Airbnb vs. Renting: Which Strategy Generates the Best ROI?

Strategies for Maximizing Your Airbnb ROI

In recent years, the question of whether Airbnb or renting is better has been increasingly widely discussed. Security in times of uncertainty may be worth the sacrifice of mobility that comes with a long-term lease. Compare the benefits of renting out a house the conventional way with those of renting it out on the famous vacation rental website.

To be sure, the Airbnb vs. rental question is a hot topic amongst property financiers. The industry for renting out homes during vacations is a rich one. There was a global total of $57.94 billion in industry sales in 2021, and that number is projected to rise to $82.78 billion by the end of 2022.

VRM Intel reports that 45 per cent of investors who purchase a property want to rent it out rather than sell it for a profit. Is it worthwhile to take the chance, however, given that holiday rentals do not provide steady revenue as long-term rentals do?

Our current challenge is to determine which method of investing will provide the highest return. With the information in this article, you’ll be able to choose the investment plan that’s right for your company.

Long-term management service.

Airbnb vs. Renting: Rental Income

Airbnb is a third-party platform that facilitates communication between hosts of short-term rentals and guests. It’s a marketplace where hosts may post their houses and connect with travellers looking for short-term accommodations. Airbnb’s service fee is a trade-off for the company’s promotion of your listing and its handling of guest payments.

By renting your house out for six months or more, you are engaging in the classic long-term rental. Unless you hire a property manager, marketing and collecting rent on a long-term rental will consume your life.

There are a few key differences between Airbnb and long-term rental homes that might significantly affect your revenue. Furthermore, there are benefits and drawbacks to both strategies.

Pricing

Traditional lessees are bound by the terms of their lease and cannot make unilateral price adjustments. This ensures a consistent flow of funds by guaranteeing that you’ll continue to get the same rental payment each month.

You have greater leeway in setting your rates when renting out an Airbnb. There is a wide range of pricing options available to owners of short-term rental businesses, and they may change their prices almost daily in response to variables like the day of the week, demand, season, etc.

The best guide to Airbnb pricing strategy read here.

Upfront and ongoing expenses

There might be greater initial expenditures associated with an Airbnb rental because of the need for the property to come completely furnished and supplied. It’s more expensive to maintain the home in pristine shape over time, therefore ongoing costs are greater as well.

To keep up with demand, you’ll need to constantly replenish your supply of certain things. Short-term rentals are more work for property management companies, so expect to pay more if you want to engage with one.

Conventional renting does not need a significant financial commitment. If you can find a reliable renter, they will tend to your home and yard. You should be prepared to cope with a crisis if one arises (but this will be an irregular occurrence). Of course, as the owner of any property, you’ll also be responsible for doing routine upkeep.

Some common costs associated with conventional leases are listed below.

• Water
• Sewage
• Garden maintenance
• Trash removal

Some of the additional costs that an Airbnb host may incur above a regular landlord are as follows.

• High-quality furniture
• Decor
• Bedding
• Towels
• Kitchen utensils
• Appliances
• Some standard food items such as coffee, tea, sugar, etc.
• Wi-Fi
• Cable TV
• Cleaning fees for services
• Utilities

More about Airbnb bathroom essentials.

Market and Demand

Generally speaking, the short-term rental market is booming compared to long-term rentals. Coming out of the pandemic, travel is enjoying a fresh upward trend, leading to travellers booking more Airbnb properties. On the other hand, long-term rentals are experiencing the opposite. The many people who lost their jobs during the Covid-19 lockdowns are still trying to recover financially before entering into long-term leases.

Though, it is important to keep in mind that Airbnb rentals are susceptible to seasonality leading to lower occupancy rates and income during the low season. On the other hand, it’s easier for short-term rental hosts to make money during the high season due to higher guest turnover and increased prices. 

Either way, demand for your property will not happen overnight. You first need to have received a few five-star reviews before you will receive more bookings. This means that when you are starting, you might have to discount your prices to ensure that your property will be in demand.

Airbnb vs. Renting: Legal Rules and Regulations

There has been a recent uptick in the number of regulations targeting Airbnb and similar short-term rental platforms. To complicate matters, local regulations on short-term rentals may be different from one jurisdiction to the next. This necessitates careful investigation on your part.

You may need to apply for local permission if your municipality allows vacation rentals. This would result in additional costs. It’s not worth risking a fee by skipping this step. The costs of legal representation may need to be borne by you in certain instances. If your rental property is located in a condo complex or gated neighbourhood, you may additionally need to get approval from the HOA.

Short-term Rental and Traditional Rental Tax Considerations

The tax consequences of using Airbnb are unique. Rental income in the United States is subject to taxation at both the federal and state levels. Occupancy tax may also be required if you use Airbnb to rent out your home.

While you will still be taxed on your traditional rental income, you will be eligible for extra deductions. As a result, you’ll be able to deduct a greater portion of your property-related costs from your taxable income.

If you are renting out a property, whether, via Airbnb or otherwise, you should speak with a tax expert.

Vacation Rental vs. Traditional Rental Property Insurance

Airbnb hosts have certain protections thanks to the Host Guarantee. However, this protection is insufficient and every Airbnb host should also have supplemental liability insurance.

Furthermore, the possibility of damage to your home increases if you rent it out to a variety of people throughout the year. Your insurance premiums will naturally increase as a consequence.

However, those who prefer the standard rental model are also likely to have a business insurance policy or some other type of landlord insurance in place to protect their investment.

Find out how vacation rental insurance works.

Airbnb vs. Renting: Pros and Cons

Airbnb Pros

More Potential to Maximize your Income

If you rent out your home at a higher nightly fee, you will be able to earn more money; however, this is contingent upon the fact that you have a high occupancy rate at your property. In addition to the cash you get from renting out your space, Airbnb enables users to make additional revenue by selling other services to visitors of their listings.

More Flexibility in terms of Pricing

Hosts have the opportunity to adjust their pricing every day in response to a wide variety of factors. You can, for example, offer discounts for longer bookings or midweek stays. 

The opposite is also true. For weekend bookings, you can charge more. This means that you can have two (or more) sets of rates to respond to the current demand.

No Lease Agreement in Place

Not having a lease agreement is not necessary. You’ve got your home regulations, and Airbnb has its guidelines for the safety of hosts. This implies that instead of being involved in a drawn-out legal battle if a visitor violates your regulations, you can just contact Airbnb for assistance. Additionally, a holiday rental agreement may provide you with peace of mind.

Protection of Hosts (Airbnb Host Guarantee)

Airbnb’s Host Guarantee is a fantastic perk since it may cover damages of up to $1,000,000. The review mechanism on Airbnb also serves to safeguard hosts. You may learn more about what to anticipate by reading the comments left by previous visitors.

Airbnb Cons

Damages

The risk of damage is greater than in a normal rental arrangement. Even though the vast majority of Airbnb reservations go off without a hitch, you should be aware that some visitors may be renting your place only to host a wild party.

This causes a lot of worry for hosts, who have to consider the possibility of damage to their home whenever they rent it out via Airbnb rather than a traditional rental agency. Although, because you will be renting out your home for shorter periods, you will have more opportunity to monitor its condition.

Higher expenses

After each reservation, you’ll need to tidy up the premises, replenish some supplies, and fix or repair anything that’s broken.

Irregular Income

Don’t kid yourself into thinking that you can rent your home out every single day of the year. That’s how you’d want it to be (hosting so many different guests can take its emotional toll). You may have a filled schedule for one month, and not a single appointment the following.

Income fluctuations due to the seasons are rather common. Occupancy will be heavily influenced by your location, attractions, and events.

Furthermore, the number of days you may rent your Airbnb may be limited in some cities. So, you may have to set aside a few days.

More Hassle and Time required

To make money as an Airbnb host, you’ll need to advertise your space. To achieve this goal, you will need to take beautiful images and update them often to reflect the seasons, develop engaging property descriptions, and critique your establishment for potential visitors. There is more pressure on you to make sure your property is ready for every guest and to maintain the lines of communication open so that each visitor has a pleasant and memorable stay. This amounts to a significant increase in effort given the dramatically increased rate of employee turnover. To sum up, it’s a lot more than just renting out an apartment.

Renting Pros

Regular Income

Traditional renting has the main advantage of guaranteeing that your home will be leased for a longer time frame. This ensures a fixed monthly income from rent payments.

Lower Guest turnover

If you can keep your guests longer, you can spend less time on maintenance. You’ll spend a lot less time on housekeeping and upkeep.

Renting Cons

Less Flexibility

When renting out your home, not only do you have less leeway in setting prices, but you also lose the ability to suddenly withdraw it from the rental market. Therefore, renting your house “part-time” is not an option with conventional leasing. For instance, unlike conventional rentals, Airbnb only allows you to rent out your apartment on the weekends.

Less Potential to Maximize your Income

Long-term renters need special attention to guarantee timely rent payments. The loss of even one month’s salary might have a devastating effect on your financial situation. It might be challenging to discover enough reasons for evicting a tenant, depending on the state in which the rental property is located and the rules governing tenancy there. It may also be difficult to locate a replacement renter if they suddenly go. However, Airbnb expects visitors to pay the whole price at the time of booking.

Being Bound by a lease Agreement

Before the rental period begins, you and your visitor should sign a long-term lease agreement. This implies you can’t adjust the rent or add new requirements based on market conditions until the lease is up.

Airbnb vs. Renting Factors to Take Into Account

Consider the following details while choosing between a standard rental and an Airbnb:

Your Property’s Location

Short-term rental success depends critically on a property’s location. Why do so many people like it? There has to be a basic incentive for people to desire to go to your area. The property must be exceptionally special if it is not located in a big metropolitan area or a tourist hotspot.

A beginner’s guide on buying Airbnb property read here.

Local Laws and Regulations

Traditional renting will be the better choice in locations that have rules that are very stringent about short-term rentals. In addition to this, you need to investigate whether there are any other additional requirements, such as permits or limits on the total number of nights. These things may not seem important, but they can harm the amount of money you make from your rentals.

The granting of leases for periods of less than one year is outright forbidden in several localities. Therefore, it’s possible that you don’t even have the choice of choosing between Airbnb and renting.

The Maximum Bottom Line You Could Possibly Earn

When compared to conventional renting, Airbnb often results in a higher nightly charge. It has also been stated by some hosts that they can make three times as much money as they would have via conventional rental methods. However, this only applies to Airbnb that have a high percentage of guests staying at them at any one time.

Conclusion

There is no definite winner when comparing Airbnb to renting an apartment or house. Airbnb has the potential to increase rental revenue. Having said that, this does not come without a price. The location of the investment property is one of the most important factors for hosts to consider, even if it means paying more upfront for the property.

Even if you have a property that is directly on the beach, the only way you will be able to increase your earnings is by going the additional mile. This indicates that you need to advertise your home, make certain that you acquire an adequate number of reviews rated five stars and put in place a successful pricing plan. If you do not have the desire to put in the additional effort and the patience to wait while you build your reputation (which may take a long time), then conventional renting will be the best option for you when it comes to renting strategies.

The use of special software may make the administration of short-term rentals much less stressful and assist hosts in streamlining their businesses related to holiday rentals. You can automate many of the day-to-day tasks that you will need to carry out with the assistance of this tool. These are the following:

• Taking care of several accounts and listings on popular websites for holiday rentals, including Airbnb, Vrbo, and Booking.com
• coordinating bookings across many sites to reduce the possibility of receiving a duplicate booking
• Organizing your emails into a single stream using the unified inbox to guarantee timely responses
• Easily integrating your professional direct bookings website with all of your other vacation rental listings on platforms in only a few minutes.
• To enhance guest communication, automated templates and triggered messages may be used.
• automating the distribution of customer reviews
• using a direct booking management solution to handle direct reservations
• Creating crucial reports on the outcomes of your organisation in a matter of minutes.