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Airbnb vs. Renting: What Generates the Higher ROI?

The dispute over Airbnb vs. renting is one of the most heated topics among real estate investors, and for a good reason. The vacation rental sector is quite profitable. The industry generated $22 billion in sales in 2021 globally. According to VRM Intel, 45 percent of investment property purchasers acquired a home to rent it out rather than flipping it to make money. However, is the risk worth it, given that short-term rentals do not provide the same consistent income?

Will local tourism be enough to keep Airbnb homes afloat now that foreign travel is taking a backseat? During the pandemic, the issue of which investment strategy would provide the most revenue has become even more important. We’ll show you how to choose the finest investment plan for your company in this post.

Rental Income: Airbnb vs. Renting

Airbnb is a third-party website that connects tourists with short-term rental owners. Hosts may use the site to market their houses and then rent them out to visitors on a short-term basis. Airbnb charges a service fee in return for marketing and payment management of your Airbnb properties.

If you choose conventional renting, you will make your home ready to be leased out for at least six months. Unless you opt to engage with a property manager, marketing your rental and collecting monthly payments will be a full-time job.

When weighing the pros and cons of Airbnb vs. conventional renting, there are several factors to consider. Furthermore, both techniques have their own set of benefits and drawbacks.

1. Pricing

Traditional tenants must adhere to the lease agreement terms and are not permitted to adjust the price on the spot. This means you’ll get the same amount of rental money every month, maintaining a consistent cash flow.

You may be more flexible with your price on Airbnb. Hosts may utilize a variety of pricing schemes and alter their prices daily based on criteria such as the day of the week, demand, season, and so on.

2. Demand

Seasonality affects Airbnb rentals, resulting in reduced occupancy and revenue during the off-season. On the other hand, short-term rental hosts find it simpler to generate money during the busy season owing to more visitor turnover and higher pricing.

On the other hand, demand for your property will not happen immediately. Before you can obtain more reservations, you must first have a few five-star ratings. This implies that you may need to lower your pricing to guarantee that your home is in demand when you first start.

3. Initial and continuing costs

Because the property must be completely equipped and provisioned, an Airbnb rental may have greater upfront expenditures. Ongoing costs are also greater since you must maintain the home in pristine shape at all times.

This implies that you’ll have to replace and refill some of the things frequently. Additionally, their costs would be higher if you hire a property management firm to handle your short-term rentals.

You will not be as financially committed if you choose conventional renting. Find the perfect renter, and they’ll look after your home and yard. If one arises, you’ll have to cope with an emergency (but this will be an irregular occurrence). You will also be responsible for regular property upkeep, which is a duty that comes with owning a home.

The following are some instances of conventional rental costs:

  • Water, sewage, and garden upkeep
  • Trash collection

The following are some examples of expenditures that an Airbnb host must pay in addition to regular rental charges:

  • Furniture of exceptional quality
  • Kitchen kitchenware Decor Bedding Towels
  • Some common food ingredients such as coffee, tea, sugar, etc.
  • Wi-Fi 
  • Cable TV
  • Service costs for cleaning
  • Demand 

Tax Considerations for Short-Term and Long-Term Rentals

The tax ramifications of using Airbnb are varied. Depending on the kind of rental, you will have to pay federal and state income taxes in the United States. If you rent out your home on Airbnb, you may be subject to occupation tax.

Traditional rental income will be taxed, although there will be greater exemptions. You’ll be able to deduct additional property-related costs from your taxes, as well.

It is advisable to seek a competent tax counselor to utilize Airbnb or regular renting.

Legal Rules and Regulations for Airbnb vs. Renting

Short-term rental unit regulations are becoming more stringent. It’s made more difficult by the fact that short-term rental rules differ from state to state. This implies that you must do a thorough study.

You may need to apply for a permit if your city allows short-term rentals. This implies you’ll have to pay additional costs. If you think you can get away with skipping this step, think again. You might be punished. You may even be required to pay for legal representation in certain situations. If your rental property is in an apartment complex or gated neighborhood, you may also need authorization from the HOA.

Traditional Rental Property Insurance vs. Vacation Rental Property Insurance

Airbnb hosts are partly protected under the AirCover. However, it is insufficient, and each Airbnb host should also get vacation rental insurance. Furthermore, since you will be renting to various people throughout the year, there is a larger chance that your home could be damaged. As a consequence, your insurance will be more expensive.

Property owners who choose conventional renting, on the other hand, will almost certainly have business insurance coverage.=

Pros and Cons of Airbnb vs. Renting

Advantages of Airbnb: 

  1. A greater degree of pricing flexibility

Every day, hosts have the option to alter their prices in response to several criteria. You may, for example, provide discounts for extended reservations or stays throughout the week.

Likewise, the inverse is true. You may charge extra for weekend rentals. This implies you may have two (or more) rate settings to adapt to changing demand.

  1. Increased Income Potential

Because you’ll be renting your home at a higher nightly fee, you’ll be able to generate more money if you have a high occupancy rate. You may also offer other services to your Airbnb visitors, which can help you earn more cash in addition to the rental income.

  1. Hosts’ Protection (AirCover)

The AirCover is a fantastic bonus since it provides up to $1 million in damage protection and $1 million in liability insurance. Airbnb’s review system also provides some protection for hosts. You may get a better sense of what to anticipate by reading the reviews that previous visitors have left.

  1. There isn’t a lease agreement in place.

A leasing agreement is not required. You have your own set of regulations, and Airbnb has its own set of guidelines to safeguard hosts. This implies that if a visitor violates your home regulations, you may contact Airbnb right once rather than having to go through a lengthy legal process. For further security, consider signing a vacation rental agreement.

Cons of Airbnb 

  1. Increased Expenses

You’ll have to clean your home after each booking, refill specific supplies, and maybe repair those that have been damaged or are no longer in working order.

  1. More Effort

You must advertise your house to be a successful Airbnb host. This will include taking high-quality images and changing them often to reflect the season and writing compelling property descriptions and visitor evaluations. You also have the responsibility of ensuring that your home is fully prepared for every visitor. This adds to a lot more effort, especially given the substantially greater turnover rate. In a nutshell, it’s a lot more than just being a landlord!

  1. Unpredictable Income

Don’t expect to be able to rent out your house daily throughout the year. You’ll enjoy it that way (hosting so many different guests can take its emotional toll). You can be entirely booked for one month and just have one booking the following.

Your earnings will most likely be seasonal. Your occupancy will be influenced by your location, attractions, and events.

The number of days you may rent out your Airbnb is also limited in certain places. As a result, you may be required to set aside certain days.

Pros of Renting 

  1. Increased Guest Retention

Lower visitor turnover means less work for you. You will have to spend substantially less time cleaning and maintaining your house.

  1. Consistent Income

Traditional renting has the advantage of ensuring that your home will be occupied for a longer length of time. This means you know exactly how much rental revenue you’ll get at the end of the month.

Cons of Renting 

  1. Limited Flexibility

Not only do you have fewer price options, but you also don’t have the option of making your home unavailable on short notice. This implies you won’t be able to rent out your house on a “part-time” basis with conventional renting. For example, with Airbnb, you may only rent out your house on weekends, although this is not the case with regular renting.

  1. Being Restricted by a Lease

Before the rental period begins, you and your visitor should sign a long-term lease agreement. This implies you can’t adjust the pricing to meet demand or implement new restrictions until the renting time is over.

  1. You have a lower chance of maximizing your earnings.

You must also keep an eye on your long-term renters to verify that they pay their rent on time each month. Even missing one month’s payment might have a significant effect on your revenue. It may sometimes be difficult to identify adequate reasons for the eviction of a renter, depending on your region and local rental rules. Furthermore, it may take some time to locate a new renter if they leave. Airbnb, on the other hand, mandates that visitors pay in advance.

Factors to Consider When Choosing Between Airbnb and Renting

Take the following elements into consideration while picking between regular rental and Airbnb:

  1. Local Regulations and Laws

Traditional renting will be the better alternative in certain places with strict, short-term rental rules. You should also check any additional criteria, such as permits or limits on the number of nights you may stay. These may seem trivial, but they can harm your rental revenue.

In fact, in certain locations, short-term rentals are completely outlawed. As a result, you may not even have the choice of choosing between Airbnb and renting.

  1. The Location of Your Property

What makes it so well-liked? It’s simple: there must be a compelling motive for people to come to your place. If you rent out your home for a short time, you’ll only be able to get high occupancy rates if it’s in a desirable location. Alternatively, if your home is not located in a big city or a famous vacation spot, it must provide something distinctive.

  1. The Highest Profit Margin You Could Achieve

In general, Airbnb provides a better nightly cost than a conventional rental. Some hosts have even claimed to make three times as much as they would have with standard renting. That is, however, only true for an Airbnb with a high occupancy rate.

Conclusion

Airbnb might help you earn more money as a renter. This, however, comes at a price. Hosts must guarantee their investment property is in a desirable location.

Even if you have a beachfront home, you’ll only be able to make additional money if you go above and above. This means you’ll need to advertise your home, make sure you get enough five-star ratings, and have a price plan that works. Traditional renting will be the preferable rental plan for you if you are unwilling to put in the additional effort and patience while building your reputation (which might take a long time). Let Lodgable do the heavy lifting of connecting your vacation rental to multiple bookings and increasing your revenue. 

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