The key to the success of every real estate investment business is locating the right property in the correct location. Investing in an Airbnb rental property is the same way. No matter how good a property manager and Airbnb host you are, you won’t be able to succeed and earn a lot of money unless you first invest in a successful home. We’ve put up a list of the most crucial procedures to take to select the greatest Airbnb rental to assist both new and seasoned investors in their search.
1. Create a budget
When it comes to property value, the greatest investment property is one that you can easily afford without risking a mortgage failure and subsequent foreclosure. You’ll need to budget properly to reach this aim. In addition to your savings, evaluate all of your regular sources of income as well as your continuing costs. Set a maximum price that your budget will allow you to pay and stick to it. Don’t be seduced by perfect-looking residences that are out of your price range while searching for a home.
Remember that the property’s purchase price isn’t the only expense you’ll have to pay. Closing costs, appraisals, inspections, property taxes, and insurance are a few of the extra, often hidden costs connected with purchasing an investment property. They may cost several thousand dollars all combined.
2. Decide on a prime location.
The occupancy rate is one of the most critical factors in determining your return on investment with Airbnb rentals. The more visitors you have, and the fewer days your home is unoccupied each month, you will earn more money. This implies you should seek a place that attracts many people, whether they are tourists or business travelers. Begin with some well-known tourism locations, but don’t overlook smaller towns since they may also be lucrative Airbnb marketplaces. Keep in mind that California, Florida, Nevada, Texas, and New York are the most visited states.
To ensure that your future investment property enjoys the greatest potential rental demand, you should determine the occupancy rate at the city level as well as at the neighborhood level when choosing a desirable location for your rental property. Keep the real estate slogan in mind: location, location, location.
3. Review Airbnb’s Rules and Regulations
Following the explosive growth of the short-term rental industry over the last decade, local governments in many parts of the United States and around the world have begun to impose strict regulations, if not outright bans, on the work of Airbnb rentals, particularly non-owner occupied ones. As a real estate investor, the last thing you want to do is breach the law and suffer legal and financial consequences. As a result, before deciding on a housing market for your holiday rental, you should familiarise yourself with the local Airbnb laws and regulations that regulate short-term rentals. Look at the websites of local governments, the Chamber of Commerce, local media, and other internet resources. Make sure you fully understand the criteria under which you may run an Airbnb company in the specified market, as well as the taxes and fees you will be required to pay.
4. Select the Most Appropriate Property Type
The nature of your market will determine the optimal property type to invest in. If you want to live in the city center of a bustling metropolis with many business visitors, for example, buying a modest apartment or condo makes the most sense, as long as the homeowners association accepts short-term rentals. On the other hand, a single-family house is a better option if you want to purchase an Airbnb property near the beach or in the mountains to host families or friends on vacation.
The sort of property you have will decide how appealing your home is to visitors, which will affect your occupancy rent and, as a result, your rental revenue. Furthermore, the sort of rental property you purchase will determine the amount you must pay, which will impact your return on investment.
5. Perform a thorough analysis
Once you’ve found a few houses that fit your budget and other search parameters, be sure to do some thorough research. Begin with a CMA (comparative market analysis). This entails locating a few houses comparable to the ones you’re interested in, are nearby, and were sold within the last few months. Examine their pricing and consider the distinctions between them and the houses you’re thinking about. This will assist you in determining the fair market value of your Airbnb rental and ensuring that you do not overspend.
Analyze the properties themselves as the following phase in your real estate study. The first step in analyzing an investment property is predicting the monthly rental revenue you may anticipate from your short-term rental based on the market’s average occupancy rate and the most common daily rate. Make a list of the one-time and continuing expenditures associated with purchasing and operating a rental property. This is the only method to guarantee that your property will generate a profit. Never accept a property with a negative cash flow or one that barely breaks even in the hopes of greater luck down the road. Only invest in homes with a good cash flow. You should also figure out your projected return on investment in terms of cap rate and cash on cash return. While real estate professionals disagree on what makes strong cash on cash return since it varies depending on the kind of financing used, a desirable cap rate is more than 8%.
6. Collaborate with an agent
A real estate agent can assist you in locating a suitable property for your Airbnb rental company. Professionals like agents and brokers have access to the greatest bargains on the market. Furthermore, they possess the required negotiating abilities to get a lot higher deal than you could obtain independently. Moreover, the seller pays agent fees, not the buyer, so you won’t have to worry about adding to your budget. Look for an agent that has worked with Airbnb rentals before to get the best outcomes. They will be able to advise you on the finest communities, the best property types, and the legal and regulatory environment in the area as a result of this.
7. Look for Real Estate Thoroughly
Once you’ve determined how much you’re willing to pay on an Airbnb rental, begin looking for genuine houses for sale. Exhaust all possible sources, including internet listing websites, local newspaper real estate sections, and relatives and acquaintances. Don’t only look at MLS listings; actively seek foreclosures, bank-owned, and off-market properties as well, since they may dramatically increase your return on investment owing to the low price you’ll have to pay for them.
Keep your budget in mind when you hunt for a home. Don’t get caught up in a property that you can’t afford. After all, you’re purchasing an investment property to profit from it, so your selection should be logical and founded on facts. You are not buying a house to live in.
8. Make use of Big Data and Real Estate Investment Tools
You may be apprehensive about all the data you need to gather and all the calculations you need to run before you can purchase a house to rent out on Airbnb or any similar site after reading about the final step. Real estate analysis does need a significant amount of time and work. Many times, investors discover that the property they’ve been looking at for a few weeks or even months has already been sold before they’ve had a chance to figure out whether or not it’ll make their money.
However, there is a simple answer to this dilemma in real estate investment. Machine learning and AI advancements have enabled the development of highly complex real estate investment solutions that make property owners’ lives considerably more straightforward and fun. They make real estate analysis quicker and more accurate, dependable, and efficient, thanks to the utilization of massive property data and predictive analytics. You should utilize these techniques if you want to thrive in the increasingly competitive world of real estate investments in general and short-term rentals in particular.
Real estate investing is one of the most profitable short- and long-term investments. Airbnb rentals are emerging as a top prospect among the various property investment choices available since they deliver a greater return on investment than conventional, long-term rentals in most US regions. The trick is to purchase the right home, which you may achieve by following the eight stages above.
It is doubtful that you will accomplish your intended ROI no matter how good your investment property is if you struggle to manage it properly. Start utilizing vacation rental software like Lodgable to prevent any mismanagement and ensure that you don’t forget any essential areas of your company.