With US travel projected to be back to pre-pandemic levels by the end of 2024, investing in Airbnb rental properties remains an attractive option for both new and seasoned real estate investors. This guide covers the basics of Airbnb investing to help you understand the risks and rewards of short-term rentals so you can make informed decisions and maximize your passive income.
What is Airbnb investing? Airbnb investing is the practice of buying or leasing investment properties for short term rentals on platforms like Airbnb and VRBO. Unlike traditional long term rentals where tenants sign leases for 6 months or more, Airbnb hosts have more flexibility. They can rent out their properties nightly, adjust prices based on demand and block off dates for personal use.
Why Invest in Airbnb? The main attraction of Airbnb investing is the potential for higher returns. In peak season or during special events hosts can charge much higher rates than they would with a traditional long term tenant.
How Does Airbnb Investing Work? 1. Selecting an Airbnb Property The first step is to choose the right Airbnb investment property. This decision should be based on the property’s location, nearby attractions and local regulations. Popular tourist areas, city centers and areas with business travel tend to do well on Airbnb. Before buying or leasing a property, do market research to assess both competition and demand. Consider working with an Airbnb real estate agent to help you find and purchase the right property at the right price.
2. Preparing the Property for Guests Your Airbnb rental property should be clean, furnished and have modern amenities like Wi-Fi, air con and kitchen appliances. Investing in quality furniture, linens and decor will make your property more attractive to potential guests. Consider your property's location and whether you want to attract business travelers or present it more as a vacation rental. The furniture and decor of your Airbnb property should be chosen accordingly.
3. Listing the Rental on Airbnb Once your property is ready for guests you’ll need to create an Airbnb listing. High quality photos and a detailed description will make your listing stand out. Highlight the features that make your property unique, like proximity to local attractions or special amenities like a pool or patio. Make sure to review the factors that affect Airbnb’s search results and optimize your listing to get more visibility.
4. Managing Guest Turnover Managing an Airbnb rental property involves handling guest inquiries, coordinating check-ins and making sure the property is clean and ready for new guests after each stay. This can be time consuming but it’s important for high guest satisfaction and good reviews. Many investors hire cleaning services or property managers to handle these tasks.
5. Local Regulations and Taxes Airbnb investing isn’t without its challenges. Some cities have strict restrictions on short term rentals, require permits for each property, or limit the number of days per year a property can be rented. You’ll also need to factor in local taxes like occupancy taxes or tourism taxes which vary by city.
Airbnb Investing vs. Traditional Rental Property Investing Airbnb investing has its pros and cons compared to traditional long term rentals.
Income Potential Airbnb properties can earn more income than traditional rentals because you can charge higher nightly rates. For example a property in a good location might earn $200 per night on Airbnb which is $6,000 per month if booked consistently. The same property might only earn $2,500 per month with a long term tenant. Use our Rental Property Profit Calculator to estimate your potential monthly income under both a short-term rental or long-term rental scenario.
However, this increased earning potential comes with additional management responsibilities, as hosts need to handle frequent guest turnover and property maintenance.
Flexibility One of the biggest benefits of an Airbnb investment is the flexibility. As an Airbnb host you can block off dates when you want to use the property yourself or when you need a break from hosting. You can also adjust your pricing according to demand, charge higher rates during peak season or local events. This level of control isn’t available with a long-term rental property.
Occupancy & Vacancy Risks Airbnb investments earn higher returns but also comes with higher vacancy risk. Unlike long term rentals which provide consistent income through monthly rent, Airbnb rentals are subject to demand and seasonality. Off peak seasons, economic downturns or increased competition can lead to lower occupancy rates and periods where your property sits empty and generates no income.
Potential Risks of Airbnb Investing Airbnb rentals can generate higher returns than traditional rentals, but they also bring additional risks. Below is a breakdown of the risks to be aware of to help guide your decision. You should also check out our breakdown of The Key Differences between Airbnb and Long-Term Rentals .
Regulatory Challenges Some cities have strict rules on Airbnb properties including zoning laws, permit requirements and number of days a property can be rented per year. Cities . Real estate investors need to stay informed about local laws and ensure their properties comply with all relevant regulations. For example, the City of Scottsdale released new rules in 2024 that allow Scottsdale police to remove non-residents from a property if they throw a party that is declared a nuisance.
Income Volatility Long-term tenants provide steady monthly income, but Airbnb rental income can be volatile based on seasonality and market conditions. During peak travel seasons or special events you might earn more, but during off seasons bookings will drop off dramatically. This volatility means you need to plan for slower periods and set aside cash reserves to cover expenses.
Property Maintenance Airbnb investment properties experience more wear and tear than traditional rentals. Furniture, appliances and decor may need to be replaced more often and ongoing maintenance costs add up. You need to factor these costs in when calculating your returns from an Airbnb investment property.
Level of Involvement How much involvement is required for an Airbnb investment depends on whether you manage the property yourself or hire a property management company.
Self-Managed vs Property Management If you manage your Airbnb property yourself you’ll be responsible for everything from guest communications and cleaning to property maintenance and marketing. This hands on approach can save you money but is time consuming. For investors who want a more passive investment, hiring a property management company can be a good solution. Property managers handle all the day-to-day tasks so your real estate investment doesn't feel like a second job.
Time Commitment to Manage the Investment Property Managing an Airbnb property requires a lot of time. Daily tasks include responding to guest inquiries, booking coordination and making sure the property is clean between stays. As an Airbnb host you also need to market the property, keep the property in top condition and address any maintenance issues that arise. If you have multiple properties or live far from your rental property, you will likely need to hire a property manager to stay on top of the tasks required to provide a positive experience for your guests.
How Much Money is Needed to Start an Airbnb? The financial requirements for starting an Airbnb investment depend on several factors, including the location, property type, and whether you choose to buy or lease. Here's a complete breakdown of the initial and ongoing costs to start an Airbnb in Arizona. The costs are similar for other states but should be adjusted for the specific market.
Pros and Cons of Airbnb Investing Pros: Higher earning potential compared to long-term rentals.Flexibility to adjust pricing and availability based on demand.Personal use of the property when it’s not booked.Cons: Income volatility due to seasonality and changing demand.Take more time to manage compared to a traditional rental property.Higher property maintenance costs from frequent guest turnover.Greater regulatory risks compared to a traditional rental property.Dependence on platform policies that can change unexpectedly.
The Bottom Line With higher returns, more flexibility and the option to stay in the property when it's not booked, it’s no wonder more people are looking at Airbnb investing as an attractive investment opportunity. But successful Airbnb investing requires careful planning, a thorough understanding of the risks, and a commitment to managing the property or hiring an Airbnb property manager . By researching different markets, buying the right property, and managing it effectively, you can build a profitable Airbnb business that generates significant returns.
