By The Hospitable Team
Investing in rental property is a popular strategy to generate extra cash. But one of the main discussion points between real estate investors is the debate about whether you should list your property on Airbnb or choose 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 helps homeowners list their properties and rent them out short-term to travelers. Airbnb charges a fee, but it markets Airbnb listings and takes care of the payments in return.
And if you choose traditional renting, you’ll need to make your property available to be rented out long term 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 there are different aspects that 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.
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 income.
Airbnb hosts can be more flexible with their pricing strategy. They can adjust their prices every day, depending on different factors, including the day of the week, season, demand, etc. For example, you can charge more for weekend bookings. Besides, you can sell extra services to Airbnb guests and generate extra money on top of your rental income.
Airbnb rentals can have a low occupancy rate during a down season, which means lower income. But on the other hand, short-term rental hosts can make money easier during the high season due to higher guest turnover and increased prices. Besides, you can diversify your sources of bookings by creating your own direct booking website with Hospitable.com.
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 because Airbnb users rely heavily on reviews to evaluate the property before booking it.
The higher your ratings from previous guests, the more likely you are to attract new ones. In the beginning, you may have very few reviews. It means that you may have to offer your property at discounted prices first or offer incentives to get 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 get many bookings, it may look 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.
Have conversations with your guests even when you sleep.
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 the general property maintenance and pay in case of an occasional emergency.
As to an Airbnb rental property, it can be work-intensive and may require higher upfront costs because it should be fully furnished and stocked to attract guests. Ongoing expenses are also higher because the property should always be in perfect condition. It’s crucial to make smart decisions when designing an apartment for short-term rental. You need to find the balance between durability, convenience, and pleasing the eye. Check our guide to reduce your operational costs.
There are also things you will need to provide that you wouldn’t normally 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 essential to include all of these costs in your calculations.
Airbnb vs Renting: Rules & Regulations
Generally, regulations for a traditional rental property are few, and there aren’t too many 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 rent out your Airbnb. And many jurisdictions have placed restrictions on Airbnb investment rentals, making it nearly impossible to rent out a property other than your own residence.
Besides, renting laws may change in your city. That means you should do more research before you decide 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 that can help understand your particular situation.
You may also want to check out our article about Airbnb insurance for hosts and learn more about Airbnb Host Guarantee that offers protection for hosts for potential damages
Long-term Rental vs. Airbnb: Factors to Take into Account
Now that we’ve covered the basic 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. There must be a good reason for travelers wanting 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 very strict 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 work-intensive. Besides, something in your life may change, preventing you from being able to take care of your property
You may be able to save yourself time and work by hiring a cleaning service and a property manager to handle all of these tasks. But hiring a property manager would also add to your operating costs. That’s why many smart hosts choose short-term rental software like Hospitable.com to streamline their operations and automate routine tasks.
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When it comes to comparing Airbnb vs. renting, both strategies have their pros and cons. Airbnb rental can be more profitable than renting the same property to a long-term single tenant because of the flexibility and income potential. But this also depends on the great location of the property and your willingness to go the extra mile.
You should be patient while you grow your reputation and willing to put in the extra work to attract guests and keep them happy. And Hospitable.com can help you automate many of your daily operations and save you time and effort.
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