Home rental sites such as Airbnb use bloggers and writers to promote their site all of the time. Take a closer look at some of the articles, and you will soon notice they make some crazy claims about renting out your property using Airbnb.
A couple of the articles even claimed that renting out a property using Airbnb can make you rich. How true is that? If you find yourself wondering how much money you can make from a rental property, you should read this article.
Is Buying an Investment Property to Airbnb Smart?
Making money from renting out a home is not as easy as you may think, even when you bought a fixer-upper at a knocked down price. Buying any property represents a financial risk. Sure, you may be able to rent it out for 90 days of the year. But, what happens when you can’t rent it out or the rent doesn’t cover the annual overhead? You may still have a mortgage to pay and you will certainly still have maintenance costs, insurance and property taxes.
If you’re considering buying an investment property here are several questions to ask yourself before jumping in.
Will the Property Have Rental Restrictions?
If you buy a property in a community that has a homeowners association you need to realize the property may have rental restrictions.
A good example would be buying a property in a community where the property management company or board needs to approve all tenants, short or long term. If you were to buy a condo where contract law says that you can’t rent it out without getting pre-approval and do it anyways to kick off your Airbnb investment portfolio, it turn into a financial nightmare for you.
Many residential communities do not allow tourists or vacation rentals so you need to bear that in mind. Even so, you may find that you can only rent it out a certain number of times a year or require a minimum number of days, like 90-180 days.
Is the Property Located in a Desirable Area?
Let’s use London as an example since it is a top tourist spot. It is said that there are more Airbnb rentals in London than anywhere else in the world.
London is also a very large area, and it is not easy to pick up property at the right price in one of the many property hot spots. Most people would like to enjoy the buzz and excitement of central London.
However, buying an Airbnb rental in central London is not really feasible. It would cost a lot of money. As a result, many Airbnb rentals in London are in less desirable parts of London or in what is known as Greater London.
The problem is that traveling around in London is expensive. To make money from your rental, you need to invest in a property in the right part of town.
The same holds true if you buy a condo in Miami. In order to be successful the unit will have to be within walking distance to the beach and/or clubs. In some cases, vacation renters will want a view too!
Do You Have a Budget for Repairs and Damages?
Owning an apartment is not cheap. The initial purchase price is one thing, and fixing it up is another cost on top of that.
What if a tenant wrecks the place and you have a new client coming in the following week? Do you have the money and the time to fix it up?
Not only that, but the HVAC system could break down, and you could find yourself with a $4,000-$5,000 bill for a new system. Do you have that within your budget, and are you making enough money to cover a new HVAC system?
Sure you can turn around and sue the person who did the damage, but what will that cost and how long will it take to win or possibly lose?
What Are the Tax Implications?
No, you are not going to get away with not paying taxes, Depending on what country or state your rental is located in, you will have to pay income tax and local taxes.
Taxes vary and you will have to work them into your budget. In some places, you will have to buy licenses to rent out a property and pay for specialist habitation certificates.
Here’s an example from a friend of mine who lives in Spain. She bought a rental in Madrid during the housing crisis and ended up paying thousands of Euros, which is thousands in US dollars, to get the licenses to rent it out. In some states in the US, the same laws are applicable.
What Type of Furnishings Will You Have?
Furnishings are even an issue. Good quality furniture is expensive and if you don’t supply nice furniture, many people are not going to like the look of your interior. The end result will be low rental yield. Shabby chic is not what Airbnb is all about. Clients expect the Ritz at 2-star hotel prices.
Don’t forget that renting out your property means that a person renting it may not look after your furniture as well as you would do. Who is going to clean the furniture, and do you have a replacement sofa on stand-by when the one you supplied gets damaged?
Are you prepared to stock the home with everything a person could need? From pots and pans to a grill to bicycles people are going to expect turn-key, which means bring their toothbrush and some clothes. This means you, the Airbnb host, needs to supply everything else.
While some people will only sleep at the property others will hang out, which means internet and cable packages will be required too.
What About the Check-in and Check-out Process?
If there is no front desk, who is going to handle the check-in and check-out process? Are you going to rush through town during peak times to hand over the keys? Yes, there are specialist agents that deal with this sort of thing, but they cost money.
There are many practical things you must consider. Agencies can help you do the cleaning but will they change the bedding and do laundry?
Who’s Going to Make Small Repairs?
Things get broken all of the time, and you need to make sure you stay on top of small repairs. Do small repairs include a change of light bulbs?
Dripping taps and leaking showers will at some time or another form part of the picture of renting out a property using Airbnb. You will need to have the telephone number to an emergency plumber in case the toilet does not flush and the heating stops up in the middle of a cold NY winter.
Smaller appliances also have a tendency to break down, and you may have to keep a small stock of all sorts of essentials. What would you do if the toaster stops working or the clients call you to tell you George Clooney has not been around to fix the Nespresso machine?
Do you have enough cash available to make sure you have the necessary replacements, or will you have to use your credit card?
Who’s Going to Manage the Property?
If you are busy at work, who is going to communicate with the renter and answer email inquiries? If you will be the only one looking after the property as well as dealing with admin and promoting it, ask yourself what is the true cost of a rental property. Can you manage all of this and hold down a day time job?
We often forget that time is money. Maybe you would be better off keeping your cash in the bank or renting the property out on a long term basis without resorting to Airbnb.
Can You Afford a Rental Property?
Of course, affordability comes into it as well. Even if you buy a cheap fixer-upper using your savings, it is going to cost you money. Fixing up a property is never cheap. You never know what issues you are going to come across.
The paintwork may look great, but once you start taking out the kitchen, you can come across leaking pipes and problems with wiring. Most rental properties need to meet a certain standard and you need to make sure you can meet that.
If you are borrowing the money you will have to pay the mortgage and don’t forget about insurance costs. Insurance costs are part of the picture and you’ll want to investigate the cost because it won’t be your standard homeowner’s insurance policy. Think you can lie on your insurance application and get a basic policy to save money, think again. If the property burns down the insurance company will investigate and if they find out it was being used as an Airbnb your claim could be denied. So now you’re left with a mortgage and no property.
Owning a rental property is a real minefield. It is easy to think that you are going to make a fortune. But, remember that no one wants to be in the wrong part of town, and even Airbnb rental clients want to have access to amenities. Getting to the airport, the beach, equestrian facilities or the railway station quickly is important.
What are the restaurants like in the local area and the bars? Vacation renters are going to want to know all of this. In fact, you may even end up feeling like you are not only renting out an apartment or house, you are also a tourist information service
Before you make any decisions, sit down and make a list of all of the pros and cons. Be realistic and don’t engage in daydreaming. That is the job of all of the bloggers that promote Airbnb and try to turn the site, or business idea, into the greatest thing since sliced bread.
Make sure the rental property is a good investment for you. The goal is to make a profit every year, not just when you sell it, which there is never a guarantee that property value will increase. As we all know, the real estate market can be as volatile as the stock market.
Please consider spreading the word and sharing; Will My Fixer-Upper Make Me an Airbnb Millionaire?
About the Author
Top Wellington Realtor, Michelle Gibson, wrote: “Will My Fixer-Upper Make Me an Airbnb Millionaire?”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.
Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres and more.