While financial markets may scare investors in the current landscape, the short-term rental market remains profitable despite rising interest rates. Many travel and hospitality companies, especially Airbnb, suffered from the pandemic in 2020. However, Airbnb real estate is still a solid investment to make, especially with travel restarting and remote working arrangements allowing greater mobility than ever.
To start an Airbnb business, an investor must choose a property they expect will be occupied for around 60% of the time to receive ideal profits. Finding such property will require both research and patience.
This article will show people how to start an Airbnb business even during uncertain times.
How Airbnb Revolutionized Travel
Airbnb democratized the travel industry so anyone who owns or even leases property can rent out their space to anyone. It used to be that if a person wanted to rent out places for travel, they would need to buy a hotel and rent out the units; people could only do this with access to a significant amount of money.
Airbnb allows almost anyone to rent out their room for various purposes. They do not need to purchase specialized real estate or repurpose spaces unless they desire; they can rent nearly anything.
Airbnb offers travel experiences that hotels cannot compete with, in addition to making a platform where property owners can rent out their properties quickly.
Multiple Purposes For Airbnb
Many people associate Airbnb with vacation rentals. While this is the primary purpose of Airbnb, there are other purposes people have used for Airbnb, including:
- Business travel
- Business settings
- Health Purposes
- Monthly (or longer) furnished stays
Airbnb embraced not only using properties for vacation but also business travel. Not only do many Airbnb property owners rent out their properties for business travel, but they provide amenities for business travel such as:
- Office space
- Corporate dashboard
- Other business amenities
Airbnb offers spaces for people to work while traveling, much like how they offer vacation rentals. In addition, they offer spaces for people to relocate for a new job instead of using corporate housing or even setting up a house through inconvenient methods.
Sometimes people need a new perspective to progress in their work. Many Airbnb spaces are rented out for people to attend:
- Business meetings
- Team-building exercises
- Even business retreats
Airbnb has many properties set up that cater to these roles and has been used by over 700,000 businesses worldwide from retail to engineering.
While data is lacking on this use, Airbnb has been used for health purposes, including providing rooms for patients receiving medical care. These patients sometimes need to travel to certain locations to receive specialized services.
This even found great need during the pandemic. Many people who are frontline workers wanted to find space so they could live closer to their work if they needed to be called in suddenly. Unfortunately, many of these workers were also at significant risk of exposure to SARS-CoV-2 and wanted to distance themselves from family. Airbnb provided spaces for these people.
The medical community, particularly traveling nurses, have long used furnished rentals for short-term housing.
Long Term Stays
Prior to the pandemic, roughly 14% of bookings on Airbnb were for stays of 28 days or longer. Airbnb reported in 2021 that roughly a quarter of all bookings were for long-term stays. Having a long-term booking for your Airbnb property has financial benefits – your property is at full occupancy for an entire month or more.
The primary reason for the influx in longer bookings is the ability for a larger portion of the U.S. workforce to have the ability to work remotely, which is a shift from pre-COVID. Properties located in major cities and in vacation destinations that can be used year-round tend to perform best for long-term stays.
Airbnb Is Versatile
While Airbnb is commonly looked at as a place for vacation rentals, it can be used for many purposes. Even during times when there is economic turmoil, an Airbnb business can be a good place to invest.
Legalities Of An Airbnb Business
Before an investor starts to look for properties for an Airbnb they should know the legalities of owning an Airbnb property. Many properties are zoned for certain purposes, so they may not be rented out. Some cities and municipalities require registration and permits before you may even start renting to potential tenants. Many Airbnb businesses must look into local laws themselves to determine if their property is legal.
Airbnb also prides itself on making sure anyone using the Airbnb platform is paying taxes owed. However, local taxes may need to be handled by the investors themselves.
In short, a person looking to start an Airbnb business should research the legalities required to rent properties for hospitality and also be prepared for these matters to change. Hiring a business lawyer to ensure you are up to date on the legalities can also help.
How To Find Airbnb Properties For Your Business
An Airbnb property is an investment and should be treated like a business. If you expect to make money from it, you must find a property that generates sufficient cash flow to cover all expenses and be profitable. To achieve profitability, the location of the property, daily rates, and occupancy rates will all factor into the decision to purchase a new short-term rental property.
If you want to invest in a vacation property, you should ensure the property is close to features and entertainment that are not commonly found in many residences. These can include:
- Natural landscapes
- Historical areas
- Entertainment events
A lousy vacation rental would be found in a typical residential area with no considerable attraction value. Who would want to rent a vacation home with no attraction value nearby? Only a select number of places have these attractions close by such valuable vacation rentals will not be easy to find.
Finding business properties for an Airbnb business will be easier to find. Many more areas are business centers than tourist centers. Many places used for business travel are closer to urban centers, but depending on the businesses you want to cater to and the business, the Airbnb property could be in a suburban area to keep people out of the cities or even in rural areas if the Airbnb property is supposed to cater to people visiting businesses close by such as agricultural businesses.
In addition, many Airbnb property investors look into creating business retreats. These are much like vacation properties, but they host people on business. One advantage of finding properties for business retreats is that there is no need to have them near tourist attractions. Some properties can be in the middle of nowhere, and the retreat features may be built-in.
Business-purpose properties can be found in almost any location, and sometimes properties can easily be repurposed for business purposes.
Places To Find Airbnb Rental Properties
Airbnb properties are essentially investment properties. Many of the places you can find investment properties would be good to find Airbnb properties. However, Airbnb business owners should be as forward as possible with their intentions with the property. The zoning, HOA, or even sellers and locals may not agree with using the investment property as an Airbnb. One of the advantages of Airbnb is that renters can interact with the locals more; however, if the investor starts on the wrong foot, the locals may view tenants negatively. Ignoring local needs will kill the vibe of an Airbnb experience.
Almost any property could become an Airbnb property; therefore, there are many places to find Airbnb investment properties, including:
- Online platforms
- Local real estate agents
- Real estate investing clubs
- Local listings
Some of the best online platforms for finding Airbnb properties include:
- Mashvisor – Mashvisor specializes in investment properties, particularly for rentals. They provide good analytic tools for investors to find the best investment areas.
- Innshopper – Innshopper specializes in only short-term rental properties. They offer affordable properties in addition to multimillion-dollar buildings. Many of these properties already have great clients, so this website can be great for finding turnkey investment properties suitable for beginning investors.
Things To Consider Before Buying An Airbnb Property
One of the disadvantages of owning Airbnb properties for investment is the irregular income. All Airbnb properties only receive short-term rent. The average occupancy rate for Airbnbs is 48%, and many areas have less than 10% occupancy rates. Many claim Airbnbs make more money than long-term rentals, but this is only true if the occupancy rate is around 60%.
There are many ways to ensure investors can reach those rates at around or above 60%.
Location, Location, Location!
This is classic advice because it is true. Location is one of, if not the most important factors when choosing any property. Popular areas and cities will quickly be filled because people want to be around these areas. People should look for Airbnb rentals close to areas that are either full of attractions or places close to cities. Sites such as coastal and non-coastal cities will perform well for business and entertainment events. These areas can reach the 60% or over-occupancy rates desired for high profits.
Vacation Rentals Alone Can Be Problematic
Properties that are intended to be vacation rentals may not receive such profits. Many vacation rentals have average occupancy rates of less than 50%. With the higher costs and even maintenance of these properties, profit margins are unlikely to be increased.
People may find a use for vacation rentals by investing in properties that can be used for vacation during all seasons, such as properties near south Florida beaches, Colorado mountains, and southern California.
Places To Find Loans For Airbnb Rentals
Many investors look for traditional mortgages for Airbnb rentals. While there are advantages to traditional mortgages, including lower interest rates, there are many disadvantages. Most conventional mortgages see investment properties as higher risk because investors are more willing to abandon their investment properties if it is unprofitable or if markets are in a downturn.
Investors can expect to put down 25% for traditional mortgages, have good credit, and must show enough taxable income to qualify for the new mortgage along with other existing debts.
Investor-friendly mortgage lenders such as LoanBud now offer better ways to qualify for a mortgage for an Airbnb property. These new programs allow investors to put down as little as 20% and do not require personal income or tax returns to qualify. Instead, the mortgage qualification is based on the expected cash flow of the property. To be eligible, the expected cash flow will need to be greater than or equal to the new mortgage payment.
While Airbnb is commonly associated with vacation rentals, they have been versatile even during the pandemic of 2020 for people looking to distance themselves from loved ones and for frontline workers looking for areas closer to their immediate work.
With travel starting up again, and remote working arrangements at historic highs, Airbnb can be a solid investment for vacation and business-purpose rentals.
Airbnb is known to provide higher returns than long-term rentals. However, this is only the case with some rentals. Many of these higher returns are based on occupancy rates of at least 60%, which is difficult to obtain for even popular vacation spots.
When people are looking for Airbnb rentals, investors should look for properties that can be used for multiple purposes. While vacation rentals can be used for popular attractions, they can also be used for business purposes if they are close to business centers. Some can even be used to provide retreats or conference areas for businesses if they are not close to business centers.
Other properties could be used for medical purposes, such as for people to find places close to specialized treatment centers.
While Airbnb property investors can find multiple purposes for their properties, they may struggle to find traditional mortgages. Airbnb is still new and did not do very well in 2020, meaning traditional lenders may hesitate to lend money to them. However, Airbnb investors may seek small business loans from non-traditional lenders such as LoanBud to help fund their ventures.