Airbnb vs. Renting: Which Option Is Better?

Investing in rental properties is a popular strategy for generating extra cash. However, one of the main discussion points among real estate investors is the debate about whether to list a property on Airbnb or opt for traditional long-term renting. Which strategy is more lucrative and can generate better ROI?

In this article, we’ll compare Airbnb vs. renting to help you discover the pros and cons of each rental strategy. Read on to get a better idea of which option is right for you.

Airbnb vs. Renting: Income

Airbnb is an online platform that enables homeowners to list their properties and rent them out on a short-term basis to travelers. Airbnb charges a fee, but it markets Airbnb listings and handles the payments in return.

And if you choose traditional renting, you’ll need to make your property available for long-term rental for at least six months. You’ll be responsible for promoting your property and collecting the monthly payments.

If we compare Airbnb vs. renting income, we’ll notice that different aspects may have a direct impact on how much money you can make. Keep in mind that both approaches have their advantages and disadvantages.

Don’t forget about the third option—Airbnb long-term rental. It’s usually the least lucrative and the most convenient approach.

Pricing

If you choose traditional renting, you’ll have to follow the lease agreement and won’t be able to change your pricing during this time to adapt to demand. You’ll receive the same amount of rental income, which means a steady cash flow, but it also means less potential to maximize your revenue.

Airbnb hosts can be more flexible with their pricing strategy. They can adjust their prices daily, depending on various factors, including the day of the week, season, and demand. For example, you can raise rates around major events in your location and charge more for weekend bookings. Besides, you can sell extra services to Airbnb guests and generate extra money on top of your rental income.

Setting up effective pricing for your Airbnb requires thorough research and constant monitoring of the local STR market. It can be challenging because you need to ensure that your rates are competitive and allow you to make a profit. Most hosts use automated tools to implement a dynamic pricing strategy that adjusts nightly rates based on real-time market conditions, such as demand, competition, seasonality, holidays, and days of the week.

Dynamic pricing has become essential for STR hosts looking to optimize revenue and stay competitive in today’s market. The good news is that if you opt for Hospitable, you’ll be able to take advantage of our built-in Dynamic Pricing without paying additional fees. This feature is included in our Host, Professional, and Mogul subscription plans.

If you enable Dynamic Pricing for your properties, Hospitable will combine your settings with real-time market data to automatically adjust your rates, maximizing revenue generation. Our dynamic pricing tool works for all your connected booking channels, including Airbnb, Booking.com, Vrbo, Adoga, and your direct booking website.

Demand

Airbnb rentals can have a low occupancy rate during a down season, which means lower income. However, on the other hand, short-term rental hosts can earn money more easily during the high season due to higher guest turnover and increased prices. Additionally, you can diversify your booking sources by creating your own direct booking website with Hospitable.

Still, it’s unlikely that your property will be in high demand as you are just starting on Airbnb. You’ll need to earn a good reputation among guests and receive some 5-star reviews, as Airbnb users rely heavily on reviews to evaluate properties before booking them.

The higher your Airbnb ratings from previous guests, the more likely you are to attract new ones. Initially, you may have very few reviews. This means that you may need to offer your property at discounted prices initially or provide incentives to attract travelers to stay.

Keep in mind that you’ll need to ensure perfect communication with your guests and respond to their inquiries as fast as possible to get good reviews. When you receive numerous bookings, it may seem like a full-time job. So, a good solution is to automate conversations with your guests and other aspects of your short-term rental business.

Upfront and Ongoing Expenses

With traditional renting, you’ll only need to invest once in the look and other facilities of your rental property. Then your tenant will have a responsibility to look after your property till the end of your agreement. You’ll only need to take care of general property maintenance and pay in case of occasional emergencies.

Regarding an Airbnb rental property, it can be work-intensive and may require higher upfront costs, as it should be fully furnished and stocked to attract guests. Ongoing expenses are also higher because the property should always be in perfect condition. Yet, with many guests passing through your Airbnb every month, your property will also undergo more wear and tear, which may lead to increased maintenance costs.

It’s crucial to make wise decisions when designing an apartment for short-term rental. You need to find a balance between durability, convenience, and aesthetic appeal. Download our guide to reduce your operational costs.

There are also things you will need to provide that you wouldn’t usually provide to a single tenant. And it means you’ll need to replace and restock regularly. You’ll have to pay for furniture, décor, towels, bedding, kitchen utensils and appliances, cable TV, Wi-Fi, some basic food items, etc.

You may want to check out our comprehensive Airbnb host checklist to learn about essential things you’ll need to invest in to provide a perfect experience for your guests. If you are considering buying a rental property, it’s necessary to include all of these costs in your calculations.

The table below summarizes the main differences between renting your property long-term and turning it into an Airbnb. To help you decide which strategy to choose for your home, we compare these two options across income, pricing, demand, upfront, and ongoing expenses.

Airbnb vs. Renting: Rules & Regulations

Generally, regulations for traditional rental properties are few, and there aren’t many location-specific restrictions. In some cases, you may need to receive a permit to become a landlord, and in others, you may need to do some testing to ensure that your home or apartment is habitable.

As to short-term rentals, they are subject to more regulations, and the laws vary from state to state. You should carefully research the legal requirements in your location before starting the business. For example, some cities may restrict the number of days that you can rent out your Airbnb. Many jurisdictions have placed restrictions on Airbnb investment rentals, making it nearly impossible to rent out a property other than one's own residence.

If your city allows short-term rentals, you may need to register and apply for the appropriate license to legally operate an Airbnb, which means you will have to pay extra fees. Additionally, the rental laws in your city may change. That means you should conduct more research before deciding to become an Airbnb host. You should also be aware of vacation rental tax rules, so it’s best to reach out to a professional tax consultant who can help you understand your particular situation.

Landlords of traditional long-term rentals generally invest in landlord insurance policies. Still, Airbnb rentals need different insurance coverage because insurance companies associate short-term rentals with higher risk due to frequent guest turnover. Although Airbnb offers AirCover for Hosts, which includes up to $3 million in Host damage protection and $1 million in Host liability insurance, it’s always a good idea to have additional short-term rental insurance for complete protection.

Long-term Rental vs. Airbnb: Factors to Take into Account

Now that we’ve covered the fundamental differences between long-term rental vs. Airbnb, here are some tips on what to consider when deciding which strategy to choose for you.

Consider your property location. You will only be able to enjoy high occupancy rates if your Airbnb property boasts a great location that attracts many tourists throughout the year. There must be a compelling reason for travelers to want to visit your location. And if your home or apartment is not in a major city or a popular vacation destination, it must offer something very unique.

Take local laws into account. In some cities with stringent short-term rental ordinances, traditional renting may be the wiser option. You should also make sure there are no laws that prohibit short-term rentals in your area—you don’t want to face steep fines or other penalties.

Think about the workload. Keep in mind that managing and maintaining your Airbnb can be a time-intensive task. Additionally, something in your life may change, preventing you from properly caring for your property.

You may be able to save time and effort by hiring a cleaning service and a property manager to handle all of these tasks. However, hiring a property manager would also add to your operating costs. That’s why many smart hosts choose short-term rental software like Hospitable to streamline their operations and automate routine tasks.

Final Thought

When comparing Airbnb to renting, both strategies have their pros and cons. Airbnb rentals can be more profitable than renting the same property to a long-term single tenant due to the flexibility and income potential.

One of the key advantages of STR properties is that they benefit from dynamic pricing. However, your success in operating an Airbnb also depends on the property's excellent location and your willingness to go the extra mile.

It’s essential to remember that while short-term rentals offer unique revenue opportunities, you should be patient as you grow your reputation and be willing to put in the extra work to attract guests and keep them satisfied. Hospitable can help you automate most of your daily operations, saving you time and effort.