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airbnb investing for beginners

Airbnb Investing For Beginners: Start Your Rental Business In 5 Steps

real estate business real estate investing strategies Feb 06, 2024

Are you considering diversifying your real estate investment portfolio with Airbnb? Smart call!

Airbnbs are among the most lucrative short-term rentals in the real estate market today. The company, worth over $80 billion, reported a remarkable $3.4 billion revenue in 2023, marking an impressive 18% year-over-year growth.

However, with over 6 million active listings, the competition in Airbnb investing is fierce. Consequently, anyone seeking to partake in the Airbnb profitability pie needs a solid plan.

This article aims to give them one. From how to buy your first Airbnb property and pricing to the pros and cons, explore this comprehensive guide to Airbnb investing for beginners:


*Before we begin our guide on Airbnb investing for beginners, we invite you to view our video on How To Get Into Real Estate With No Money! Host and CEO of Real Estate Skills, Alex Martinez, provides the perfect guide for beginners to invest in real estate, including Airbnb and vacation rentals, using no capital of their own!


 

How To Invest In Airbnb: 5 Steps For Beginners

  1. Find the Best Area for Airbnb Investments
  2. Research Real Estate Market Data for Airbnb
  3. Calculate Your Potential ROI
  4. Prepare Your Property for Guests
  5. Price & List Your Airbnb Investment

Read Also: How To Invest In Real Estate: 10 Best Ways To Start Building Wealth

Find the Best Area for Airbnb Investments

Plenty of factors affect the success and profitability of an Airbnb business, but none quite like the location. The area where you set up your Airbnb directly influences the market demand, indirectly impacting factors like occupancy rate and pricing. It’s thus incredibly critical to find the best area for your Airbnb investment

The first step to Airbnb investing for beginners is to Identify your target market first to ascertain whether your target area suits Airbnb investing.

Airbnb typically caters to tourists but is also popular among business districts, university towns, and areas with cultural attractions. If your target market is tourists, find a place with a booming tourist industry. If you’re targeting the business traveler, an ideal Airbnb business location would be one adjacent to corporate offices, conference centers, and event venues.

Other factors to prioritize when comparing areas for Airbnb investing include local laws, occupancy rates, and further real estate market data.

Research Real Estate Market Data for Airbnb

Have you identified an Airbnb-friendly location? Great! You’re on the right track. However, don’t rush into investing. Instead, conduct a thorough market research before starting a real estate business.

By researching the area’s market data for Airbnb, you gain insights into the demand for the short-term rental business. This helps you estimate potential Airbnb rental income and manage your vacancy expectations.

Comprehensive market data research also reveals competition levels in the area, allowing you to determine appropriate pricing for your Airbnb and differentiate your offerings to gain an edge over your competitors. 

You also uncover guest property preferences, thus empowering you to make suitable property selections. Additionally, research lets you identify the area’s peak season, enabling you to tailor pricing and marketing strategies to capitalize on high-demand periods once you leap. More importantly, this step lets you pinpoint the most suitable location for your Airbnb.

Simply put, researching an area’s Airbnb market data will guide your marketing and pricing strategies and empower you to differentiate your offerings, making your Airbnb stand out.

Calculate Your Potential ROI

If, after a deep dive into the Airbnb market data, you’re confident an area is suitable for Airbnb investing, the logical next step is to calculate your potential returns on investment.

Doing so lets you set realistic Airbnb income goals, preventing possible financial disappointments. It also guides you in deciding the right amount of capital to invest in the property and budgeting for ongoing expenses, ensuring your Airbnb investment remains profitable in the long run. 

Prepare Your Property for Guests

Once you’re confident your real estate Airbnb will fare well in a particular area, the fourth step for beginners to invest in Airbnb is bringing their vision to life.

Find a suitable investment property and transform it into a welcoming space for guests. Set up the following to ensure the space is inviting:

  • Connectivity: Set up a Wi-Fi connection
  • Basic furnishings: Invest in items that make the space cozy and homely, such as a comfy couch, a comfortable bed with inviting bedding, a dinner setup, and a work desk for the modern-day traveler.
  • Appliances: Equip the space with necessary appliances like a well-sized TV, cooker, microwave, refrigerator, and coffee station.
  • Comfort features: Invest in a good HVAC system and a showerhead with proper water pressure to ensure renters enjoy their stay.

While you can always single-handedly ready your property for guests, consider liaising with a professional interior designer to streamline the process.

Since you’re a new Airbnb investor, offer incentives to attract your first batch of guests and ensure you provide them with an excellent experience to earn positive feedback and good ratings that’ll help you attract more bookings in the near and distant future.

*Note Airbnb allows hosts to offer a 20% discount to the first three guests. Ensure you capitalize such offers.

Read Also: Managing Rental Properties: A Real Estate Investor's Guide (2024)

Price & List Your Airbnb Investment

The last step to get into Airbnb properties is pricing and listing your property, as it significantly influences your bookings and overall success.

Consider market demand, seasonality, unique property features, and competitor rates to determine the average daily rate. Also, remember your pricing investment strategy should be flexible to ensure you get good profits even during the low seasons.

Beyond pricing, you must also work on listing your investment on Airbnb. Invest in professional photography, as most guests open a vacation rental listing based on how enticing the featured photo is, and also create a descriptive profile and bio.

Airbnb Investing Vs. Traditional Rental Properties

While rental properties make for lucrative investments, Airbnb investing presents perks and risks beginners need to be aware of.

Check out how they compare:

ROI and Risks

Airbnbs typically charge daily, allowing hosts to command higher rates than their rental property-owning counterparts who charge monthly. This results in higher ROI than a long-term rental would generate.

However, there’s a challenge—an Airbnb vacation rental is subject to market fluctuations, potentially resulting in vacant property periods, especially during low seasons. On such days, hosts don’t earn any revenue, yet maintenance costs rack up, negatively impacting a host’s bottom line.

Fortunately, there are ways to work around this risk:

Hosts can adjust prices based on demand, seasonality, and market conditions thanks to Airbnb's daily rating model. They can increase their nightly rates on peak periods to maximize profits and compensate for seasons with low occupancy rates. 

Rental property owners don’t have this privilege. Once they commit to a lease, they cannot adjust the monthly rental rates even when the market is in their favor. And even when a tenant’s lease expires, there are restrictions to how high they can bump up the rent.

Additionally, Airbnb hosts can commit to delivering premium experiences, ensuring guests leave positive ratings and reviews. This increases their visibility on the platform, resulting in more bookings. More visibility also means a host can bump up nightly rates to align with global standards, leading to healthy profits even when the space goes unoccupied several days a month.

But, even with these strategies, Airbnb is susceptible to factors beyond a host’s control that may affect occupancy, such as unpredictable weather.

Simply put, as far as ROI is concerned, Airbnb investing offers a higher earning potential due to the nightly rating system but remains subject to low occupancy, which impacts profitability. In contrast, a long-term rental generates lower profits but promises steady cash flow thanks to the consistent monthly income.

Capital and Maintenance Requirements

There’s no arguing that an Airbnb rental has higher capital and maintenance requirements than traditional rentals. With standard rentals, real estate investors simply need to purchase or construct the property and manage ongoing costs, which are usually manageable and less frequent. The tenant takes care of the rest.

On the flip side, starting an Airbnb demands more upfront capital, as hosts are typically responsible for furnishing, décor, appliances, and all costs associated with creating a comfortable space. 

Beyond upfront capital, hosts also face ongoing maintenance expenses, including cleaning fees and utility costs. Factor in Airbnb listing expenses like photography costs and setting up and running an Airbnb investment proves more costly than managing a traditional rental. However, note that since Airbnb is categorized under the short-term rental market, there are tax deductions and benefits that hosts can claim to mitigate ongoing management expenses.

Investor Commitment

Airbnb investing for beginners requires more commitment than a traditional rental property. Airbnb hosts must actively manage potential guest inquiries and promptly respond to current guests. They must also oversee check-ins and check-outs and address maintenance issues and clean-ups between guest stays to ensure quality experiences.

With traditional renting, a property owner must find and onboard tenants and handle the occasional maintenance issues.

So, which is the better option between Airbnb investing and traditional rentals? While Airbnb demands more upfront capital and hands-on investor involvement, the hard work is usually well-rewarded with higher ROI. However, if your objective is to create a passive income source, traditional rentals may be better, although the profits will be lower.

Read Also: Vrbo Vs. Airbnb: Which Is Better In 2024?

Pros of Airbnb Investment Properties

Here’s a summary of the advantages you’ll enjoy when you effectively maximize our tips on how to invest in Airbnb:

  • Incredible property ownership flexibility: Due to the short-term nature of guest stays, Airbnb hosts can choose their preferred nightly rates, and minimum and maximum stay periods, and establish cancellation policies. In other words, unlike renting, where a property essentially becomes the tenant’s, Airbnb hosts enjoy the perks of property ownership while still making money.
  • Lucrative profits: Investing in a well-located property and creating a beautiful, cozy space plus properly pricing guarantees hosts incredible profits. Since Airbnb allows hosts rate flexibility, they can charge comparable or higher rates than hotels, earning even higher investment returns.
  • Payment stability: With Airbnb, hosts receive payments multiple times a week, and guests are also typically required to make immediate payments once their reservation request is accepted. This guarantees timely payments and stable cash flow, particularly for hosts with good ratings.
  • Reduced property wear and tear: Airbnb guests stay for the short term, reducing the likelihood of extensive property damage compared to long-term tenants. Additionally, the recurrent maintenance routines employed between guest stays help uphold a property’s overall shape. And if guests cause damage, Airbnb includes a cleaning fee in every booking. Moreover, the company offers up to $3 million in insurance coverage under the host guarantee program, offering further protection for damages caused by guests.
  • Airbnb investing eliminates agent costs: Listing on Airbnb is free. Moreover, the company handles the marketing aspect, meaning an Airbnb investor should not worry about hiring a real estate agent to list or market their property. This makes Airbnb investing less of a hassle and eliminates agent costs, resulting in a larger profit margin.
  • Property ownership isn’t necessary: Although educating yourself on how to purchase an Airbnb is a laudable step, you don’t have to own a property to become an Airbnb host. You can host an Airbnb in a rented or leased apartment if you inform the landlord or relevant property Management Company.
  • Airbnb can be hosted in residential property: Part of Airbnb's offerings include private rooms, making Airbnb a particularly suitable investment vehicle for property owners looking to earn passive income or those who are always on the move.
  • Tax deductions: Airbnbs are subject to tax deductions that could result in great savings. For instance, Airbnb owners can deduct rental property expenses and costs of particular renovation and home improvement expenditures such as roof replacements. However, note Airbnb tax deductions are subject to stringent terms and conditions. For instance, a host must adhere to the 14-day rule to qualify for any deductions.

Cons of Airbnb Investment Properties

While Airbnb investing offers many perks, it’s not without some downsides. Since our guide on how to get into Airbnb properties aims to be comprehensive, we’ve also covered the shortcomings you should anticipate when you dip your toes into this investment:

  • Fluctuating occupancy rates and income: Airbnb bookings are usually highly dependent on ratings and reviews from previous ratings, which a new Airbnb investor may not have yet earned, resulting in low or fluctuating occupancy rates that negatively impact profitability and Airbnb income.
  • Airbnbs are a high-commitment investment: Investing in an Airbnb means you’ll need to be involved every step of the way. While hosts can always delegate duties to a property management company, it’s usually more expensive due to the level of management required.
  • High setup and ongoing costs: Investing in an Airbnb for beginners means buying new furniture, décor, and home supplies. Running it also comes with recurrent expenses that can easily cut into a host’s profits.

Airbnb Investing: Beginner FAQs

Here are answers to some frequently asked questions regarding investing in Airbnb for beginners:

What is an Airbnb investment property?

An Airbnb investment property is any property procured with the intent of short-term renting for profit on the Airbnb platform. Airbnb property owners earn income through the nightly or weekly rates paid by guests, while the Airbnb platform charges a service fee to make its profits.

How does Airbnb investment work?

Airbnb investors typically purchase a property, furnish it, and decorate it to make it comfortable and appealing to guests. They then list it with Airbnb, where guests can reserve it for as many days as they need. The investor gets a nightly rate, while Airbnb earns a percentage of this rate as its service fee.

Is Airbnb a good investment?

Whether or not Airbnb is a good investment depends on your target location, the type of property you’re offering and how well-furnished it is, market demand, management commitment, and risk tolerance.

Is Airbnb profitable?

Generally yes. The average Airbnb host makes approximately $900 per month. However, this amount varies based on location, property type, market demand, and local regulations.

Final Thoughts on Airbnb Investing For Beginners

Airbnb is among the most profitable business ventures of the 21st industry. The investment vehicle generates up to $1,000 a month for the average Airbnb owner. 

However, before you capitalize on Airbnb investment opportunities, note the competition is incredibly fierce. For investors to enjoy such profits, they must be highly strategic, as every choice, from the location to pricing, ultimately affects profitability. 

Thankfully, you don’t have to do it from scratch. Our Airbnb investing guide for beginners covers not just the key strategies but also the market trends, tips, and the pros and cons of venturing into this field, empowering you with much-needed information for setting up a successful Airbnb investment before you deep your toes into the competitive industry.

Want to get started investing in real estate with little to no cost? Sign up for our free training at Real Estate Skills! Discover why countless students choose us for their real estate investment education.


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