Explore the world of real estate investment: traditional long-term rentals vs. Airbnb. Discover how short-term rentals provide a flexible, profitable alternative for earning passive income without the commitment of long leases.
- Last updated March 13, 2024
Investing in rental property is an established method to make extra money. Investors view traditional long-term rental properties as viable ventures. However, there are ups and downs when renting out a house for investment and long-term capital appreciation. That’s where more investing opportunities like Airbnb outside traditional leasing come in.
Airbnb is becoming a more well-known service for momentary and holiday rentals. Short-term rentals, which operate as an alternative to hotels and conventional B&Bs, have shown to be a successful means for investors to generate passive revenue from their rental property without signing a long-term lease. For most real estate investors, the most important thing is to maximize earnings while lowering risks and overhead.
As an investor, the choice between renting for maximum income and using Airbnb will come up if you’ve bought an investment home. This ultimately begs the question, which is better regarding return on investment: longer-term rental or Airbnb? Come with us as we help you answer this question and contrast traditional renting with Airbnb in this post to help you understand the benefits and drawbacks of each approach.
What is Traditional Rental Property?
The conventional method of renting a property is through traditional rentals. Otherwise known as long-term rentals, tenants sign a lease with you for a predetermined time, usually a year, and pay rent monthly. In this case, tenants handle other costs like power bills and paying the owner regularly.
Monthly rentals are possible for some long-term rental homes, but most are leased for a period of one year. Real estate investors can reap numerous advantages from long-term rentals. Less turnover and consistent cash flow through monthly rent are two of them. One of the drawbacks of long-term rental properties may be the legality of screening potential tenants and drafting strong lease agreements. Bay Property Management Group can help manage your rental property’s needs.
What is Airbnb?
Airbnb is an internet platform that facilitates the rental of residences or spare rooms by investors to tourists needing lodging. “Airbnb” refers to “air bed and breakfast,” which initially reflected the company’s early emphasis on renting out air mattresses and conventional bed and breakfast lodging.
In exchange for the platform’s assistance in matching hosts with prospective guests, Airbnb charges hosts a fee. All costs associated with the property, such as upkeep, utilities, and cleaning, are covered by the hosts, who charge a fixed fee.
The nightly rate, cleaning costs, and cancellation guidelines are all at the host’s discretion. Because of this, Airbnb levies variable costs, typically 3% of the entire cost of the booking for hosts and 5-20% of the booking total for guests, as a service charge.
Clients can rate hosts, and the hosts with the best evaluations get super host ratings, which elevate their properties on the platform.
Pricing Model of Traditional Real Estate vs Airbnb
Potential Rental Income
Airbnb: Purchasing an Airbnb home may increase rental revenue, particularly in regions with many visitors or well-known tourist locations. On a nightly basis, short-term rental rates can often be higher than long-term rental rates.
Traditional renting: Over time, shifting to long-term rentals has provided more reliable and steady rental income. Long-term tenants decrease the demand for periodic turnovers and offer consistent occupancy, even though the rental rates may be lower than short-term rentals.
Demand and Occupancy for Rentals
Airbnb: Seasonal variations, events, and tourists can all impact the demand for short-term rentals. Nevertheless, occupancy rates may differ based on the area’s competitiveness, property type, and place of residence.
Traditional rental: Occupancy rates for long-term rentals are typically more steady and reliable. Several factors, including housing demands, employment possibilities, and population expansion, typically influence long-term housing demand. Long-term rental opportunities are often solid in vital population centers and growing markets.
Property Ownership and Upkeep
Airbnb: Taking care of an Airbnb property entails cleaning regularly, guest relations, and ensuring visitors have a good time. Using a professional property management company and investing more time and energy into this approach could result in lower profits.
Traditional renting: Long-term leases may require less daily administration and often include fewer turnovers. In addition to handling tenants’ requests and ensuring the property complies with local laws, landlords still have maintenance difficulties.
Adaptability and Property Usage
Airbnb: Purchasing an Airbnb home allows you to utilize it for yourself when not rented out. Property owners can change accessibility depending on personal preferences or reserve particular dates for their own use.
Traditional renting: Tenant possession of the property is guaranteed for the life of the lease when renting a long-term property. Unless otherwise agreed upon with the tenants, landlords cannot use the property for personal reasons once the lease expires.
Compliance Aspects to Take into Account
Airbnb: Depending on the local government, homeowner associations, or short-term rental laws, managing an Airbnb property may be subject to particular rules, licenses, or limitations. It is essential to comprehend and abide by the appropriate laws and regulations for the specific area. In an effort to keep locals from being priced out, more and more cities are restricting the usage of Airbnb. Verify again that renting out your house on Airbnb is permitted in the area where it is situated.
Traditional Renting: Landlord-tenant rules and regulations apply to conventional rental homes and differ depending on the jurisdiction. Legal regulations pertaining to lease agreements, tenant rights, and eviction processes must be followed by landlords.
Factors to Consider When Choosing an Investment
1. Location and Zoning Laws
Knowing and comprehending legal standards and local laws pertaining to regular rentals and Airbnb is vital. Short-term rentals are subject to specific laws or regulations in some localities or homeowner organizations. Zoning rules, rent control ordinances, and landlord-tenant legislation are examples. These laws must be followed without exception, as breaking them can result in expensive legal problems.
2. Expenses
Investments in rentals and Airbnb include costs and obligations. Regular upkeep expenses, real estate taxes, and sometimes utility payments are all associated with renting out a house and are typically the tenant’s duty. Airbnb may incur additional expenses for cleaning, furnishings, marketing, and booking platform fees. Using property management services or having greater hands-on engagement is also necessary when managing an Airbnb property.
3. Amenities Around the Property
The fundamental principle of real estate investing continues to be the expression “location, location, location.” The location is a significant factor in determining your rental property’s desirable and profitable qualities. Tenants find properties near public transport, schools, hospitals, and shopping malls more appealing.
Legal Documents that Protect Investors
1. Rental Agreement
A written or verbal contract known as a rental agreement grants a renter temporary use and occupancy of a landlord’s property. A rental agreement typically lasts one month, after which it expires and is renewed by the parties every month. The tenant pays the agreed-upon rental amount to the landlord in exchange for tenancy.
2. Waiver of Liability
A legal document known as a waiver of liability provides security to both parties to an agreement. It is a formal contract that absolves one party of all liability for any harm to the other party’s property that may happen while the contract is in effect. This kind of waiver is frequently utilized when renting or borrowing property, such as cars, equipment, or items for events.
A liability waiver shields the party from relinquishing liability from any lawsuit resulting from property harm to the other party. This contract is essential to any property transaction since it gives both parties involved legal backing and serenity.
Final Thoughts
Investing in real estate has historically been the cornerstone of numerous wealth-building techniques. Rental properties provide prospects for long-term appreciation and a return on investment from rental revenue, regardless of whether you want to rent or use Airbnb. The best option for you will depend on the local short-term rental market, as well as how much money you have to pay a management agency or how much time you have to devote to management.
Every real estate investor should have several vital real estate documents ready. These records aid in safeguarding your privacy and defending you from rivals attempting to take advantage of your clientele. They can also prove you have followed all applicable municipal laws and zoning rules. You can sell your real estate assets at their entire worth, as decided by your local city council or zoning board, if you have this documentation ready in advance.
Short-Term Rental Data
