Whatever your situation may be, you are reading this article because you need to make the decision between renting your property short-term as an Airbnb, or long-term to tenants with a lease. This becomes an easy decision for most people once they know all the factors involved, so let’s dive into it.
Money. I know the reason you probably came to this post is to hear about money, because that’s what renting is all about at the end of the day. A lot of people say that ‘Airbnb-ing’ will always give you a better return on investment, AKA higher profits, and while this if often true, it isn’t always true. It’s better not to assume, and to look at the numbers. There are a variety of factors that affect how much you can get per month on Airbnb vs from a tenant—location, tourism rate, climate (Airbnb renters won’t be paying your electricity bill as opposed to a tenant), average nightly rate vs average monthly rent for your property size and type. I suggest just running a simple financial analysis of your own.
I’ll demonstrate with an example—calculations for long term rentals should be fairly straightforward. Scope out the average monthly rent for comparable properties in your area, factor in an average monthly amount for maintenance to be safe, and if you pay anything else make sure to deduct that as well of course (mortgage, HOA fees, etc).
Let’s say for long-term renting you estimate you can charge a monthly rent of 2000 and you call that 1850 in case of repairs (this will be unique to your property of course depending on the type of place it is and its size). Short-term—on Airbnb (BTW there are other platforms you can use as well and you can create your own personal rental website, I just use Airbnb as a generic term)—you can charge 150 per night, if you rent 20 nights out of the month that is 3000 in revenue per month (an average occupancy rate of 66% is reasonable if you are accurately priced, which is why accurately estimating the nightly rate is essential, to summarize the best way to do this you’ll want to look at what comparable properties in your area are going for—make sure they have reviews and take a look at their calendar availability so you know they are actually getting booked!). Then, say our expenses consist of the 150 set aside for maintenance, and all the bills that you now would be paying for instead of a tenant—gas, electricity, Wi-Fi, etc.— as well as a property manager if you plan on hiring one. Make sure you account for anything possible, and you can even round it up just to have a cushion.
Now let’s say even after you account for all expenses, your profit would be a monthly 2400 renting as an Airbnb, which is 400 higher than your estimated long-term rental income. It’s at this point that you would take into consideration the other factors that go into the decision. It’s important to get your financials in place before you think about anything else, as that is the bottom line for most property owners.
Time. Every property is different, but things to take into consideration that take more time when it comes to an Airbnb are communicating with guests (Airbnb’s algorithm rewards quick and quality responders), coordinating cleaning after check-outs, restocking cleaning/guest supplies, etc. Being a good Airbnb host takes work. However, I don’t really see this as a con because ultimately, if this isn’t your guesthouse in your backyard a few steps away, hiring a trustworthy property manager or subscribing to an automated management software is going to be the best route for most people. In my opinion, if the money still makes sense after taking the management fee into account, this could also be viewed as a pro instead of a con. A property manager’s fee is often worth the time it would take you to personally run your Airbnb, especially if you own or plan to own multiple rental properties. You get to sit back and collect your ROI stress-free (if you have a great manager—I can make another post about what you should look for, what questions you should ask, etc.)
Legal. Over here in Mexico, if you own a property, you can do whatever your heart pleases with it. Feel free to contact our team if you’re interested in buying property in Los Cabos, we can connect you to the right people. However, if you are reading this from the US, and your property is located in the US, make sure you do your due diligence on the laws regarding short-term rentals in your area, especially if you are in a bigger city. At this point in time, the vast majority of areas should be absolutely fine, but always better to be safe than sorry. Also, if your property is part of a homeowner’s association, you will need to check on your agreement with them, as some either restrict or put limits on short-term renting.
This is an overview on the factors of rental income, time consumption, and legality that go into making the decision between short-term and long-term renting. I hope this gives you an idea on how to confidently make that decision based off of numbers and facts. The main thing here is to avoid listening to general statements about the sometimes controversial topic of renting, whether that be the hype—“INSANE cashflow renting through Airbnb, you’re missing out”—or the negative nellies—“Airbnb is a lot of work and there’s way more expenses you’ll have to pay for than you thought, guests can be a nightmare” (and to those people I say: tenants can be a nightmare too, and at least with short-term you get to intermittently see what you place is looking like instead of a big surprise after six months!) The thing is, none of these statements are truths unless they are true for you. Do your due diligence and figure out what makes sense for you and your property, and you’ll go into your renting journey knowing that you made your decision based on facts.
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