Airbnb Ownership: Is It Really a Smart Investment?
The Airbnb is just one vacation rental site that is has risen in popularity. As they have become so popular, it brings up the question of whether to go into the short-term vacation rental housing market. So is Airbnb ownership really a smart investment?
It is all about the Location for Vacation Rentals
Just as with any other type of property purchase, location is key and even more so when considering purchasing a property aimed at the vacation rental market. Will Woodward is a certified financial planner in the Outer Banks region of North Carolina and he has the view that year-round renters prefer certain areas. He pointed out the vacation rental market in Outer Banks is very competitive, and the region comes with costs that are higher. People prefer the regions not overpopulated with weekly rental cottages. Investors may wish to bear this in mind when considering a property as a rental.
Take the Local Rules and Ordinance into Account
When considering a vacation rental property for purchase one of the threats that needs considering is the fact that local laws tend to change rather quickly. In Atlanta for instance, regulations on short-term rentals are being enforced with property owners having to put properties they rent onto the market as long-term rentals.
In South Carolina, the rental margins are very generous due to the fact the region has attractions available year round. However, the operator of the rental has to own and live on the property full-time; otherwise, the vacation rental income is not legal. The city also has rules that mean any short-term rental operators have to get a special license. There are also accommodation taxes and fees to pay, with rentals only housing four adults. This all has to be taken into account when choosing a rental property with the aim of renting out over the short-term.
Anyone considering purchasing a property with the aim of renting it out to vacationers should get the help of a lawyer in that region, who understands the laws, rules, and regulations in that specific region.
Give Some Thought to the Tax Rules
Investment advisor Morris Armstrong pointed out that IRS tax codes should be considered, as rental property that is less than fair market value will mean owners are disqualified from considering account expenses. Some consideration regarding rates needs taking and bear in mind that if the property is rented out for over 15 days per year, with many rental property being rented out for far more, income tax has to be paid.
Will the Property Work for Long-term Rental?
Shawn Breyer from Atlanta warned that Airbnb short-term rentals are one way of supplementing a rental income, but over the long term, it is not a good strategy. Mainly this is due to consumer demand changing, while business ebb and flow has to be considered. With this in mind when considering a property, it is essential to consider if the property will work for long-term rental too.
Questions to ask is whether the property could be adapted and work in other models, for instance, furnished student housing or relocation housing over the long-term. In regions where there are colleges, there is always a high demand for student housing. This comes with margins that are good in the rental market.
Vacation Rental Property Comes With Higher Expenses
Vacation rental property generally comes with expenses that are more costly than other rentals. This is down to the fact that there is more frequent cleaning needed. If renting out the property on a week-to-week basis to vacationers. There is often also more repairs and replacements of furnishings needed, due to breakages and theft.
Many people prefer to rent a vacation property with a pool, which again comes with high costs for the upkeep and cleaning. Many people who want to rent properties for vacations want to take pets and they desire a property with full air conditioning. All of which comes at a cost. Pets can be destructive, while older properties might not be air-conditioned and would need adding in. Therefore, the numbers have to be worked out carefully to ensure enough bookings could be taken to cover the outlays and costs.
Morris Armstrong, a rental property owner and investment advisor from Connecticut talked about one vacation rental owner who purchased a property that was outdated in Cape Cod but they refused to update the property with air conditioning and did not remodel the kitchen. Due to this, they miss many vacation rental opportunities. The property is rented out far less frequently than it would be if they were willing to spend the money to update it. The old adage you have to spend money to make money comes into play in this instance. This has to be taken into account when considering purchasing a vacation rental property as an investment.
Airbnb vacation property rental can be a smart investment, just as any other property rental can be. However, many aspects do have to be taken into account before rushing in and purchasing a property. I hope that the above will have given some food for thought.