Over the past few years, legislation has been aimed at tempering the explosion of short-term rentals and Airbnb properties in cities nationwide. However, Airbnb is not going anywhere. It keeps growing. There are over 5 million Airbnb hosts worldwide, with the average host earning $13,800 per year. If you are looking to add a couple of short-term rental properties to your real estate portfolio, this article will give you a basic understanding of how to purchase an Airbnb property and how to manage it efficiently.

Is Airbnb profitable for hosts & landlords?

If you’re an investor looking for a second (potentially passive) source of income, then an Airbnb property might be an excellent option to consider. In fact, younger generations like Gen Z and Millennials are very open to renting a portion of their house on Airbnb, also known as house hacking, to make homeownership more affordable.

According to research from Earnest, hosts make an average of about $924 per month. However, depending on your location, marketing strategy, and home quality, you can make more than that per month. You can also scale your Airbnb venture to include additional properties over time.

If you’re in a state like Florida that welcomes millions of tourists yearly, you’ll make more money than the average Airbnb host. According to Airbnb’s data, Airbnb Florida hosts generated $15.16 billion in supplemental income in 2023, hosting 135 million guests. So, are Airbnb and other vacation rentals profitable for hosts and landlords? Definitely.

How to buy an Airbnb property

You can make a lot of money as an Airbnb host. You might even become a super host in a couple of years, getting lots of inquiries. But like any other venture—real estate or otherwise—success isn’t guaranteed.

If you treat your Airbnb venture as a business, buy property in a favorable location, and provide an excellent guest experience, your Airbnb property will be set up to deliver a steady income stream. You can even use income from your Airbnb property to expand your real estate portfolio.

The first step is to assess your current financial standing. How much can you afford to spend on an investment property? Keep in mind that purchasing a property for an Airbnb business requires more than budgeting for the property price and closing costs. You’ll also need to factor in the cost of furnishing the Aribnb property and making it attractive to guests.

1. Secure your financing

Before we talk about alternative financing options for investors looking to venture into Airbnb hosting, there are a number of financing options to know about. Qualifying will depend on your credit score. You can opt for conforming loans, portfolio loans, multifamily loans or short-term loans. Some Airbnb investors take multiple loans; a primary loan to finance the property and another loan to furnish it and cover additional expenses.

The downside of conventional financing for investors is that it requires a larger down payment. You’ll need to prepare at least a 15% down payment. In addition, bank rates are usually higher for short-term rental investors since the banks consider these types of properties higher risk.

If you want to transition from being a hobbyist Airbnb host to a business, you should create an LLC. This will allow you to keep your business and personal finances separate.

2. Assess location

Two factors are critical to your ROI on Airbnb investing: your neighborhood’s occupancy rate and the average daily rate. These two metrics will show how profitable a particular location is for short-term renting.

If the location isn’t heavily affected by seasonality and your property doesn’t stay vacant for too many days in a month, you’ll make more money from your Airbnb rental property.

To get a clear picture of your potential ROI, you’ll need to assess both metrics at the city and neighborhood levels.

How do you choose the best place to buy Airbnb property?

Travel destinations are the best places to look when buying a home to rent on Airbnb. These include areas like Florida, Nevada and Texas. There are neighborhood heat map tools online on websites like Mashvisor and AirDNA to help you research the most popular travel destinations and market revenue.

If you don’t want to hire a property manager, you will also want to choose a location near your home. This will allow you to stay up-to-date with maintenance and other hosting duties.

3. Check local Airbnb rules and regulations

This is one of the first things you should do when buying an Airbnb property. As we mentioned earlier, new regulations are being enacted in cities and locations that restrict and sometimes even prohibit Airbnb rentals. This is not just exclusive to the US; it’s global.

It’s your job as a real estate investor to stay informed about the facts regarding your desired neighborhood.

You should know:

1. Whether or not it’s legal to host in your desired city
2. The requirements you’ll need to meet as a host (including any licenses you need and paperwork you need to submit)
3. The taxes and fees
4. The number of bookings allowed

For example, Los Angeles requires short-term rentals to be registered with the city, and they can only operate for 120 days a year. If you rent your unit for longer than that, you’ll need an extended-stay registration. The Airbnb website summarizes the legal requirements for around 100 cities and counties and provides links for more information.

4. Choose the right property type

There is no “right” property type for Airbnb rental investing. You should keep your ears to the ground and get to know the type of people who demand short-term rentals in that neighborhood. You’d probably want to invest in a condo or small apartment in a place like a city center, as your Airbnb rental would likely attract business travelers. Also, you’ll pay more for a single-family home in that location.

In a resort location, you might want a property type that offers more privacy, such as a single-family home, as this location type will probably attract young couples and small families or groups. Since this type of investment would require more out-of-pocket costs, you need to calculate your potential return on investment (ROI), so you’re not biting off more than you can chew.

What kind of property is best for Airbnb?

Here’s the straightforward answer: The best type of property to buy and rent out on Airbnb is the one that makes you the most money. To a large extent, the ROI from your Airbnb properties will depend on your chosen location. Odds are that you already have a specific type of customer in mind. If you do, place yourself in their shoes and consider the property type they prefer most. What amenities would appeal to them? What type of neighborhood would they like to stay? Walkability is one key thing to consider, especially when attracting millennials. So, check the neighborhood’s walk score.

While you want a place close to amenities and shopping centers, the costs of buying a house in a central location, paying mortgages, and paying taxes might not always be worth it. Buying an Airbnb apartment would offer better returns in these places.

5. Analyze the property and its potential ROI

You ought to understand that analyzing Airbnb property can be a bit tricky. That’s because rates are usually adjusted based on seasonality, special events and travel trends. This means you might get more returns in one month than the others as opposed to long-term rentals that deliver relatively fixed cash flow.

Here are some essential steps for analyzing your Airbnb rental property investment:

1. Do a comparative market analysis (CMA). If you employ a real estate agent while searching for properties, they can help with this. The CMA compares the property’s listed value to similar properties in close proximity that were recently sold. You can use this to negotiate the price down.
2. Make a list of expenses and startup costs. Include both one-time and ongoing expenses. Aside from mortgage payments, prepare to spend money on taxes, furniture and utilities, cleaning services, insurance, and ongoing maintenance. You’ll also need to factor in the cost of hiring a property manager if you decide to take that route. Be aware that if these expenses exceed your monthly cash flow, it might not be a worthwhile investment.
3. Figure out your expected rental income. Check out the current daily rate and the occupancy rate in your market using Airbnb analytics software.

6. Create your Airbnb listing

Creating a listing on Airbnb is free. However, hosts are charged 3% of the booking subtotal in the U.S., while guests are charged up to 14.2%, depending on several factors. Listing your home on Airbnb is pretty easy, and you decide on house rules and what type of guests you want.

Create a listing that includes photos of your home and the rooms guests would stay in. Then, craft a description of the home and its location. Mention the amenities available and choose the dates you want to make the house available. Set your own price and house rules.

Note that you’ll be competing with other Airbnb properties in your neighborhood. So, keep the average daily rate in mind when setting your price. You can, however, increase the price in certain situations – usually when there is an influx of visitors into the neighborhood.

7. Plan how you’ll handle bookings and guests

Managing an Airbnb is considered passive, but there is some work involved. You’ll be dealing with a lot of people. So, if you have social phobia or discriminatory beliefs and don’t want to share your space, you probably shouldn’t manage short-term rentals.

If you plan to manage up to three or more Airbnb rentals, you’ll need help. Here are some things you’ll need to set up to make your work easier:

1. A short-term rental management tool. Tools like iGMS will help you save time managing multiple Airbnb listings. It enables you to manage communications with guests, bookings and your team all in one place.
2. Create a house manual. This is an FAQ for your Airbnb property that contains all of the information guests need to know to get the most out of their stay. It’s also a great way to communicate about things like noise levels, pet policies and basic cleanliness.
3. Outsource tasks. When you’re running a vacation home, the last thing you want to do is spend your precious time cleaning up after guests. For this reason, we recommend outsourcing some (or all) of the property management tasks. At a minimum, you want to hire a cleaning service to clean up after guests. You could also hire someone to check people in and out.

How to buy an Airbnb property with no money

If you’ve been looking for ways to get an Airbnb property without spending any money, we’ve got some news for you: it’s possible! Here are four ways to do it.

1. House hacking

There are many reasons to buy a property, live in one part of it, and rent out the rest. You can make some extra money, have an investment that can increase in value over time, and even make your home feel more welcoming.

But the cool thing about house hacking is that it’s easy to start with just a spare room in your home! All you need is a spare bedroom—or even just an extra closet—and some motivation.

The competition on Airbnb is tough, though. If you want to succeed as a house hacker on Airbnb, make sure your listing will appeal to renters: keep the space tidy and clean; provide comfortable amenities like towels and toiletries; use professional photos that highlight any special features (like an awesome view); and information about the area.

2. Rental arbitrage

The practice of renting and subletting properties on Airbnb is called “rental arbitrage.” If you rent a property for $3000 a month and then sublet it on Airbnb for $150 per day, at 80% occupancy, you’ll pay your rent and still make $600 monthly profit from your rental proceeds. This means you can make money from other people’s properties—and it’s legal in most places. But do your research to find out if it’s legal in your area and check your lease to make sure your landlord doesn’t restrict it.

3. Home equity loan

A home equity loan or second mortgage is a loan secured by your home. It will give you a lump sum or line of credit based on your home’s equity. However, you must repay it, or there could be serious consequences. You can use that money for anything you want, and it’s pretty much like getting an advance on your paycheck.

The second mortgage holds your primary home as collateral, so if you don’t pay back the loan, the lender can take away (foreclose) or sell the house to get their money back.

You should also know that Airbnb has collaborated with Fannie Mae, Citizens Bank, Better Mortgage, and Quicken Loans to help hosts refinance current mortgages. Hosts can use rental income as part of the qualification criteria for refinancing their mortgage.

4. Seller financing

Seller financing is a viable option for buyers with bad credit scores. It’s when the seller finances the deal instead of a bank, so you can buy a house without needing pre-approval for a loan.

Sellers often ask for a higher purchase price or charge higher interest rates because of the risk involved, but this is still an option worth considering if you have poor credit and want to buy a house.

5. Private money loans from family and friends

If you’re looking for a private money loan, your best bet is to go through a friend or relative who can provide the funds. The good news is that there are no credit checks for these types of loans. Therefore, if you have people in your circle who might be interested in assisting you to fund the deal, go for it.

The interest rate, time frame, and down payment depend on the private money lender. However, these types of loans offer a bit more flexibility than traditional banks.

Is buying an Airbnb property right for you?

Real estate investors can earn a good side income from Airbnb property investing. Be sure to conduct solid research on the local market, local rules and regulations, and the most effective ways to spruce up the Airbnb listings. When you do your due diligence, you’ll be able to understand its potential and if the Airbnb property will align with your financial goals.

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