Airbnb Investing: What You Need To Know

Airbnb investing comes with a lot of benefits, including the ability to earn a passive income. A short-term rental investment isn’t without risk — taking the proper preparation steps and doing your research are key to success. This guide informs you of everything you need to know about Airbnb investing.

Key Takeaways

• Location is one of the most important factors in Airbnb investment success.
• Markets with a lot of strict rules and regulations can cut into Airbnb revenue.
• The right Airbnb pricing strategy includes all short- and long-term expenses.
• Short-term rentals offer many benefits over long-term rentals, including easier marketing and minimal impact by changes in the housing market.
• Registering an LLC can help protect your personal assets.
• Airbnb will automatically withhold taxes if you don’t provide a W-9 to them when registering your property.

Location Is Key to Success

Some Airbnb investments are successful and book up most nights of the year, while others go unrented, sometimes costing the property owner money. Location is key when it comes to Airbnb investing success. The best Airbnb rentals are properties in highly desirable locations with a lot of potential renters.

Choose your Airbnb investments by focusing on tourist destinations. These are usually places with a lot of hotels or resorts in the area. Airbnbs located near entertainment amenities are also typically more in demand, including bodies of water, amusement parks, festival grounds, or shopping centers. Busy cities with a lot of business travelers may also be a strategic plan when investing in an Airbnb rental.

Some people may consider an Airbnb investment within their own hometown, as this gives them more control over the property. While you can also expand your reach and choose Airbnb rentals in other cities or states, you’ll need a good property manager to handle any last-minute issues.

Some Rental Markets Have Strict Requirements

Even the best and most desirable markets won’t be as profitable in areas with a lot of strict requirements. More recently, some cities and counties have attempted to cut down on the number of short-term rentals by putting regulations in place. These rules may include minimum rental requirements or even a ban on short-term rentals altogether. Make sure you carefully review the local requirements before investing in any property rentals in a specific area.

Airbnb Investments Come With Expenses

Investing in an Airbnb rental may be a great way to earn passive income, but it’s not without expenses. In fact, Airbnb rentals have a lot of expenses that need to be factored into your pricing. Just some of the expenses of Airbnb rentals include mortgage, insurance, taxes, maintenance, furnishing, fees, cleaning, and maintenance. Strategic pricing that includes each of these costs is important when investing in a short-term rental. Airbnb also charges its own fees, which you’ll definitely want to include in your pricing strategy.

Airbnb Rentals Offer Many Benefits Over Traditional Rentals

If you’re considering different rental types, an Airbnb investment offers some benefits over traditional long-term rentals. With an Airbnb rental, you don’t have to rely on long-term tenants. Finding someone willing to rent your property for a year or longer can be more difficult than finding renters for a weekend.

You’re also more likely to earn higher profits with a short-term rental than with a long-term rental. People often choose Airbnb for vacations, meaning they’re expecting and willing to pay more per night. Advertising costs for an Airbnb may also be less than with a long-term rental since guests can book directly through the Airbnb site. Short-term rentals are also less influenced by the housing market or inflation. You may find it more difficult to rent out your long-term rental when interest rates are low or there are a lot of affordable homes for sale.

Setting Up a Business Entity Can Protect Your Personal Assets

One of the great things about Airbnb is that it offers the ability to invest in real estate to smaller investors. You don’t have to be a registered or licensed business to rent out your property on Airbnb. This doesn’t mean you shouldn’t set up a business entity. Creating an LLC can protect your personal finances from the legal liability of a vacation rental.

The Condition of Your Property Matters

Airbnb success isn’t just about location. The condition and comfort of your property also play into guest satisfaction and success. The great thing about Airbnb is that you can use reviews to improve on any areas that guests don’t enjoy. Making these changes can help you earn higher reviews, which can lead to more nightly rentals. Setting aside money each month to keep up with repairs and updates may also be beneficial.

You Will Have to Pay Taxes on Your Returns

Airbnb investing is similar to any other business in the fact that you’ll also be responsible for paying taxes. Failing to prepare for year-end taxes can cut into your revenue during tax season. Setting aside the taxes you owe with each rental ensures you can fulfill your tax obligations. Also, if you don’t provide Airbnb with a W-9 when you first register your property, they may automatically withhold taxes.

Seasonality Can Affect Rentals

Airbnb investing can have a lot of ups and downs with seasonal fluctuations. If you choose a rental on the beach, you can expect guest numbers to decrease during the colder months. Even if you’re located in a warmer climate, families are less likely to take vacations during the school year months.

Airbnb rentals in ski resort towns may have a harder time renting during summer. You may need to adjust your pricing during high-demand weeks to account for the slower season. Diversifying your Airbnb income by choosing rentals in different parts of the country can also help you accommodate the fluctuations in rentals.

Airbnb investing can be a great way to diversify your investment portfolio, but it does require some research and preparation. Choosing rentals in highly desirable destinations and carefully calculating all your expenses in your pricing are a few ways to protect your investment. You can also sign up for a free or paid membership with Infinity Investing to access our helpful tips and tricks for real estate investing.