Choose a Top Location
One of the most important determinants of your return on investment with Airbnb rentals is the occupancy rate. Naturally, the more guests you have and the fewer days a month your property stays vacant, the more money you will make. This means that you should look for a city which enjoys a large number of visitors – whether tourists or business travelers. Start out with some popular travel destinations, but don’t forget smaller towns too as they can also make for top markets for Airbnb investments. Keep in mind that the most visited states include California, Florida, Nevada, Texas, and New York. To choose a good location for your rental property, you should find the occupancy rate at the city level as well as at the neighborhood level to assure that your future investment property will enjoy the highest possible rental demand. Always remember the real estate mantra location location location.
Decide on the Most Appropriate Property Type
The nature of your market will dictate the best property type to invest in. For example, if you go to the city center of a busy city flooded with business travelers, it makes the most sense to buy a small apartment or a condo, provided that the homeowners association allows short-term leases. If, on the other hand, you decide to buy an Airbnb property on the beach or in the mountain to host families or friends on vacation, the smarter choice will be a single-family home.
The property type will determine how attractive your property is to guests, which will push your occupancy rent and hence your rental income up or down. Moreover, the type of rental property you buy will also set the price you have to pay for it, which affects the return on investment.
Set Up Your Budget
Speaking of the property value, the best investment property is one that you can comfortably afford without risking a default on your mortgage payments and a consequent foreclosure. To achieve this goal, you have to budget carefully. Take into consideration all your regular sources of income as well as your ongoing expenses in addition to your savings. Set a maximum price that you can afford with your budget and stick to it. In the property search process, don’t get tempted by perfect-looking properties beyond your budget.
Remember that the actual price of the property is not the only cost you will have to cover. There are many additional, sometimes hidden expenses associated with buying an investment property such as closing fees, appraisal, inspection, property tax, insurance, etc. Altogether they can add up to several thousand dollars.
Hire an agent that understands the STR market.Once upon a time, STR-specific real estate agents simply did not exist. That has changed a lot. Take advantage and get yourself a knowledgeable agent that will save you time, and potentially make you more money.Erica suggests getting to know your potential agent’s level of expertise when it comes to buying and selling STR properties with interview questions like:
- How many vacation rentals have you sold?
- What is the difference between an Airbnb and a vacation rental?
- What is your strategy for valuing the asset & income side of the vacation rental?
- Are you a Certified Vacation Rental Agent
For Rental Arbitrage / Co-Hosting
Learning how to work with landlords is essential to successful rental arbitrage. After all, we’re not trying to be sneaky! So how can you convince landlords to work with you? First: Remind them of the benefits for them. When a landlord rents their property to someone doing rental arbitrage, they can rest assured knowing that they are getting a long-term, business-to-business tenant with a financial incentive to keep their property in tip-top shape year-round. During arbitrage, you rent the property at a full market rate—or maybe even a little higher to sweeten the deal, as long as it works with your business plan. The property owner’s equity is increasing and they’re getting a little bit of cash flow every single month. When someone using the arbitrage model rents a property from a landlord, it is in their best interest to keep the property pristine. For the landlord, this means the property will be in top-selling condition all year. Also, grow your network of other Real Estate investors. Rehab investors can find value in STR operators as well because it may give them the leverage to keep the property instead of selling, and now you can become an asset to their business. And finally, traditional homeowners are also a valuable demographic to outreach to. They may want an opportunity for additional income or even possibly own second homes. Starting a conversation about what options are available to them and the solutions you can provide can be valuable to the people that need these services. Post about it on Facebook & other Social Media – It may sound silly but I get countless opportunities on Facebook from concert tickets to petsitting gigs to travel deals. Letting your greater Network know that you are starting up this business and are happy to take any leads from friends or friends of friends, could really pay off.
You could write something like this:
“I am starting a business where I help people as a hospitality manager or Co-Host on websites like Airbnb. If you or anyone you know might be interested in helping with renting their house or condo (while they are away on an extended trip or on-going), please have them contact me at __________. I can help them with setting up the listing, staging, photos, and also the day to days of guest communication, scheduling cleaners, and overseeing home maintenance.”
It’s important to fill in everyone you know on your new business venture. Even reach out to friends who come to mind or family members via email. People who know you and trust you can give you great references. 100% of my Co-Hosting business has come from word of mouth, only recently as I am becoming more known in the industry, am I getting requests from people I wasn’t previously connected to. Create an ad on Craigslist – You can create free postings on craigslist to generate leads. I would suggest posting in 3 sections (make sure your ads/titles are slightly different so you don’t get flagged for multiple posts): sublets/temporary in Housing, vacation rentals in Housing, and domestic in Gigs. Make sure to list your experience, what you offer, what you charge/what that includes, the areas you are willing to cover, etc. Create flyers to post in local coffee shops/bulletin boards – Create flyers are home, bonus points if they have the pull-off strips with your phone number, and post them around town. In touristy, seasonal, and small towns I have seen managers who charge up to 40%, if you are open to offering something around 15-25% that may get you a lot of calls. You can use a similar ad to the one you used on craigslist.
- Use Airbnb to find current STR within specific neighborhood or complexes that allow STRs
- Use Market research tools to find comps
- Hunt for
- FRBO (For Rent by Owners)
- FSBO (For Sale by Owners)
- Smaller management properties (2-10 unit)
Study Airbnb Regulations and Avoid Cities Where Regulations Are Stringent
To find the best Airbnb investment opportunities, you must look into short-term rental regulations. Airbnb has proven to be beneficial for tenants and landlords since it has catered to the needs of budget-conscious travelers while making available another method for real estate investors to make money. Unfortunately, regulations have been stringently restricting the use of Airbnb in many cities.New York and Los Angeles have seen the most rigid regulations against the use of Airbnb. Some cities, moreover, have banned Airbnb rentals altogether. In other cities, registering your real estate investment property, getting a permit, and/or obtaining a license before listing a property and accepting guests has become mandatory. Therefore, in order to spot the best Airbnb investment opportunities, we recommend that you reach out to your local city council and inquire about the most recent regulations governing Airbnb rentals. Beware that regulations vary from one city/state to another. Regulations by CityThe most stringent Airbnb regulations are found in New York and San Francisco. If you’re looking to invest in these areas, we recommend that you first assess how their regulations might affect you. Here’s a glimpse of each of the aforementioned cities’ regulations.
- New York: NYC law allows only permanent residents to rent their real estate property. The landlord, moreover, must be present during the stay of guests where they stay mustn’t exceed 30 days.
- San Francisco: Similar to the regulations of New York, a landlord must be present throughout the accommodation. Rentals booked must not exceed 90 days. Airbnb investors, moreover, must register with the city council before listing the property and accepting Airbnb guests.
That being said, in order to spot the best Airbnb investment opportunities, we recommend that you invest your time in looking into regulations across the US. Learn of the cities where Airbnb is the most flexible as far as regulations and pursue them.
Resources to help
Knowing where to find some of these numbers can help you figure out what is a good investment or not. Check out Dynamic.RE to help you understand the market value, the rental rates, and even the Airbnb Annual Revenue.
We also created a database that we are updating that shows the taxes and regulations of states, cities, and counties. This is a massive feat, so bear with us as we grow the database, you can check it out here.