Real Estate Investing: Traditional vs. Airbnb
Some might say comparing an Airbnb listing and a traditional property are poles apart since one is a service and one is a product. But it is a hot question right now among interested investors. Which real estate investing strategy is better? Which is more profitable?
Airbnb means you may not be in check with the law. Avoid violations by understanding your city’s laws and restrictions on short-term renting. If you’re renting out a property and then subletting it on Airbnb travelers, you could be breaking the law and get evicted. Many cities require you to register or get a permit or license for short-term leasing. Of course if you own the property, this doesn’t apply to you, but you could still be required to pay taxes. Know the law and your city’s regulations and about legalizing Airbnb rentals.
With traditional leasing, you don’t have to worry about the legal issues as much. With traditional you are exchanging an empty space for a filled check. Simple. You don’t owe residents a lot other than maintenance, and that is hopefully not a constant effort. In both of these situations, you can hire a property management company.
Airbnb means hospitality, not leave the check in my mailbox. This may not be a con for some, but it does mean more work. Airbnb is a hosting service and not a passive income job. You provide the furniture, supplies, amenities, and instructions on how to live in your property and more. If you want to go the extra mile, you might leave a welcome basket among other perks, which means more work for you. Know the difference between a commodity business versus a service business. You might feel this con the most during turnover or transitioning from guest to guest. If guests check-out late and new arrivals check-in early, that can limit time to clean up the property and get it primed.
Airbnb means you have competition with those who are not investors. There are some hosts who list their own home temporarily. They’re not looking to pay a mortgage, but may just need extra cash for rent or other reasons. In other words, they are not really engaging in real estate investing; so they lower their price and attract short-term lodgers. For this reason, it’s important to make your property stand out and offer excellent service. Do not raise your prices unless you have a lot of reviews and have established a name for yourself. Of course, if you have a 100 percent Airbnb occupancy rate, then you should raise your prices.
With traditional, you most certainly pay taxes as a landlord. All income received is taxable, however, there are a few tax deductions applicable to some expenses, such as repainting, replacing damaged furniture, etc.
Also with traditional, you don’t interact with tenants as much. In fact, you might avoid each other. They may be fascinating tenants, but you shouldn’t be getting new tenants every month, depending on the lease and number of properties you own. Also with traditional, landlords don’t benefit from titles such as “Superhost” from having great reviews and a high
response rate. Landlords don’t get to stay in touch with their properties. They also don’t have the opportunity to build a reputation for themselves as easily as Airbnb hosts do.