Airbnb went public on Thursday, December 10, 2020 and opened at $146 per share on its first day of trading. From 2008 to present, Airbnb has done an amazing job at marketing the platform and turning the term Airbnb into a household name like Kleenex or Coke.
So, what really is Airbnb? Airbnb is a listing site just like VRBO, Trip Advisor, or Expedia. It allows guests to search and book their accommodations from hosts. Hosts are homeowners or companies who advertise their spare rooms or properties on Airbnb online marketplace. Since the rise of Airbnb, many investors have capitalized on this opportunity by acquiring investment homes for the purpose of renting them out short-term.
With interest rates being so low, you may be thinking now is the time to buy an investment property and Airbnb it. Before you jump on that decision, be sure to consider these 5 things:
1. Local Laws and Regulations
Protect yourself! Check with the county and the city where the home is located and verify if short-term rentals are allowed, not allowed or permit required. If there is a homeowner association (“HOA”), read the by-laws. It is very important to know what is required to change the by-laws. There are documented cases where an HOA voted to change its by-laws after some homeowners rented their homes on Airbnb.
Have multiple exit strategies. Don’t rely on the home’s ability to cash flow through short-term rentals. What if your local authorities decide to change the laws? Will you be able to sell it or rent it long-term without losing money?
2. Your True Costs
Don’t leave anything out! When purchasing an investment property, you will have expenses such as down payment, closing costs, monthly mortgage payment, property taxes, and insurance. Owning a short-term rental will incur some additional expenses such as liability insurance, utilities, internet, cable, linens, towels, furniture, bedding, cooking ware, ongoing supplies such as toiletries, coffee, detergent, and management fees. Once all the costs are factored in, does the property meet your investment goal?
3. How will you manage it?
It’s hospitality, which means guests will contact you 24/7. Are you up for it? If responding to a guest’s maintenance request while watching your favorite football team playing is not appealing to you, you might want to consider co-hosting or hiring a property management company. There are several components including handling inquiries, managing bookings, scheduling maintenance, collecting payments, disputing chargebacks, etc. Unless you have a lot of time and love pleasing your guests, hiring a management company is highly recommended.
4. How will you market it?
Marketing your investment home on Airbnb only is like putting all your eggs in one basket. There are hundreds of other listing sites. Should you be on all of them? The answer is no. Each site has its own rules, pros and cons. Therefore, choose wisely!
There are 3 types: property taxes, income taxes, and hotel taxes. The homeowner is responsible for all property taxes and income taxes from rent revenue collected. Many local municipalities have hotel taxes that are paid by the guests but collected and submitted by the homeowners. It is highly recommended that you should check with your city, county, and state for the tax rates and collect accordingly.