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Is Investing in An Airbnb a Good Idea?

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It may sound like a strange time to discuss investing in an Airbnb when travel is at record-low levels because of the coronavirus, but travel will likely return and perhaps even stronger than before. With interest rates similarly at record lows, you might be thinking about investment opportunities anyway, so is buying an Airbnb property the right way to go?

There are a lot of things to think about financially and logistically.  You have to consider how to lower your costs, which usually occurs by being more eco-friendly. For example, maybe you decide to cool your property with energy-efficient Amana PTAC units instead of central air, which will help you save money.

Even with money-saving strategies such as going green in your Airbnb, is it a smart financial decision?

The following are things to consider.

Location

Again, while things are somewhat skewed right now because of coronavirus, overall, some things are likely to hold true if you invest in an Airbnb. One is that location makes a difference.

Some cities are just significantly better than others for investing in these properties you’ll use as short-term rentals.

Generally, when it comes to location, the more hotels that are available in that location,  the less lucrative your Airbnb may be.

While things may look different this year and next, last year, some of the locations in the U.S. where you could see the highest potential revenues for an Airbnb investment included Palm Springs, CA, Lahaina, HI, Davenport, FL, Bend, OR and Nashville, TN.

The cities that did the worst, including Miami Beach, FL, Venice, CA, Berkeley, CA, Oakland, CA, and Houston, TX.

In these situations, one of the biggest issues wasn’t necessarily the revenue and the demand from renters, but instead was the higher prices of properties. That would make it difficult to cover the costs of the home.

You’re going to need to identify properties that are in a location that is going to appeal to tourists and perhaps business travelers as well. There need to be supermarkets and similar amenities nearby, and if relevant, public transportation. You’ll also need to think about the safety profile of the neighborhood.

Guests Have High Expectations

Something you have to know as an Airbnb host and investor is that renters have high expectations of these properties, and they’re discerning. Most have stayed in many Airbnbs previously so they know what they want to see, and if they don’t, they’re going to be tough in the reviews. Bad reviews can sink your rental quickly.

You need to be willing to put in the time and money upfront to ensure your property looks great and has what discerning renters are going to want, and you need to be able to keep up with their demands over time as well.

If you don’t think you can handle guests’ demands because you work full-time, you’re likely going to need to hire a property management company. That’s going to factor into your costs versus your revenue, and sometimes significantly so.

Gain a Full Understanding of Expenses

It’s easy to think your only expense if you become an Airbnb investor is going to be the property itself, and that’s entirely wrong. Investment properties, whether for Airbnb or otherwise, are expensive in the ongoing sense.

What would happen, for example, if you were to have a period of vacancy, which a lot of Airbnb owners are experiencing right now?

How would you afford that?

What if home prices in the area you buy decline, and then you need to lower the rental price of your Airbnb?

Even the Airbnb service fee is 3% on its own.

There are other costs, such as utilities too. You can bake some of this into your rental price, and as was touched on, make eco-friendly updates that might help you lower them,  but still, you have to consider it.

Local Rules

Finally, some of the biggest tourist hotspots also happen to have the strictest local rules and ordinances for Airbnb rentals. How much of a burden will these rules be?

None of this is to say an Airbnb investment isn’t a good one, but there’s more to it than meets the eyes. There are many success stories but also more failures. The more prepared you are, the less likely you are to be one of the failure stories. A lot goes into being a landlord of any type, and it’s a tough investment in many ways.

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