Rental properties can be a great investment…if you know the right strategies.
In this article, we’ll take a closer look at Airbnb vs. renting to tenants to help you decide which one is right for you.
If you have a spare house among your assets, you’ve probably given serious thought to the ways you can put it to work for you. After all, most people get involved in real estate investment, not because they’re bored, but because they want to make money.
There are two main rental strategies you can use to leverage your investment property: traditional renting and short-term vacation renting.
Although there are multiple short-term rental sites available, Airbnb is the most popular; it’s practically synonymous with the entire short-term rental industry. You’ve certainly heard of Airbnb (or one of it’s competitors) and you may even have booked one or two of them. But does that mean it’s the best rental strategy for you?
In this article, we’ll cover the pros and cons of Airbnb vs. renting to tenants so you can discover which option is best for you.
Airbnb vs. Renting to Tenants
Selecting the best rental income method for your investment property is not a decision to be taken lightly. Both Airbnb and traditional renting have their pros and cons, and each one will result in a completely unique experience for you as a landlord.
Before you put serious thought into one or the other, here is a brief overview of some of the challenges and benefits of Airbnb vs. renting to tenants.
Short of running an Airbnb experiment on your own property, there is no surefire way to know which strategy will make you the most money.
While renting a house by the night rather than “in bulk” will usually earn more money in any given year, there is no guarantee that your Airbnb will be fully booked for that entire time. If you live in an area that doesn’t see a lot of tourism, vacation renters might be few and far between.
Also, when you rent a home through Airbnb, you’re competing against a much bigger set of properties. Many Airbnb hosts are snowbirds, not business owners. They can undercut your prices because their alternative is having the house sit vacant for a time. (As a landlord, you don’t have this option.)
Granted, you’re not always promised to find a traditional renter to sign a one- or three-year lease, but once you do, you’re all but guaranteed income for the length of that lease term.
Some expenses (like the mortgage) will be the same regardless of how you use your rental property. But Airbnb rentals come with their own unique set of expenses.
Not only will you have to keep the place furnished and well-stocked with linens and cookware, you’ll also have to supply things like toilet paper, dish soap, and basic condiments (such as salt and pepper) if you want to keep your status as a good host.
Utilities (such as water, electric, wifi, and cable) will be your responsibility, too. And keep in mind that your guests may take advantage of the fact that they’re not paying the bills and crank the A/C as high as they can.
Whether you’re dealing with a traditional rental property or an Airbnb rental, basic repairs and maintenance will be necessary. The difference is in how thorough and how frequent this maintenance needs to be.
With traditional rental properties, you will need to respond to maintenance request and do a move-in/move-out inspection between each tenant. Even under a one-year lease, you will only have to do an inspection and cleaning once a year.
With a vacation rental, however, you will be responsible for inspecting and cleaning between each guest. If you have consistent bookings throughout the year, you may have to visit your rental property multiple times a week.
As any landlord will tell you, finding the right tenant makes a huge difference.
Being able to screen potential tenants before allowing them access to your property can save you a ton of time, money, and stress. But there’s no easy way to do this with an Airbnb listing.
That’s not to see that screening your short-term renters is impossible, just that it’s on you to do the due diligence of checking the little information available to you as a host (their Airbnb profile and social media accounts). With so much competition on the site, asking them to submit to a background or credit check is likely to effectively end your career on Airbnb.
Long-term renters, however, will expect a thorough screening.
Another thing you’ll want to consider is whether your home insurance carrier and/or mortgage lender will approve your choice to become an Airbnb host.
While most of these service providers don’t mind the presence of a long-term rental, others may balk at the idea of you allowing unverified guests into your home. Homeowners have had their insurance policies canceled and mortgages put in jeopardy once these companies find out they are running a “bed and breakfast.”
If you plan on making a career as an Airbnb host, disclose this plan as early in the process as possible and secure all necessary funding and insurance policies before you allow any guests in the property.
Most rental properties start out as a sincere expectation that they will be a “hands-off” way to earn a bunch of extra money. The majority of these landlords find, however, that managing a property effectively is a lot of work.
And it’s even more work to run an Airbnb.
Becoming an Airbnb host doesn’t make you a landlord…it makes you a hotel owner. And if you want to run a successful getaway spot, you’ll have to impress your guests. This will involve coordinating several changeovers a month, accommodating any special requests, and refilling or replacing furnishings as needed.
Few people have that kind of time.
But while you can easily find a property management company for a long-term rental, it’s not as easy to find someone to manage your vacation rental and—in most cases—not profitable.
If you’re willing to put in a lot of extra work, running an Airbnb business could be perfect for you. But if your goal is to have a source of passive income, you’d be better off with a management company and traditional long-term renting.
Is Airbnb For You?
You need to consider a lot of different factors before deciding between Airbnb vs. renting to tenants.
Is your property in high demand for short-term renters and tourists? How much work do you want to do? Will your insurance carrier allow you to start a short-term rental business?
But ultimately, the main question you need to ask yourself is: What type of business do you want to be in?
Running an Airbnb vs. renting to tenants are two completely different businesses. If the idea of being in the hospitality industry excites you, Airbnb could be a lucrative (albeit full-time) job. If you dread the thought of having to constantly drop what you’re doing to handle issues right as they pop up (and not be able to outsource it to a property manager), you’ll be much happier with traditional renting.
Airbnb, VRBO, and other vacation rental sites have only grown in popularity over the past few years, but traditional long-term renting has stood the test of time.
Real estate is one of the most stable and profitable investments around, and if you’re lucky enough to have an extra property, becoming a landlord could be a great income strategy for you. But it can easily become stressful if you try to do in on your own.
Professional property management companies, like American Home Team Realty, can take the stress and headache out of being a landlord so you can enjoy that rental income. From listing your property and screening tenants to collecting rent and handling maintenance requests, American Home Team Realty does it all!