Airbnb vs Renting: The Pros and Cons of Each
Worldwide, over 150 million guests have made reservations for Airbnb in over 65,000 cities. And rental properties that have successfully converted to Airbnbs have frequently proven to be profitable investment strategies.
Some Airbnb apartments, houses and condos are collecting many times their yearly mortgage cost. Success stories like these abound. But other short-term rentals haven’t fared as well — and the lessons of their loss should be understood before you dive in and commit.
If you’re thinking of converting your rental property to an Airbnb, the ability to confidently predict profits can be tricky. Because so many factors go into an Airbnb success, we’ve put together a review of the business benefits and pitfalls of managing long and short-term rental properties, or more simply put, we're comparing Airbnb versus renting out your home.
The Pros of Airbnbs
If you’re thinking "Is Airbnb better than renting?" the answer is, it really depends. The argument for Airbnb versus renting is one that’s best explored by looking carefully at the benefits and drawbacks for each option. Here are a few reasons why this rental strategy may be right for you:
Ability to meet new people
For real estate investors that choose to go the Airbnb route — and remain nearby to manage the rental — meeting new people traveling from the far reaches of the world can be exciting. Since most guests are short-term stays, you’ll get a chance to meet a new guest every few days.
You can make more money than renting your apartment
With each new vacancy, you’ve got the opportunity to adjust your rental rate to better reflect demand in the market. Lower your prices in the low season and attract the off-season traveler, or push rates high during peak periods.
As opposed to long-term rentals, you can often make more money with single night pricing than monthly pricing. Even if you don’t have every night booked, the increased nightly rent adds up quickly, often resulting in higher profits.
Good reviews draw traffic — and bookings
With each new arrival, you’ve got another chance to make a big impression and get great reviews. Over time, reviews become increasingly important for some Airbnb owners seeking to stay booked.
The increased profits cover Airbnb’s 3% service fee. When your rental’s calendar is filled up, you’re probably going to be able to overcome that service charge for processing and marketing your property.
Airbnb is more flexible than long-term renting
If you’re planning on occupying your rental occasionally, an Airbnb may be the way to go when comparing long-term rental vs. Airbnb. You’ll be able to block out certain dates for your own use, and that option won’t typically be available with a regular long-term rental lease agreement.
Another benefit of Airbnb vs. lease: if you’ve got a few rental spaces on the Airbnb market, you could schedule yourself to live in each of them part-time.
Airbnb offers protection for hosts
Is Airbnb better than renting? Airbnb offers some real perks. Airbnb’s Host Protection Insurance is a liability coverage program that provides up to $1,000,000 in protection. It’s free liability insurance if a third party gets hurt or if their property’s damaged due to a covered loss related to an Airbnb stay.
But just because Airbnb’s offering liability protection, that doesn’t mean you shouldn’t have short-term rental coverage in place. Our temporary and short-term rental insurance protects you against losses to your rental — and its contents — in areas rented out to Airbnb. Be aware that time limits for this coverage only allow for 62 days' rental per calendar year.
The Cons of Airbnbs
If you’re looking for a turnkey solution to generating passive income, an Airbnb listing can work — but you’ll have to pay a premium to get things done. Other drawbacks to managing an Airbnb, like the upfront investment to fully furnish the space, should be carefully considered before you dive in.
Here are a few cons of Airbnbs:
Airbnb’s may be easier for extroverts
Because reviewers will be writing about your interactions with them, personality counts. If you’re more of an introvert, working day in and day out with new travelers may feel very demanding. But there are workarounds for the shy types.
Create a “Welcome Booklet” with details on:
- Local attractions
- Recommendations on restaurants
- Information about the home
- Details on how to find items stored in and around the rental property
- Your contact information
Being on call can be demanding
Airbnb hosts experience an increase in property management tasks after converting from a traditional rental. This is because the frequent tenant turnover requires them to work in the unit swapping out linens and fully disinfecting the space regularly. If you’re not planning on hiring someone to manage your Airbnb for you, be sure to consider these demands first.
There are different tax implications for vacation rentals
If you’re considering what’s better for tax benefits when comparing Airbnb vs versus renting, there are a few things that are good to know. When compared to long-term investment property renting, the tax benefits are quite different.
In traditional rental property real estate, you’re able to write off business expenses, and other costs which may not be available to you as an Airbnb host. Airbnb delivers rental income to the host in the form of the processed payment, and as such, it’s taxed that way.
Rental income can vary week to week, month to month
Airbnb bookings are typically dependent on a positive outlook with tourist-based financial indicators playing a main role. When the economy turns downward, travelers may be less frequent, and securing tenants may not be easy. You may lose money with Airbnb during challenging times.
You sometimes need to make yourself available
If you’re unable to be available at a moment’s notice to help support your guests, your Airbnb clients may review you poorly. This can result in fewer bookings, a decreased occupancy rate and increased out-of-pocket mortgage payments.
You’ll need to fully furnish the unit unlike a traditional apartment
This added expense can sometimes be missed by newcomers. It’s important to keep in mind that you may need a fully stocked kitchen, from a coffee maker to a bowls, plates and glasses. Remember that items like couches and furniture will degrade over time, too. Not only will your unit see the effects of wear and tear, but everything inside will too.
Renting laws may change in your city or within your HOA
Although you may be currently allowed to rent with Airbnb, it’s key to keep in mind that local statues and homeowners association (HOA) bylaws can change in the future. If more property owners in your development convert to Airbnb, the full-time residents living nearby may begin to complain about these temporary guests and vote to disallow Airbnb rentals.
When it comes to comparing the pros and cons of Airbnbs vs. leases, do what you can to clearly state expected behaviors of your renters. It can also be a good idea to become a board member on your HOA to help advocate for Airbnb rentals.
The Pros of Traditional Long-term Rentals
Long-term rentals apply to tenants with lease agreements that extend six months and beyond. When comparing the profitability of long-term rentals versus Airbnb, well-vetted tenants who can pay the rent consistently may be worth more in the long run. Here are some benefits of long-term rental agreements:
Your tenant is legally obligated
With a long-term lease agreement you may find more financial stability and predictability. The lease agreement requires your tenant to make timely rental payments.
Increased income predictability
Because your mortgage bill will be due every month, knowing that you’ve got a parcel of months covered with a reliable tenant can be comforting. By sacrificing profit potential, you gain the likelihood of repeated and on-time rental payments. Long term rentals are generally lower risk because they’re less influenced by local laws and HOA bylaw adjustments.
Greater independence from tenants
Airbnb requires a consistently fast turnaround on tenant inquiries. If your response time exceeds a certain length of minutes, you may lose your preferred host status.
You’ll have more free time
You’re likely to be more available for other attentions without the constant need to micromanage your Airbnb clients. Long-term rental contracts free you up to pursue other financial and personal goals.
The Cons of Traditional Long-term Rentals
Worrying about whether your tenant’s going to pay the rent on time is an obvious concern for many landlords. But there are other important drawbacks to long-term lease agreements when compared to Airbnbs:
The chance to sell quickly may be less
With a long-term lease in force, your ability to sell that real estate investment may be more difficult. You’ll need to work with a lawyer and the tenant to make arrangements, and may be required to pay the tenant to vacate.
Opportunities to make improvements are limited
With frequent Airbnb tenant turnover, you’re more able to make improvements on a space during vacancies. If your long-term tenant is not ok with you working on the rental when living there, you may be forced to wait and make improvements after the tenant exits.
Long-term tenant problems can get costly
If you resort to evicting a long-term tenant, the process is not only expensive, but time consuming as well. With short-term agreements, problem tenants are out the door in a number of days without much financial impact because they paid in full upon arrival.
Temporary Rental Insurance May Be Right for Your Airbnb
Short-term rental to others insurance coverage may be a good answer for a part-time Airbnb rental space. An addition to your homeowners policy, this coverage allows you to rent your property up to 62 days a year. If you snowbird to warmer climates over the winter, or elect to house swap and spend a month living abroad in another's home, this coverage may be just what you've been looking for.
You’ll have protection against theft or damage to your building — and its contents — in the areas of the dwelling that you rent out. And if you plan on renting out your home for more than 62 days a year, you’ll need to get landlord insurance to cover your property.
The Importance of Landlord Insurance
Regardless of whether you choose Airbnb or renting your home, if you rent your space full-time, you’ll need to protect your investment with landlord insurance. At American Family, you’ll get a custom-designed policy that’s tailored to meet your business needs.
Get in touch with an agent today and review your landlord policy options. With our great coverage, you'll find more peace of mind and that can translate to increased capacity to pursue your financial goals.