The financial benefit of an Airbnb property is clear to investors: They can make more money from short term rentals for the same reason you typically spend more on lodging while you’re traveling than you do on rent. In today’s sharing economy, the popularity of Airbnb is extremely high, as on paper, the profits may look incredible. But, is it really a smart decision?
“It can be,” says Samantha DeBianchi, founder of DeBianchi Real Estate in South Florida and the first woman to star on Bravo’s hit TV show, “Million Dollar Listing Miami.” “There is indeed money to be made in the Airbnb market, but you really need to understand what you’re getting into and realize that because this is all still fairly new, the rules aren’t set in stone and you also potentially stand to lose money.”
Getting your Airbnb investment up and running isn’t as simple as you might think. There’s much more involved than simply buying a property, listing it on Airbnb and welcoming guests. There are plenty of questions that need to be answered first to figure out what obstacles are in the way.
“Every city is different,” DeBianchi says. “You have to check the local regulations. How long can you rent the property out? Is
there a set amount of time you can rent it out without actually being present? How long will it be taxed? What you can do in Miami, for example, might be very different from what you can do in New York City or Atlanta.” It doesn’t stop with the city, DeBianchi says. “If you have a homeowner’s association, what are their rules? Does your mortgage company allow you to sublet the property? What’s the impact on your homeowner’s insurance and property taxes?”
More expenses than meets the eye
Most new homeowners quickly find out that the list price of a home is just the beginning of a laundry list of expenses. Owning an Airbnb investment property is no different. “I’ve seen the happy smile quickly wiped away from many potential buyers when they realize how much more is involved,” DeBianchi says. “You need to factor in costs like cleaning services, utility bills, landscaping, pool service and repairs. More importantly: what happens if you can’t rent it out right away or have a slow period of vacancies? Can you afford that? What happens if home values decline, thereby driving down the asking price on your rental?”
Don’t forget that Airbnb takes a 3% service fee from the host for each reservation, which also eats at the profit. Additionally, there are other unlikely yet potential expenses that must be considered. What if your tenant is injured in the home? What if you’re the victim of theft?
Unfortunately, the list of expenses keeps going. Airbnb is competitive. The company claims to operate in 65,000 cities with more than 3,000,000 listings. How will you differentiate your rental?
“Airbnb success is based on reviews from people who stay in your home. You’ll need to spend extra money to really wow them over,” DeBianchi says. “This includes items like quality bedding and bath accessories; professional photos and staging the property; welcome gift baskets; not to mention your valuable time serving as a good concierge and providing a list of local vendors, attractions and other hot spots.”
Like most things in life, experience comes with starting slow, allowing yourself to figure out what works and what doesn’t, learning what mistakes to avoid, what seems to click with guests and what doesn’t. You don’t necessarily have to have a professional background in real estate, hospitality or customer service to be a successful Airbnb investor, but it can take time to get comfortable with it.
“Rent a room out in your current home first and see how that goes. Get the feel for it before jumping into it in a big way,” DeBianchi says. “Airbnb investing isn’t for the faint of heart. This isn’t a hobby or something you take lightly. Know the risks before you jump in and you have to be okay knowing it might not work out.”
There is definite money-making potential as an Airbnb investor and the success stories are there. Do your research before you get started to learn as much as you can. Speak with other Airbnb investors and find out what has worked for them and where they got caught up. Know the city and neighborhood regulations where you live and be realistic when preparing your budget. The collaboration economy will continue to pick up momentum, and being an Airbnb investor will serve to be a very practical and viable income generator in the years to come. Like anything in real estate, though, there’s always risk involved.