Is it a good time to buy an Airbnb property right now?
We all know short-term renting has been a massive goldmine in recent years. Thanks in part to Covid-19, people got all “travel vengeful”. Americans were booking Airbnbs left and right in order to break free from months of sheltering in place.
Airbnb property revenues hit an all-time high in 2021, proving that short-term renting is a very lucrative investment strategy.
Or is it?
Late last year though, there came the “Airbnbust”. Property owners saw a huge slump in bookings that started around the Fall.
So you might be wondering if it’s still a good idea to invest in short-term rentals this year and the next one.
In this post, we’ll discuss 6 reasons why buying an Airbnb property won’t be such a wise investment this year.
If you’re planning to take out a loan to buy an Airbnb property, the down payment you’ll need to pay will be much higher than the one needed for a main residence. Most vacation rental properties require at least a 10% down payment, but it can go up to 25% — or even higher – based on how strong your application is. So be prepared to spend a lot of money upfront on the down payment alone.
As an Airbnb host, you won’t have total control over your property and the guests who stay there.
Think about it: you’re letting a stranger stay in your home, and even though you pre-screen your guests and chat with them, you won’t really know what goes on at your property the moment they check in.
What if they break your house rules, throw a party, and cause damage?
Even if Airbnb already banned parties and events from its listings worldwide, we all know how such a policy can only go so far.
If a guest invites people over to your property and they end up causing a lot of noise, and your neighbors complain about it, Airbnb could suspend or remove your listing. That’s right – not just the guest, but also YOU as host, and YOUR LISTING. Without so much as a review or investigation.
Check out this AirbnbCommunity forum to see how many hosts have been suspended from the platform without prior notice. These hosts didn’t want a party. In fact, they were the ones who reported the party. And their accounts were suspended.
And you know what suspension means – no bookings, and no revenues.
This is what caused the so-called “Airbnbust” to begin with. There are now too many short-term rentals in the country.
In the past couple of years, a lot of investors jumped on the short-term rental bandwagon because they saw how well Airbnbs did during the pandemic. They didn’t realize that 2020 and 21 are considered anomalies in the travel and hospitality industry.
So the number of short-term rental listings in the U.S. skyrocketed to 1.38 million last September, according to AirDNA. That’s 23 percent more than the previous year!
Since 2020, 62 percent of the current listings have been on the platform.
There are now an estimated 1.98 million professionally managed vacation rental properties in the country and around 25,000 vacation rental management companies nationwide.
Now, that’s a lot of competition!
With millions of listings vying for bookings, competition is so much tougher. Owners and hosts need to work a lot harder with their marketing and optimization strategies if they want to stand out from the crowd.
And did you know that cities keep pushing regulations that could limit the earning potential of Airbnbs?
Some cities restrict the number of properties you can rent out or the number of days you can make them available.
Others limit the number of guests or the duration of their stay.
In San Francisco, for example, you can’t rent out any part of your home unless it’s your main residence. That means you have to live there at least 275 nights a year. And it’s illegal to lease your place for more than 90 nights that you’re not around.
In New Orleans, the city council already put a ban on new short-term rentals last October.
Palm Springs, California put a limit on how many Airbnbs there could be in each neighborhood.
These rules make it difficult for folks to make money on Airbnb.
And what’s tough is, the regulations keep changing from time to time. So you always have to be on your toes watching what new rules are being passed — or you could end up facing stiff penalties.
That uncertainty can make Airbnb property investing a very risky idea.
Studies say Airbnb hosts make an average of $924 a month. But that varies dramatically depending on a variety of factors, a few of which are:
Sure, some hosts make a lot more than that 924-dollar average, but the median income is actually much smaller.
Only half of Airbnb hosts have made more than $440 per month, which is about $5,280 per year.
In fact, according to Earnest.com, about half of Airbnb hosts make less than $500 per month, and almost three out of four make less than $1,000 per month.
Only one in ten hosts will actually make more than $2,000 per month.
So you have a situation where people are rabidly investing in short-term rentals, expecting to make big money in very little time. They overinflate their prices but fail to get enough bookings.
The result? They don’t get the ROI they expected.
As mentioned, a lot of factors go into succeeding at Airbnb. You have to be in the right place, be great at marketing, use dynamic pricing, and be an excellent host.
Just because you can expect to earn a decent profit doesn’t mean you’ll actually do it, right?
Other factors that many investors fail to factor in are real estate bubbles and fluctuations in the housing market.
U.S. News says home prices are expected to drop about 5% to 10% in 2023, and because of low affordability and record-low mortgage rates, sales will generally be down.
Property owners are now stuck with homes that can be challenging to sell.
First of all, getting regular bookings on Airbnb takes a bit of time. Even if you have a great property in an awesome location, you can’t expect make a lot of money right away.
You’ll have to build a good reputation before you get a constant flow of guests. The more positive reviews you get from past guests, the more likely you’ll get new ones.
So in the beginning, you might need to keep rent prices low to give people a good reason to stay.
Next is unreliability or a regular income. If you did traditional long-term renting, you’d collect rent every month which gives you a steady stream of reliable income.
Short-term renting is less predictable. In theory, you could rent your place out 365 days a year. But in reality, you’re probably going to have a lot of empty nights on your calendar. You might even want a day or two between bookings so you could get your place ready for the next guest.
Seasonality has a huge effect on bookings. And even if you try and make up for the low season by charging more during peak season, there’s still no guarantee you’ll come out ahead.
Read also: Short-term vs. Long-term Rentals: Which One is Right For You?
As an Airbnb investor, it won’t be enough to just buy a property. You’ll also need to fill it with high-quality furniture, decor, and appliances if you want to impress potential guests.
You’ll have to spend some money to make the place look and feel classy. Those who stay at Airbnbs want to feel upscale.
And aside from the interiors, you’ll also have to shoulder:
All these costs will add up and eat into your ROI.
Investing in Airbnb properties can be very profitable – IF you’re patient and ready to put in the hard work to find guests and keep them happy. All the time.
But there are risks and costs involved that can make it a less attractive investment opportunity.
Don’t think you have to jump on the Airbnb bandwagon yourself. Do some research, follow the numbers, and decide what suits your own goals, management sytle, and financial situation.
If it doesn’t seem like short-term renting will work for you, there are lots of other ways to make money in real estate.
