb purchase. 

Potential for Negative Reviews

Negative guest reviews can impact a property’s reputation and future bookings. Maintaining a high standard of hospitality and responding effectively to guest concerns is crucial for success. You may get a disgruntled guest who leaves a one-star review even with the best service. Consider building a strong reputation for service to mitigate poor reviews and their effect on long-term property performance. 

Final Tips for How to Invest in an Airbnb

While an Airbnb investment property is an active investment that requires significant time and financial commitment, it can offer strong returns. Your best security is prior market research on vacation rental property opportunities in your target area. Learn about local markets and study competitor performance before making a purchase. As part of a diversified investment strategy.

Frequently Asked Questions

Q

Do you need insurance for an Airbnb property?

A

Yes. It’s important to purchase insurance to cover your Airbnb property against damage or theft. You might also want liability insurance to protect you in case of injuries related to the property.

Q

Should you manage the property yourself or hire a property manager?

A

Whether you manage a property yourself or hire a property manager will depend on your availability and willingness to deal with issues as they arise. While a property manager is more expensive than managing yourself, they can offer a better standard of service that leads to more bookings.

Q

Should you buy a property or rent one for your Airbnb investment?

A

Whether you buy or rent a property for Airbnb depends on your current financial situation. If you have enough for a downpayment or to purchase a property with cash, buying a property can offer greater long-term appreciation and returns.

About Alison Plaut

Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.