Airbnb ownership can be a good source of passive income flexibility for personal use. The downside: Startup costs, irregular income and an occasional unruly guest.
NEW YORK – Owning a hotel or a lodge might be a bridge for investors in this economy, hence investing in Airbnb is most feasible. Airbnb investing is substantially different from traditional real estate investing.
Depending on the money at hand to invest it can be a very lucrative investment considering adequate research and planning is done. Like any other investment, understanding the risks and benefits of Airbnb investing can help you decide if it’s the right form of investment for you.
Benefits of Airbnb investment
1. Great source of passive income
With the enhanced popularity of Airbnb and other vacation rental platforms there is an opportunity for investors to generate a stream of passive income. All the host (investor) needs to do primarily is to appoint a caretaker to take care of the premises while the host handles bookings and payments.
Due to its nature, it can be great way of diversifying an investment portfolio, enabling the investor to focus on more hands-on investments.
2. Easy to maintain
Surprisingly, there is reduced work required to sustain the property than traditional rental properties. Guests when making bookings are charged a cleaning fee, hence the property is cleaned routinely. Also, hosts can use reviews from the guests after a stay to see areas that need advancement.
Lastly, the grounds and surrounding areas can be an obligation of the caretaker.
In resort areas, Airbnbs can be more profitable during holidays, and you can rent your property only in that time period if you want. Lastly when managing Airbnbs, you can alter rental prices according to your valuation of the property or when improvements are made.
4. Easy to find guests
As guests write positive reviews and rate their stay as “great,” it lures more guests to experience the same for themselves.
The app also screens guests and recommends the best stays according to the type of guests searching for the rental. And because it’s a short term rental, you don’t necessarily sign legally binding documents. Guests only need to agree to terms and conditions.
Risks of Airbnb investment
1. Higher start-up costs
John Wanamaker once said, “When customer enters my store, forget me. He is king.” In this case, we refer to customers as our Airbnb guests. To make the property more attractive, investors need to spend money upfront and to provide a best experience. This can be in the form of pavements, refurbishment, furniture, etc.
2. Irregular income
Initially, you need to book off-days for repairs and maintenance ; secondly, the hospitality industry is seasonal, which will trigger a ripple effect as some months’ income will be less than others.
Also, while you can yield a high profit with short term rentals, your cash flow depends on how many days are booked per month.
3. Risk of theft or damage
Perhaps the biggest risk of Airbnb investment is theft and damage. With a high turnover of guests, the host (investor) could lose track of keys and can’t control guests behavior. Property can be stolen, or guests can damage property and get away without paying for the damages. Since many Airbnb hosts live elsewhere and depend on caretakers to manage the property, this is largely out of their control.
4. Guest liability
As a vacation rental owner, a significant concern is guest injury or risks of an incident happening on the premise. Even if an investor is not on the premise at the time of the incident, they can be still be held legally responsible. The very thing that attracts guests, like a swimming pool, might end up in paying medical bills, legal fees, etc.
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