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 long-term 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 investment strategies you can use to leverage your property: traditional renting and short-term vacation rentals.
Although there are multiple short-term rental sites available, Airbnb is the most popular; it’s practically synonymous with the entire industry. You’ve certainly heard of Airbnb (or one of its competitors) and you may even have booked one or two of them. But does that mean it’s the best real estate investing 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 short- and long-term rentals 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.
INCOME POTENTIAL
Short of running an Airbnb experiment on your own property, there is no surefire way to know which strategy is the best for your bottom line.
While you can typically charge more per night for short-term rentals rather than a traditional yearly lease, there is no guarantee that your Airbnb will be booked every night. If you live in an area that doesn’t see a lot of tourism, short-term renters might be few and far between.
Also, renting to vacationers puts you in competition with the entire existing pool of Airbnb properties. Many Airbnb hosts are snowbirds, not business owners. They can undercut your prices because their alternative is having the house sit vacant. (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. (Besides, that’s where a management company can help!)
EXPENSES
Some expenses (like your 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.
MAINTENANCE
Whether you’re dealing with a traditional rental property or a vacation rental, basic repairs and maintenance will be necessary. The difference is in how thorough and how frequent this maintenance needs to be.
With long-term tenants, you will need to respond to maintenance requests and do a move-in/move-out inspection between each one. Even under a one-year lease, you will only have to do an inspection and cleaning about 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. Those expenses add up quickly.
TENANTS
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 vacation rentals.
That’s not to say that screening your short-term renters is impossible, just that it’s on you to do the due diligence of checking what little information is available to you as a host. With so much competition on the site, asking them to submit to a background or credit check is likely to effectively end your career in the vacation rental business.
Long-term renters, however, will expect a thorough screening.
APPROVAL
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 insurers typically don’t mind the presence of a long-term tenant, most will balk at the idea of you allowing a revolving door of 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.
PASSIVE INCOME
If you’re interested in property management because it seems like a good way to bring home the bacon without lifting a finger, think again. 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 who handles long-term rentals, it’s not as easy (or profitable) to find someone to manage your vacation rental.
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 strategy.
IS AIRBNB FOR YOU?
You need to consider a lot of different factors before deciding between Airbnb vs renting to long-term tenants.
Is your location in high demand for short-term renters and tourists? How much work are you prepared to put in? 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 long-term renting.
CONCLUSION
Airbnb, VRBO, and other vacation rental sites have only grown in popularity over the past few years, but traditional long-term rentals have 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 it on your own.
Professional property management companies, such as 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!
