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Weighing the Pros and Cons of Owning an Airbnb Property

As we’ve discussed before, when it comes to real estate investing, there are a few different paths you can take. You could choose to flip a property, buy an investment property to rent out, or invest with a real estate fund or index. However, within those categories there are even more decisions to be had. Let’s take buying an investment property as an example. Now, the most common path is to be a traditional landlord with long-term tenants that pay you rent, monthly. This option provides you with stable income and peace of mind knowing that your property will be rented out for the next 6+ months. Alternatively, you could choose to use your property as a short-term vacation rental through a company like Airbnb or VRBO. While this option comes with a fluctuating income, it has the potential to be incredibly lucrative, especially if you buy a property in the right location — and Charleston, South Carolina just happens to be the best spot in America. Charleston’s combination of low property values, high Airbnb revenues, and solid tourism industry create the perfect storm for Airbnb hosts. But, that doesn’t mean that investing in an Airbnb property is right for every investor.

While Airbnbs can be an incredibly lucrative investment strategy, they come with their own set of benefits and drawbacks that warrant evaluation. So, let’s explore them together, and then you can decide whether this niche investment strategy suits your long-term goals.

The Benefits of Airbnb Rentals:

More Lucrative: When you charge nightly rather than monthly, your potential ROI goes through the roof. We’ll stick with a hypothetical Airbnb in Charleston to see just how much more lucrative this type of investment strategy can be. According to a recent study, the median house price in Charleston is $193,491 and the average monthly revenue from an Airbnb generates $3,693. That means, in just four years the revenue from your Airbnb could pay off your property completely. From there, it’s all profit, which is ultimately the goal for investment properties. Of course, not every investor will be able to recoup their initial investment within four years, but the mere fact that it’s possible with an Airbnb makes it an avenue worth exploring.

Stay Informed on Maintenance Issues: When you have long-term tenants in your property, it’s up to them to keep you informed about maintenance issues as you won’t enter the property very often. With an Airbnb, you can check out your property between guests, stay informed on any maintenance issues, and take care of them before they become a bigger (more expensive) issue.

Potential for Passive Income: Although Airbnb rentals do require quite a bit of management, you don’t have to be the one to do it. With automated software and property management companies (many of which specialize in Airbnbs), you could set it up as a passive stream of income —it’ll just cost you a bit extra.

The Drawbacks of Airbnb Rentals

High Start-Up Costs: Unlike traditional rental properties, Airbnbs need to be turnkey, which means you’ll need to have additional funds available to pay for things like furniture, décor, linens, kitchen essentials, and Wi-Fi. And that’s in addition to all of the fees you’d typically pay when purchasing a property. Furnishing a 3-bedroom property with all the essentials can easily cost you an extra $30,000 or more. Plus, you can’t go builder basic if you want to compete with other properties in your area. Your Airbnb needs to stand out and that costs money.

Gradual Success and Irregular Income: Since Airbnb customers rely on reviews, starting out can be tough. It may take a while for you to attract the clients and reviews needed to reach your monthly revenue goals. Even with those 5-star reviews, your income can be sporadic, especially in areas where tourism fluctuates with the season. You’ll need to build in a financial cushion to ensure you can carry the costs of the property while your Airbnb business gets off the ground.

Local Regulations: Depending on where you live, local regulations can limit your revenue by restricting the number of days you can rent out your property each month. Homeowner associations can also have their own stipulations. So, before you purchase a property do your research to ensure you can reach your financial goals without breaking any rules.

The Bottom Line

The bottom line is this, always do your research before investing your money. Websites like AirDNA can help you nail down occupancy rates, daily rates, and year-over-year tourism growth. This data will allow you to determine your forecasted revenue and help you build out an informed investment strategy. And please, don’t forget to look into population growth while you’re at it — appreciation over the long-term should always be top of mind, regardless of how you’re utilizing the property.

While owning an Airbnb investment property has the potential to significantly increase your ROI and cashflow, it does require a lot more management than a traditional investment property. So, before you become an Airbnb host (or hire a company to do it for you) make sure it’s an investment that aligns with your long-term financial goals.


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