The idea of rental income is very interesting and how to do it is pretty intimidating to a lot of people. We had a conversation with Katie Hill, an experienced Airbnb host that is now also a traditional landlord. Katie is dynamic and honest and will guide us through the pros and cons of what it means to have tenants both temporary and long term. If you've considered buying rental property or trying to make income on a property you already own then hopefully we can pass along some valuable information to consider. Being a landlord isn't for the faint of heart, but it can make some great income—so let's get into it!
What Are the Pros and the Cons of Airbnb?
Pro: Financially you can make a lot of money.
Con: You never know how much you’re going to make month to month.
Takeaway: A great option if you are risk-tolerant, because although money isn’t guaranteed you have the potential to make a good amount of money.
Pro: Meeting new people! You get to know people coming from different places.
Takeaway: If you enjoy sharing things about your city and when you live then that will become a really joyful part of running your Airbnb business.
Con: The initial setup can be cumbersome and costly if you need to furnish the entire place. Even if you are trying to do it cheaply it does add up; so be sure to factor that into your budgeting when setting up the business.
Takeaway: Don’t forget that you will need to set up the space for other people to feel at home! A good practice is to stay in the space yourself to see what is missing and can be added to make a stay there more enjoyable.
Is There a Way to Calculate Airbnb Occupancy
There is no magic formula when it comes to figuring out your occupancy rate, so Katie’s advice was to research similar properties in your desired neighborhood on Airbnb so see their rates and booking calendars. If you look at a rentals calendar during peak travel season and they have no bookings then that area probably isn’t the right move. A little of your own research can go a long way! Aside from that, Airbnb is also helpful when it comes to providing data for hosts. They will take information for the entire neighborhood and suggest a price range at which you should list your home based on high seasons, weekday stays, and averages.
Long Term Airbnb Stays
Katie personally prefers longer stays, which tend to be more frequent in suburbs. In those kinds of areas people are typically staying weeks at a time due to things like renovating their own homes or visiting family. Longer stays are also nice, because you’re not having to clean the home as often or access it as much. For some people that’s a dream, but if you’re concerned about not being able to check in on the state of your property then renting in a higher turn over area would be better for you!
Another thing to consider are the regulations in the area you’re renting. If you are in a multifamily home or an apartment it’s like you’ll have less to worry about compared to a neighborhood with an HOA. They tend to be more accepting of long term rentals, but you would still probably need to have it approved by the HOA. There's also restrictions on how many places can be tenant occupied versus owner occupied, so you can run that risk even if it's super profitable. If more people want to come in and rent, they might stop allowing it; you're kind of at the mercy of the HOA versus areas without that. Regardless of where you rent you’ll need to take your neighbor's situation into consideration as far as noise level.
Differences Between an Airbnb & a Long-Term Rental
An Airbnb and a long term rental is that an Airbnb needs to be fully furnished. These people are coming with just their suitcase, whether it's for a night or three months.
There is a higher turnover rate with an Airbnb making it a much more time consuming rental; however a rental property is much more hands off.
With a long term rental you can build a nice relationship with someone and check in on how they’re treating your property, while renting to numerous people with Airbnb can be the luck of the draw as far as how they’ll treat your space.
Although both provide income, a long term rental can be more consistent with lease terms being longer. The downside of that is if a tenant leaves you will have to find someone to rent the place quickly so you can keep that income coming. While in an Airbnb, although it won’t necessarily be consistent income, you are guaranteed to have some money coming in every month.
In a long term rental property you aren’t carrying the electricity and cable expenses like you would with an Airbnb, that responsibility would be on the tenants plate.
Bigger and high cost issues can go unnoticed in a long term rental. With an Airbnb it’s easy to spot issues since you’re in and out of the property so much; while in a long term rental you aren’t seeing things like leaks in the roof or plumbing issues.
Difficulties of Being a Landlord
There are a few challenges that come with the territory of being a landlord. When it comes to running an Airbnb cleaning after every guest & finding a reliable cleaning company you like is essential to relieving the stress of the property not being prepared for the next guest. Although you can hire a cleaning company for your Airbnb, some people choose to clean it themselves out of convenience, wanting to pocket that extra profit, and to check in on the property. It can be challenging to get used to people moving things around and making messes, especially if you have an emotional attachment to the property itself.
As a landlord for a long term tenant things seemingly come in waves of having no contact for awhile then being super involved solving a property issue. The number one thing Katie recommends is finding a preferred general contractor, so when issues do arise you have a go-to person that you trust to address the problem; instead of having to scramble to find someone. It can turn a very stressful event into a quick call! She personally prefers having insight to the property, how things are handled, and who’s being used, versus handing all responsibilities to a property management company. How issues are handled really has an impact on your relationship with the tenant and how long they want to stay there.
Choosing a Good Tenant
Keep in mind the demographic you’re trying to serve and your location. For example if you choose a property that’s in an area where a lot of bars are nearby your airbnb may serve bachelor parties that’ll leave your property more dirty than usual. A way to protect yourself in those situations is by collecting a larger deposit. If your airbnb is in a quiet neighborhood you have different expectations for the kind of person that will be staying there. As far as long term tenants go the same ideas apply, but you also have a large application pool where you can see if they have pets, if it’s a single person, or a family. A family of five would likely wear down a place more than a single person who’s at work all the time. In short, you have the option to choose when it comes to long term tenants versus Airbnbs.
Should Your Investment Property be an Airbnb Or a Long Term Rental
We wanted Katie’s personal opinion on if you were purchasing a home for investment purposes or simply moving to another home and keeping that other property as a rental, if you should list it as an Airbnb or set it up as a long term rental.
“I would say it'd be more based on your personality and what you envision and how much time you want to spend on this. If it's purely financial and you just want to have the option to have a property, appreciate and hold on to it, then I'd definitely say go for the long term. I like the fast paced kind of challenges that Airbnbs bring and working with people. So for me, Airbnb is appealing and I would say I'm pretty risk tolerant. If you're doing it well and you're setting yourself apart, there's obviously demand. BUT I would say, make sure you're okay with getting that phone call at midnight with an issue from an Airbnb guest whose place wasn't cleaned or they've locked themselves out, because that's a lot more likely to happen on the short terms than a long term tenant who's who's there for the long haul.
In summary, Airbnb is far more hands on, takes a lot more of your own personal time, but also can come with higher financial rewards. On the flip side with a long term rental you may not be able to capitalize on big events in town, but it is more guaranteed steady income. If you're looking to hold on to a house for a long time, because you think it's going to grow in value, then take the long term lease and let someone pay down that equity and let it appreciate. If you're looking to make a thousand dollars each month on top of your mortgage for a couple of years and then decide what to do with it, Airbnb would be the way to go; especially in a neighborhood or an area that's just not appreciating the same.”
Are You Ready to Become a Real Estate Investor?
When embarking on any financial endeavor, it's useful to hear from someone that has seen it all. Consider taking it slow & renting out your home while on vacation, choose a smaller barrier to entry to see if you really want to rent to someone else. Many thanks to Katie Hill for her time! If you're interested in more first hand stories on how to rent out your home, go listen to Episode 3: House Hacking to Financial Freedom of the podcast. Also, head on over to WhereWeLivePodcast.com to download our free checklist on how to make money with Airbnb, continue the conversation in our Facebook group, listen to the podcast, and connect with us!
We hope today's episode gave you food for thought on your future real estate plans. If you're ready to become a real estate investor, reach out to us. We would love to help!
Until Next Time,
Brianna & Keelie