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Airbnb Investment: Is It Right For You In 2024?

March 17, 2024 5-minute read

Author: Katie Ziraldo

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There’s no question that Airbnb has permanently changed the travel industry. If you’ve stayed in an Airbnb rental, you may have wondered what it would be like to be on the other side.

By becoming an Airbnb host, you can diversify your income without needing to be a real estate expert. Airbnb’s rise in popularity has made this a potentially solid approach to buying an investment property, but that doesn’t mean it will work for everyone.

In this article, we will explore Airbnb investments and the distinct advantages and disadvantages they may come with. Keep reading to learn more.

Airbnb Investment: How Does It Work?

If you’re looking for passive income, a real estate investment may be a good option to consider. But what is the difference between a traditional investment property and an Airbnb?

A property is considered an Airbnb investment when either part or all of the property is rented out on Airbnb after purchase. These rentals are typically short-term, which allows you to host many guests throughout the span of the year, where traditional investment properties are most commonly rented to long-term tenants.

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How Do Airbnbs Differ From A Traditional Rental Property?

Buying and running an Airbnb differs from buying and running a traditional rental property in several key ways.

  • More risk: There’s no guarantee that your Airbnb will be occupied, so there’s no way to know exactly how much you’ll make off your property. Before you make a purchase, be sure to do your research and determine the occupancy rate for Airbnbs in your area so you have an idea of what to expect.
  • Higher cost upfront: When you purchase an Airbnb, you’ll also need to pay for utilities, furniture, toiletries, subscription services and other amenities upfront before your property starts generating income.
  • More involvement: When running an Airbnb, you’ll need to be more involved with your guests. They’ll need to be checked in and out, and you’ll need to be available to assist them during their stay.

Is An Airbnb Investment More Profitable Than A Conventional Investment Rental Property?

Because each investment is unique, there’s no quick answer to this question. But in high-demand areas, the nightly cost of an Airbnb can lead to higher profits.

For instance, let’s say you want to rent out a one-bedroom apartment in Los Angeles. As of February 2024, the average monthly cost of that apartment is $2,078, meaning you could make roughly $25,000 if your tenant signs a 12-month lease. But short-term bookings are able to charge more per night, which means you could make more.

According to the Los Angeles Times, the average daily rate for an Airbnb in Los Angeles was $244 in 2023, with the average rental occupied more than 40% of the time. This means you could make over $35,000 off of your Airbnb – a pretty significant $10,000 more than you would through traditional renting. Airbnb also charges renters a maintenance fee, which means you may save on necessary repairs.

Still, when considering the potential for a higher profit through Airbnb, you must also consider the key differences between these types of rental properties and how those differences will impact your wallet.

Unique Expenses Of An Airbnb Investment

Managing an Airbnb involves several unique expenses you should consider, including:

  • Furnishing and decorating the property
  • Maintenance
  • Utilities
  • Amenities such as streaming services and Wi-Fi
  • Potentially different, more expensive home insurance

Airbnb Investment: Pros And Cons

“The Airbnb market is competitive now and becoming more so every day,” explains Isabeau Miller, the CEO of Beckon Homes, a company focused on helping real estate investors find, furnish, market and manage their Airbnbs. “Travelers now expect hotel-like amenities and services, with a personal and individualized touch.”

These rising standards can also lead to some significant pros and cons:

Pros

  • Potentially higher profits
  • Less reliance on long-term tenants
  • Advertising on Airbnb means less effort to find renters

Cons

  • Higher upfront costs due to furnishings and decor
  • Potentially higher operating costs
  • Less security from long-term tenants
  • Managing an Airbnb is essentially a second job

What Kind Of Property Should I Buy For An Airbnb Investment?

Despite what some may think, an Airbnb investment does not need to be a vacation rental home, as many use Airbnb for business travel and other life events that may bring them to any number of locations across the country. This means it’s possible to have a profitable Airbnb regardless of where you’re located.

Prospective Airbnb investors should look at local listings first to see what kind of properties are in demand where they live. You can also rely on real estate experts to help you choose the right property for your investment.

“I made sure that I found a real estate agent who understood the Airbnb rental market in the area and the purchase process was easy,” says Bryce Welker, owner of CPA Exam Guy, who also owns and operates multiple Airbnb rental properties. “I followed a template I found online that walks owners through the furnishing and set-up process to equip an Airbnb rental for both short and long-term stays.”

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Do I Need To Live Near My Airbnb Rental?

The short answer: no. Although it’s more convenient to be located near your Airbnb property, it’s not entirely essential.

If you choose to invest in a property that is not near your primary residence, you will likely need a property manager – but that may not be a bad thing. Some experienced Airbnb hosts find great value in having the help.

“I wish I had known how often people flake on you after expressing interest in renting your place,” shares Welker. “I would have opted to hire a property management company from the start just to help with the frequent back-and-forths that end up going nowhere.”

What Are The Best Cities For Airbnb Investment?

“Best” is a subjective term – different people can have various requirements as to what makes a city good for an Airbnb investment. However, according to AirDNA, the following cities are among the best markets for short-term rentals in 2024:

  • Columbus, GA
  • Ellsworth, ME
  • Logan, OH
  • Spring Hill, FL
  • Sneads Ferry, NC
  • Winter Haven, FL
  • Stanton, KY
  • Port Angeles, WA
  • Akron, OH
  • Fairbanks, AK

Top Cities For Buying An Airbnb Property: At A Glance

 

Typical Value

Occupancy Rate

Average Daily Rate

Average Revenue

Columbus, GA

$161K

61%

$178

$29K

Ellsworth, ME

$325

73%

$335

$41K

Logan, OH

$233K

57%

$343

$57K

Spring Hill, FL

$389K

62%

$251

$39K

Sneads Ferry, NC

$555K

63%

$471

$71K

Winter Haven, FL

$264K

62%

$206

$31K

Stanton, KY

$146K

56%

$236

$43K

Port Angeles, WA

$390K

64%

$289

$47K

Akron, OH

$145K

$57%

$199

$26K

Fairbanks, AK

$239K

65%

$225

$32K

Legalities To Consider

Each locality will have different requirements for Airbnbs, and some may even require the property to be a primary residence. If the property is part of a homeowners association (HOA), there might be added wrinkles to consider.

Because these laws and guidelines vary dramatically between regions, you’ll have to do some research into your local short-term rental requirements before purchasing a property.

The Bottom Line

If you’re contemplating an Airbnb investment, you must consider all the benefits and challenges you may come across along the way, from the potential for higher profits to the loss of personal time required to advertise and maintain the property.

“Running an Airbnb can and will be a full-time job filled with needy guests, property issues and liability,” summarizes Miller. “But being a communicative, thoughtful host with a beautiful, comfortable space can be incredibly profitable for investors and homeowners alike.”

If you’re looking at buying a primary residence that can also bring in Airbnb income, the risks may be lower, as long as you can afford your mortgage without supplemental income. If this sounds like your situation and you’re ready to get started, apply for your initial mortgage approval online today.

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Katie Ziraldo Headshot

Katie Ziraldo

Katie Ziraldo is a financial writer and data journalist focused on creating accurate, accessible and educational content for future generations of home buyers. Her portfolio of work also includes The Detroit Free Press and The Huffington Post.