Over the past few years, vacation rental websites like Airbnb, HomeAway and VRBO have made it easy for property owners to rent out their own homes, condos, or townhomes offering unique lodging to tourists at rates sometimes cheaper than hotels, growing demand for vacation rentals.
Investing in property is an extremely tricky business. Especially when it comes to the vacation rental business, it is vital you do your due diligence and research before investing to ensure you reap the best benefits from your property. This article, in particular, focuses on buying an Airbnb property rental in Scottsdale, Arizona.
Scottsdale, Arizona (including Tempe, Phoenix, and throughout Arizona) is a perfect place for Airbnb.com, HomeAway.com, VRBO.com, or any short-term rental investment. Scottsdale, Arizona offers sunny weather year-round where winters rarely go below 50 degrees.
Arizona State University is the largest university in the country with over 100 thousand students and Arizona’s culinary schools are some of the best in the country. During the months of October to May snowbirds, sports fans, and people from all over the country flock here. Scottsdale’s resort destination is one of the best in the country with cactuses, desert wildlife, some of the best and scenic hikes, best sunsets and sunrises, and a perfect place for you to invest. h
Tourism is the fuel of all Airbnb investment properties. Airbnb hosts in Scottsdale have benefitted from the city’s tourism over the last few years. Over 4.5 million overnight tourists visited Scottsdale in 2017 - 2018 generating a whopping $2.4 billion in city revenue. About $44 million was generated from Privilege Tax collections, which strongly emphasizes the city’s dependence on its tourism.
There are plenty of tourist attractions in Scottsdale. According to the Scottsdale Tourism Study, the top ten activities for tourists, in order, are shopping, dining, swimming, visiting historic sites and parks, going to nightclubs, hiking, visiting museums, playing golf, visiting casinos and breweries. Hence, hosts that invest in non-owner occupied rental properties in the proximity of these recreational activities and locations, are at a definite advantage of capitalizing on the city’s tourism.
Arguably the main advantage of an Airbnb investment property over its traditional counterpart is its exceptional profitability, as rental income is collected on a nightly basis as opposed to a monthly one. This is another reason why Airbnb Scottsdale is also incentivizing Airbnb hosts.
The average Airbnb rental income in Scottsdale is believed to $2,788, meaning that the typical Airbnb Scottsdale investment property will most likely bring in a higher income than this number. The best neighborhoods in Scottsdale, for instance, have much higher averages. The average Airbnb occupancy rate in Scottsdale is also considerably high, highlighting the significant tourist demand in the city.
In the meantime, here is the Airbnb data for Scottsdale short-term rentals:
Median Property Price: $828,244
Price per Square Foot: $287
Price-to-Rent Ratio: 19
Rental Income: $2,788
Cap Rate / Cash on Cash Return: 1.8%
Occupancy Rate: 52%
Appreciation is usually associated with traditional rentals, while you can also benefit from value increases, depending on the real estate market. The Scottsdale housing market is one of these markets, with an appreciation rate of 10.33% over the last 12 months. This rate is top-tier in the US, as it is higher than the rates of 94 percent of cities and towns in the nation, according to Neighborhood Scout.
During the last 10 years, the Scottsdale real estate market appreciated by 34.15%, with an annual average of 2.98%. During that time, Scottsdale was in the top 20 percent in US real estate appreciation. The most recent quarter experienced an appreciation rate of 3.52%, which equates to a whopping 14.84% for the year.
Possibly one of the most important factors to consider when investing in Scottsdale is whether you would be buying a house or a condo (townhomes and lofts included) as a short term rental investment. Condos will allow you to get into locations like old town, Kierland, downtown, mill ave, Tempe town lake ((Scottsdale, Tempe, Phoenix) at a lesser price of a single-family home.
How will you differentiate your rental from your competition? Airbnb success is based on reviews from people who stay in your home. You will need to wow your guest which at the end will cost you more. This includes items like quality bedding and bath accessories; professional photos and staging of 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.
Short term rental is seasonal, and you make more during high season in Arizona. Make sure the property works as a long-term rental or other use like a vacation or 2nd home and even a retirement home. When you’re analyzing a property to be made into a rental, make sure its cash flows as a year-long rental too.
Before you can even consider investing in an Airbnb Scottsdale rental property, you need to understand the Airbnb regulations in the city.
Scottsdale, Arizona has seen its fair share of nightmare Airbnb stories. But Scottsdale struggles to enforce strict rules for Airbnb and other vacation rentals. The biggest threat to the short-term rental business is swift-changing local laws that limit their use.
Many of the new high rise condo developments and new single family home developments in Scottsdale, Phoenix, Tempe restrict short term rental and in the HOA disclosure forms allow a 3 months minimum rental policy for properties in the development.
Most new homeowners quickly find out that the list price of a home or condo is just the beginning of a laundry list of expenses. Owning an Airbnb investment property is no different. You need to factor in costs like utility bills, cleaning services, 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?
First thing’s first, is Airbnb legal in Scottsdale? The answer is yes! In 2017, the Arizona State Legislature legalized short-term rentals across the state. According to Scottsdale law, a short-term rental or vacation rental is defined as a dwelling unit offered for a rental term of less than 30 days to transient guests. Single-family and multi-family properties can be used as an Airbnb investment property in Scottsdale. Scottsdale short-term rentals must be rented in their entirety, portions of a unit cannot be rented out independently. All Scottsdale short-term rentals must be registered through the Maricopa County Accessor’s Office.
An Airbnb Scottsdale investment property must be in line with a number of regulations. All Airbnb units must have a maximum family size of 6 adults, and their related dependent children. Scottsdale non-owner occupied rentals are allowed by right in all residential districts. However, an investor should be aware of any restrictions on an Airbnb investment property, if any, in a given Home Owner’s Association.
As to be expected, an Airbnb Scottsdale investor must pay short-term rental taxes. An Airbnb Scottsdale investment property is subject to a State Transaction Privilege Sales Tax (5.6%), a City Transaction Privilege Sales Tax (1.75%), and a City Transient Tax (5%). For more detail on Scottsdale short-term rental taxes, be sure to check out the City of Scottsdale website.
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? Are you insured for unforeseen issues or injuries, etc.
At the end of the day every real estate investment is the same. Your success is related to the overall market and price value increase. If you manage your property, consider it a business, account for every expense, provide a fun, safe, clean place for guests, and hold on for a long time you will make money. As a bonus, some incentives like free uber/lyft rides, coffee Starbucks card, free dinner at a restaurant to stand out from the rest and the potential of turning a profit increases in return will be a great investment choice.