Since Airbnb’s start date in 2008, its services have been recognized all over the world, on its current status as a multi-billion dollar company. In line with the company’s continued success are the many Airbnb hosts and vacation rental managers who are determined to earn a profit either as their main source of living or passive income.
In this article, the strategies of real estate investors and hosts who are determined to succeed in their Airbnb investment will be discussed. Whether you are a beginner or a pro in the Airbnb industry, these steps and techniques will certainly help you in achieving long-term profitability!
What is Airbnb Investment Strategy?
Airbnb investment strategy refers to a process wherein real estate investors or hosts purchase a property for the sole purpose of subletting it on online platforms such as Airbnb. Some hosts on podcast interviews share that they tried to put up their spare rooms at home for rent as a trial to check whether it’s profitable or not. Later on, they’ll be convinced to invest and purchase more properties to earn additional rental income.
However, handling an Airbnb business is a tedious task as it requires time and effort. Whether you are managing one or more properties, it’s essential to monitor them closely and use an Airbnb channel manager.
For a start, you would want to avoid double bookings, getting fined for breaching local laws in your area, or worse – bankruptcy. Here are the effective strategies that should be considered in order to assure that your Airbnb business will be profitable in the long run:
1. Conduct Market Research
The primary step that every property investor should take is to conduct thorough market research. Before deciding to purchase a property, it is important to take a look at specific suburbs or neighborhoods that have high occupancy rates even during the off-season and bring the most profit to your business.
For instance, if you want to start an Airbnb business in California, carrying out market research for cities such as San Diego, Los Angeles, or Santa Barbara will give you an insight into their demographics. Through this, you will be able to make smart business decisions!
Airbnb’s Local Laws & Regulations
Considering that the rules and regulations for each city may vary accordingly, this part of the market research should not be skipped! It’s important to comply with the local laws in your area in order to run a worry-free Airbnb business. While most short-term rental laws are published on their respective government websites, you can also visit your local City Hall and inquire regarding their requirements so that you can legally operate an Airbnb.
Taxes, Expenses, and Legal Fees
Depending on your preferred area to start an Airbnb business, getting a grasp of upfront and ongoing costs, legal fees, and other fees will help you calculate your monthly expenses.
2. Utilize Analytical Software Tools
Once you have finalized your preferred city for Airbnb investment and confirmed that it is legal to operate one in your area, the next step is to take advantage of technology! Using an Airbnb calculator, you will be able to conduct market research. Discover highly profitable areas and emerging markets, and have an accurate insight into your potential revenue.
In addition to this, hosts can create comparisons using analytical software based on accurate Airbnb key metrics such as occupancy rates, annual revenue, average daily rates, cash-on-cash return, and the like. For instance, by looking at Airbnb cities with the highest occupancy rates, you can easily compare and make the wisest investment decisions.
3. Financing your Property Investment
Now that you have a brief overview of the overall costs and potential revenue in starting your Airbnb business, let’s talk money! Here are some of the options that you can consider in order to finance your property investment:
Paying upfront for your property investment may be convenient due to certain discounts and it certainly avoids wasting a lot of money on interest expenses. However, due to the worry that it may cap potential gains, some investors prefer to look into other financing options.
Conventional bank financing
If you are looking for low property interest rates, financing through a bank is another option to get started on your property investment. Although it may take some time to be approved, it can maximize your potential profit depending on your downpayment.
Private individual lenders
Private individual lenders can instantly provide funds. However, they usually have higher interest rates than banks. This last option is ideal for those who fail to get approved due to their recent credit history.
4. Sit back, Relax, and Rely on Smart Automation
The good news is that once your Airbnb business is ready to operate. There is an all-in-one solution to help property managers like you to be worry-free! To become a successful property manager, it’s essential to utilize management platforms like Hostify. Here are some of the features of Hostify that will certainly boost your productivity and maximize the cashflow in your Airbnb business:
Reliable Property Management & Automated Messages
Primarily, the ranking of your listings on Airbnb will depend on how fast you can respond to guests’ inquiries, reservations, and other concerns. As mentioned above, this may be time-consuming and it requires a lot of effort to respond to each message if you have more than one property to handle! Hostify’s property management software will take care of this and will give you more time to focus on hosting your guests when they arrive.
Channel Manager to Increase Bookings
Worried about not being able to get more bookings than expected? Hostify’s channel manager will give you the assurance that your listing will be synced on different booking portals including Airbnb, Booking.com, VRBO, and others. Skip the traditional booking strategy and enjoy the perks of the digital era!
Simplified Payment Processing
Tired of repetitive payment processing tasks? This could get overwhelming in the long run, which is why the majority of vacation rental managers depend on automated payment processing. Hostify’s payment processing will conveniently notify successful payments and deposits.
Pros and Cons of Airbnb Investment
In the current digital world, investing in an Airbnb business has become a lot easier. If vacation rental managers would like to expand their business in different parts of the world, they can instantly rely on accurate data based on Airbnb key metrics and solve certain problems with the help of technology.
Overall, the Airbnb business can be highly profitable in popular states with tourist attractions like New York or California. Based on Airbtics data, an average host in Los Angeles, California can earn a whopping annual revenue of $45,747 for a 1-bedroom property alone. While millions of hosts from all over the world focus on developing their Airbnb businesses, there are also challenges and disadvantages that one should take note of. Here are the pros and cons of Airbnb investment.
The major advantage of investing in the Airbnb business is that it could be a great source of passive income. There are some hosts and vacation rental managers who are remotely handling their properties while doing other full-time work at the same time, so they instantly get extra income in one snap.
While other hosts benefit from Airbnb as their main source of living, investing in an Airbnb also provides local job opportunities for management or cleaning staff in their local area.
In addition to this, Airbnb also considers Airbnb tax-deductible items that include cleaning services, property taxes, mortgages, repairs and maintenance, and other professional services such as photographers or accountants.
For property investors who have a limited budget and are not capable to purchase Airbnb properties yet, rental arbitrage is also another available option. By simply subletting a property for Airbnb, landlords in your area will also earn extra income as long as both parties can agree on certain terms and conditions.
Given the fact that investing in an Airbnb requires time and effort, using a data analytics tool & a property management platform will certainly lessen your burdens as a host. Once everything on your Airbnb business has been automated, some of the things that you need to think of are welcoming your guests and other ongoing expenses. Aside from this, it is a fact that investing in an Airbnb property may also be costly depending on your preferred location.
For instance, one of the ongoing costs when investing in a property in the UK is the agency fee which is around 3% or £3,750 for a £250,000 worth of property. These ongoing and upfront costs may be expensive depending on your target area and should be expected to increase according to your local city’s laws and real estate agent fees.
Similarly, whether you are handling one or more properties, furnishing & maintenance costs are one of the cons for Airbnb investment. Although these are considered tax-deductible items for Airbnb, preparing for similar costs is important in order to set your overall expectations before investing in an Airbnb.
Written by Robyn from Airbtics