Katie Ziraldo5-minute read
January 12, 2023
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There’s no question that Airbnb has permanently changed the travel industry. If you’ve stayed in an Airbnb rental, you may have wondered what it would be like to be on the other side. We can see the appeal! By becoming an Airbnb host, you can diversify your income without needing to be a real estate expert. Airbnb’s rise in popularity has made this potentially a solid approach to buying an investment property, but that doesn’t mean it will work for everyone. In this article, we will explore Airbnb investments and the distinct advantages and disadvantages they may come with. Keep reading to learn more.
Airbnb Investment: How Does It Work?
If you’re looking for passive income, a real estate investment may be a good option to consider. But what is the difference between a traditional investment property and an Airbnb?
A property is considered an Airbnb investment when either part or all of the property is rented out on Airbnb after purchase. These rentals are typically short-term, which allows you to host many guests throughout the span of the year, where traditional investment properties are most commonly rented to long-term tenants.
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Airbnb Investment And COVID-19
Before buying any investment property, the first step is to look at the market and any outside events that may be impacting it. A good example of this is the COVID-19 pandemic and the significant effect it has had on Airbnb over the last 2 years. Like many companies, Airbnb struggled in 2020, ultimately laying off 25% of its employees. Although some may assume this implies an overall decline in Airbnb profitability, we have actually seen the opposite effect in certain markets. For example, rural Airbnb rentals - such as cabins or cottages - are currently surging as travelers who have been cooped up at home seek out safe, secluded travel destinations. As we progress through the COVID-19 pandemic, it’s unclear how the rental market will adjust. Those considering investing in an Airbnb property may want to wait 6 months to see how these trends hold up.
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Is An Airbnb Investment More Profitable Than A Conventional Investment Rental Property?
Because each investment is unique, there’s no quick answer to this question. But in high-demand areas, the nightly cost of an Airbnb can lead to higher profits. For instance, let’s say you want to rent out a one-bedroom apartment in Los Angeles. As of March 2022, the average monthly cost of that apartment is $2,563, meaning you could make roughly $30,000 if your tenant signs a 12-month lease. But short-term bookings are able to charge more per night, which means you could make more. According to AirDNA, the average daily rate for an Airbnb in Los Angeles is just over $190, with units typically occupied 67% of the year. This means you could make over $46,000 off of your Airbnb – a pretty significant $16,000 more than you would through traditional renting. Airbnb also charges renters a maintenance fee, which means you may save on necessary repairs. Still, when considering the potential for a higher profit through Airbnb, you must also consider the key differences between these types of rental properties and how those differences will impact your wallet. Managing an Airbnb involves several unique expenses you should consider, including:Unique Expenses Of An Airbnb Investment
Airbnb Investment: Pros And Cons
“The Airbnb market is competitive now and becoming more so every day,” explains Isabeau Miller, the CEO of Beckon Homes, a company focused on helping real estate investors find, furnish, market and manage their Airbnbs. “Travelers now expect hotel-like amenities and services, with a personal and individualized touch.” These rising standards can also lead to some significant pros and cons:Pros
Cons
What Kind Of Property Should I Buy For An Airbnb Investment?
Despite what some may think, an Airbnb investment does not need to be a vacation rental home, as many use Airbnb for business travel and other life events that may bring them to any number of locations across the country. This means it’s possible to have a profitable Airbnb regardless of where you’re located! Prospective Airbnb investors should look at local listings first to see what kind of properties are in demand where they live. You can also rely on real estate experts to help you choose the right property for your investment. “I made sure that I found a real estate agent who understood the Airbnb rental market in the area and the purchase process was easy,” says Bryce Welker, owner of CPA Exam Guy, who also owns and operates multiple Airbnb rental properties. “I followed a template I found online that walks owners through the furnishing and set-up process to equip an Airbnb rental for both short and long-term stays.”
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Do I Need To Live Near My Airbnb Rental?
The short answer: no. Although it is more convenient to be located near your Airbnb property, it’s not entirely essential. If you choose to invest in a property that is not near your primary residence, you will likely need a property manager – but that may not be a bad thing. Some experienced Airbnb hosts find great value in having the help. “I wish I had known how often people flake on you after expressing interest in renting your place,” shares Welker. “I would have opted to hire a property management company from the start just to help with the frequent back-and-forths that end up going nowhere.”
What Are the Best Cities For Airbnb Investment?
As we’ve discussed, COVID-19 has disrupted many Airbnb trends, making it difficult to clearly identify the current top cities. Top cities in the past have included Palm Beach and San Francisco, but to ensure you have the information you need to make a profitable investment, it might be a good idea to let the dust settle before choosing a location.
Legalities To Consider
Each locality will have different requirements for Airbnbs, and some may even require the property to be a primary residence. If the property is part of an HOA, there might be added wrinkles to consider. Because these laws and guidelines vary dramatically between regions, you’ll have to do some research into your local short-term rental requirements before purchasing a property.
The Bottom Line
If you’re contemplating an Airbnb investment, you must consider all the benefits and challenges you may come across along the way, from the potential for higher profits to the loss of personal time required to advertise and maintain the property. “Running an Airbnb can and will be a full-time job filled with needy guests, property issues and liability,” summarizes Miller. “But being a communicative, thoughtful host with a beautiful, comfortable space can be incredibly profitable for investors and homeowners alike.” As a reminder, COVID-19 has significantly disrupted the Airbnb ecosystem, so it may be advisable to wait until the situation has normalized before deciding to take the plunge. However, if you are looking at buying a primary residence that can also bring in Airbnb income, the risks may be lower, as long as you can afford your mortgage without supplemental income. If this sounds like your situation, why not get preapproved to start the process?
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FAQs
Airbnb Investment: Is It Right For You In 2022? ›
Airbnb's strong growth and appealing valuation make it worth a look in 2022. Airbnb (ABNB 2.41%) has become a household name in the world of travel. For both travelers in search of places to stay and hosts who offer their homes to guests, Airbnb has become the go-to service.
Is Airbnb a good investment 2022? ›With statistics showing that Airbnb investing was profitable in 2022 and that the positive trends will continue in 2023, those interested in short term rentals should not give up. As long as the statistics look promising, there is hope for a profitable year.
Is Airbnb still profitable in 2022? ›Overview of Q4 and full-year results. 2022 was another record year for Airbnb. Revenue of $8.4 billion grew 40 percent year over year (46% ex-FX). Net income was $1.9 billion—making 2022 our first profitable full year on a GAAP basis.
Is now a good time to invest in an Airbnb property? ›According to the latest reports, the short-term rental industry will witness unprecedented growth in the coming years. This means that Airbnb rentals will also be profitable and prove to be a good investment for real estate investors. In this section, we will take you through the best Airbnb markets around the world.
Is Airbnb still a good investment in 2023? ›Wall Street is certainly optimistic about Airbnb's prospects. Analysts expect the business to post year-over-year revenue and diluted EPS growth of 14.3% and 22%, respectively, in 2023.
Will Airbnb do well in a recession? ›Some sector experts agree that, though Airbnb wouldn't be totally recession-proof, the company might hold up relatively well during a downturn.
What is the future prediction for Airbnb? ›Airbnb Inc (NASDAQ:ABNB)
The 28 analysts offering 12-month price forecasts for Airbnb Inc have a median target of 132.50, with a high estimate of 163.00 and a low estimate of 95.00. The median estimate represents a +18.21% increase from the last price of 112.09.
| ROOM COUNT | AVERAGE ANNUAL HOST EARNINGS 2021 | AVERAGE ANNUAL HOST EARNINGS 2020 |
|---|---|---|
| 1 Room | $8,586 | $4,680 |
| 2 Rooms | $13,067 | $7,482 |
| 3 Rooms | $18,026 | $10,915 |
| 4+ Rooms | $28,143 | $17,808 |
Renting out a property on Airbnb requires a substantial time commitment if you want to be successful. Be prepared to devote some portion of each day to the task. One advantage that traditional hotels offer is time, because booking a hotel room only requires one interaction.
What is the best type of property for Airbnb? ›The best type of property to invest in on Airbnb is one that gives more income and a higher occupancy rate. But it all depends on the chosen location and your target guests. For example, if you want to buy Airbnb property in a busy city, you'd probably want to invest in a small apartment or condo.
What is the future of Airbnb 2023? ›
In fact, Airbnb expects the average rate for its rentals to drop slightly in 2023, something the company mentioned in its conference call to shareholders. Travelers, the company predicts, will seek out accommodations at a lower cost in 2023 as they try to get more value for less money.
What is the downside of owning Airbnb? ›There are many expenses that come with having an Airbnb. For instance, you will have utility bills that may be higher than usual since guests don't really care how much electricity they use. You will also have cleaning expenses if you are not willing to do it on your own.
How much should I invest in Airbnb? ›The average cost to start an Airbnb sits between $3,000-$6,000. This cost will significantly vary depending on the following items: Property purchase price. Home Loan Down Payment.
Is Airbnb a smart investment? ›By becoming an Airbnb host, you can diversify your income without needing to be a real estate expert. Airbnb's rise in popularity has made this potentially a solid approach to buying an investment property, but that doesn't mean it will work for everyone.
Is Airbnb slowing down 2023? ›While bookings may feel slower, nightly rates and overall revenue are still growing YOY. For 2023, AirDNA forecasts that average daily rates (ADRs) will grow 1.7%. This is slower than the previous couple years, though, so you'll need to manage your listing more proactively to make sure you get your piece of the pie.
Is Airbnb declining 2023? ›Airbnb occupancy trends in 2023. In our latest Short-Term Rental Outlook report, we forecasted average occupancy rates would be 56.4% for 2023. While this is slightly lower than 2022 and 2021's rates (58.3% and 60.3%, respectively), it's still well ahead of rates in 2019 and 2020 (53.3% and 52.9%).
Is owning an Airbnb risky? ›Hosts are paid out based on guest stays. Guests often find Airbnb is cheaper, has more character, and is homier than hotels. Risks of hosting include renting your place to rude guests, theft or damaged property, complaints from neighbors, and potential regulatory violations depending on your location.
Does Airbnb devalue your house? ›If short-term rentals provided via Airbnb create a concentration of what are effectively unsafe hotels, upsetting quiet residential neighborhoods with more traffic and persons who don't care about the neighborhood, they may generate a local concentration of externalities that might be expected to depress property ...
Is Airbnb getting over saturated? ›Many people saw short-term rentals as a way to make money during the pandemic. Now an oversaturation of hosts has led to more Airbnbs, leading to booking slowdowns in some areas.
How much will Airbnb stock be worth in 5 years? ›They predict that the Airbnb stock forecasts will keep its average price above $300 during 2026 and hit a maximum price of $447. The stock's value will grow tremendously, with an average price of $542 in 2027 and an average price of $787 in 2028.
What will Airbnb stock be worth in 2025? ›
It then predicted a dip to $139.38 by May 2024, slipping further to $134.24 by May 2025, with a future price of $129.10 by May 2026. The 5 year Airbnb stock outlook put the stock at $122.95.
Why is Airbnb stock crashing? ›Airbnb (ABNB) stock tumbled Wednesday as the company expects bookings and average daily rates to decline in the current quarter when compared to last year.
Can you make a living owning Airbnb? ›According to online data, Airbnb business owners can make close to $100,000 per year, if not more, without owning any properties. From co-hosting to becoming a vacation rental consultant, we've compiled the top 10 ideas on how to make money on Airbnb without acquiring a property.
Where do airbnbs make the most money? ›According to Tipalti's study, Hawaii is the US state with the highest average annual host earnings. There, Airbnb hosts make, on average, a whopping $73,247 per year.
Where is the most profitable place to have an Airbnb? ›According to data shared by Mashvisor, one of the top Airbnb host calculators, Nashville in Indiana is one of the US cities that offer the highest short-term rental cash on cash returns. Hosts can expect a monthly short-term rental income of about $5,000, with daily rates averaging at $260.
How many hours does it take to run an Airbnb? ›How many hours? Depending on the type of vacation rental you are running, you could be looking at spending 2-3 hours a day managing your property and between 5-8 hours on days where you have a change-over of guests. What takes so long, you ask? Here are some things that are likely to eat away the hours in your day…
How much does the average Airbnb make a month? ›| Annual Salary | Monthly Pay | |
|---|---|---|
| Top Earners | $397,000 | $33,083 |
| 75th Percentile | $181,500 | $15,125 |
| Average | $131,526 | $10,960 |
| 25th Percentile | $39,000 | $3,250 |
From October 2021 to September 2022 Superhosts have collectively earned over $23 billion in income from hosting on Airbnb. In Q3 2022 the typical Superhost earned 64% more than a regular Host.
How many bedrooms is best for Airbnb? ›The average number of bedrooms is 3.
This means that if you are looking to list your property on Airbnb, you will likely need to have at least three bedrooms available. Keep in mind that this is just an average, so there are properties on Airbnb with fewer than three bedrooms, but they are in the minority.
- Choose a Top Location. ...
- Check Out the Airbnb Laws and Regulations. ...
- Decide on the Most Appropriate Property Type. ...
- Set Up Your Budget and Plan Your Financing. ...
- Search for Your Real Estate Investment Property Thoroughly. ...
- Work with an Agent. ...
- Conduct Thorough Analysis.
Is owning an Airbnb profitable? ›
Is Owning an Airbnb Profitable? An Airbnb short-term rental that has a steady queue of occupants may be more profitable than leasing the same property to someone on a long-term basis. The reason is that Airbnb nightly rates are usually higher.
Where will Airbnb stock be in 5 years? ›Airbnb Stock Price Prediction 2025 - Long-Term Outlook
Its highest average price is predicted to be $231, with an optimistic target level of $243 and the pessimistic target level of $215.6.
Airbnb Stock Forecast & Predictions: 1Y Price Target $133.78 | Buy or Sell NASDAQ: ABNB 2023 | WallStreetZen.
Is Airbnb going to grow? ›Airbnb is forecasted to grow earnings and revenue by 16.4% and 13% per annum respectively. EPS is expected to grow by 16.7%. Return on equity is forecast to be 30.6% in 3 years.
How much does the average Airbnb owner make? ›| ROOM COUNT | AVERAGE ANNUAL HOST EARNINGS 2021 | AVERAGE ANNUAL HOST EARNINGS 2020 |
|---|---|---|
| 1 Room | $8,586 | $4,680 |
| 2 Rooms | $13,067 | $7,482 |
| 3 Rooms | $18,026 | $10,915 |
| 4+ Rooms | $28,143 | $17,808 |
The average cost to start an Airbnb sits between $3,000-$6,000. This cost will significantly vary depending on the following items: Property purchase price. Home Loan Down Payment.
Is Airbnb a good stock to buy long term? ›The financial health and growth prospects of ABNB, demonstrate its potential to perform inline with the market. It currently has a Growth Score of A. Recent price changes and earnings estimate revisions indicate this would be a good stock for momentum investors with a Momentum Score of A.
How many investors turned down Airbnb? ›Conversation. Airbnb CEO says his $75 billion company was rejected by investors—until a $40 box of cereal turned... Airbnb CEO Brian Chesky says his company was initially rejected by a dozen investors, and finally secured funding with the help of some $40 boxes of cereal.
Do Airbnb prices go down closer to the date? ›Airbnb rentals are generally cheaper when booked four weeks in advance. For this analysis, we only included properties with availability across all time frames. This means the same properties were lowering their prices about a month out compared to last-minute bookings or those made well in advance.
Is Airbnb doing well? ›The average number of short-term rentals on the market reached nearly 1.3 million in 2022, up by roughly 19% from the previous year and by about 7% from 2019, according to AirDNA.
Why is Airbnb 25 and up? ›
There are good reasons why Airbnb's age policy is in place. As a host, it helps to ensure that your property is not being used for unwanted events and can help keep damage to a minimum, although that isn't to say guests over 18 can't do the same.
Is Airbnb hurting the housing market? ›However, this has partially contributed to a housing shortage that has impacted the globe, driving up rent prices in almost all major cities. This correlation between the increase of homes that have become dedicated to serving as Airbnbs and the rise in rental rates has been dubbed “The Airbnb Effect”.
Who is Airbnb's biggest competition? ›Airbnb competitors include websites like Vrbo, Booking.com, Tripadvisor, Agoda, Expedia, TUI Villas, TravelStaytion, HomeToGo, Plum Guide, and Google. Not all of them are vacation rental marketplaces.
Who uses Airbnb the most? ›The country with the most Airbnb demand is the United States, with 99.5 million nights booked in 2021. They also had an increase of about 33 million nights booked from 2020 to 2021. This was a significant increase in demand compared with every other country on the list.