Are you starting an Airbnb business or just maybe expanding? Owning an Airbnb property boils down to investing in a new property. However, before leaping into buying a new property, it is of the utmost importance that properties are evaluated and more so, taking crucial steps to finding the best Airbnb property to buy in your selected area.
In achieving this goal and maximizing your profits, this article will guide you through making a few wise decisions. Let’s dive into the following:
Airbnb is a leading online platform for vacation rental properties connecting both property managers or real estate investors and travelers all in one place. Moreover, listing properties on Airbnb is free, and one can enjoy the advantage of providing written descriptions, capturing photographs with captions, and a user profile for guests to learn more about the host.
Airbnb has not only become favorable to hosts but also gets to set and adjust prices based on factors such as seasonality, neighboring competition, etc. More importantly, Airbnb provides a Host Guarantee Program for up to $1,000,000 in damages to cover rental properties.
With that said, travelers happily choose Airbnb over hotels because of the accessibility and homely experience it provides and offers.
With any real estate investment property, everything starts with a location. Think about it? It is the golden rule or real estate mantra to any short-term rental business. More than that, it is one of the most important determinants when selecting your perfect short-term rental as well as determining your return on investment.
When buying Airbnb real estate, it is important to first analyze the following:
Taking into account, ideally, tempting locations are usually downtown, beaches, mountains, national parks, or areas close to major events held in the city. More so, smaller towns can also make them top markets for Airbnb investments.
In choosing a good location, it is highly recommended to invest in locations where visitors are present all year round. More importantly, consider locations that maximize occupancy rates at the city level as well as the neighborhood. Doing so will allow you to assure your future investments as well as enjoy the highest possible rental demand.
Before investing in Airbnb real estate, it is of utmost importance to be aware of the local laws and regulations of the city. More so, with the overwhelming growth in vacation rental businesses, local authorities have started imposing strict regulations in many places across the US, including other countries.
Keep in mind, certain places prohibit Airbnb rentals. Even more, depending on the location, sometimes might require a license before starting an Airbnb business. As a property manager or a real estate investor, it is highly recommended to avoid legal issues and financial penalties that could affect your short term rental business in the long run.
With that said, before making a final decision in investing in Airbnb real estate, firstly, check out the local Airbnb laws and regulations governing short term rentals. Additionally, research via online resources, local government websites, etc., and ensure you understand what are the terms to operate an Airbnb business and taxes and fees that are expected to be paid.
So, when looking at Airbnb property to buy, look at cities that are Airbnb friendly where laws and regulations will not likely affect your return of investment.
The best type of property to invest in on Airbnb is one that gives the most profitable income and a higher occupancy rate. However, this all depends on the location chosen as well as your target guests.
For example, if you are keen on properties located at busy city centers, a condo or an apartment perhaps would be more ideal especially to business travelers or solo travelers provided that HOA allows short-term leases. On the other hand, if you are targeting families or big groups, the best choice would be to invest in Airbnb beach homes or single-family homes.
When investing in Airbnb property, one of the factors that need to be taken into consideration is your budget. It is of the utmost importance to first consider all your sources of income as well as your ongoing expenses, and then set a maximum price for a property that you are comfortable with.
Make sure that when setting up a budget, you have to also consider other hidden expenses such as closing fees, insurance, property tax, furniture and utilities, etc., and expenses in optimizing your Airbnb rental.
With that said, short term rentals can be profitable if it is done correctly. Therefore, it is best to find an affordable property within your budget which will not likely risk mortgage payments as well as compromise your personal finance.
Once you have determined your budget, it’s time to actively look for available properties on the market whether it is through online listing websites, real estate sections of local papers, friends and family, acquaintances, or even use a property finder tool. Take note, keep an eye for properties that are foreclosures, bank-owned, and even off-the-market properties as they are a great investment due to the low price.
More so, it is important to also establish specific qualities of the property based on size, condition, and age, before leaping. Additionally, keep in mind not to go overboard with your budget as you are buying an investment property and not your dream home. Therefore, decisions should be based on numbers and lucidity.
In achieving to finding the best Airbnb property to buy, an option to consider is hiring real estate agents. Think about it - Real estate agents have access to the best deals on the market. They are good at negotiation skills allowing you to buy at a better price. They are great at advising on the top neighborhoods, best property type, and aware of the local laws and regulations. What more can you ask for?
Real estate agents simply make it simpler. And if you think, it is costly due to agent fees. Think again. It is the seller who pays the agent fees and not the buyer, therefore, no worries about the additional cost to your budget.
After you have pinpointed out a few properties matching your budget and criteria, the next thing to do is to carefully compare and analyze other properties that are similar to the ones you’ve selected. It is significant to see what are the prices, and differences between the properties you’ve selected and the ones you are considering. Doing so will help you decide and assure that you do not overpay and recognized the fair market value of your Airbnb property.
Once that has been examined, the next step in real estate analysis is to estimate and calculate the monthly rental income with the help of investment property analysis. Additionally, make a list of all the ongoing costs as well as the start-up costs to see whether your property delivers a positive cash flow. Also, be aware not to settle with properties that barely make the minimum income or have negative cash flows. Ensure to invest only in properties that are positive cash flow.
More so, estimate the expected return on investment based on the cap rate and cash on cash return and consider that a good cap rate is above 8%. That way, your return on investment will be worthwhile.
Understandably real estate analysis takes a tremendous amount of time and effort. More so, some of the property investors do worry that by the time the data and calculations have been collected and examined, there is a possibility of the property being sold before they can even determine whether it is worth the investment.
But of course, with the emerging advancement of real estate investment tools like AirDNA or Mashvisor especially with the growing competitive real estate market, property investors use this tool to make their lives easier and enjoyable while delivering faster and reliable data. Additionally, the data given is not only accurate but also delivers predictive analytics making it efficient to grow a vacation rental business.
When running an Airbnb business, property managers, ideally set a nightly rate and adjust prices according to seasonality, events, travel trends, and neighboring competitions. With that said, in comparison to traditional versus short-term rentals, expect that short-term rentals do not get a fixed monthly rent which can be a risky investment.
However, with the help of Airbnb analytics, you can minimize the risk by forecasting future outcomes allowing property managers to make intelligent investment decisions. More so, Airbnb analytics delivers data, analyzing the returns and performance of properties based on Airbnb occupancy rates, cap rate, cash flow, estimated rental expenses, cash on cash return, and comparable rental income.
Airbnb rental properties are no doubt a lucrative business though without the right and proper steps, there is a risk of incurring losses especially with the emerging real estate markets available. It is with great importance that the key to buying the best Airbnb property is by following the step-by-step guide mentioned above.
More so, even if your investment property is great but struggles at managing it correctly, it will be likely to achieve the desired return on investment. Therefore, Hostaway, a leading all-in-one vacation rental software will take your vacation rental business to greater heights. Not only does it save time and cost but also automates nearly all aspects of your day-to-day operations, marketing, and distribution, simply making the process efficient and reliable.