08 Jun 5 Critical Differences Between Airbnb vs. Renting
Improving the financial earnings of your property requires complete and comprehensive planning. Turning your property into a long term rental or an Airbnb is a massive decision and you may be wondering which of the two is a better option for you to receive maximum revenue income. As you begin to look into each option, you will start to get a clearer understanding of how each option works and what best suits your renting financial goals. Here is a list with differences between Airbnb and renting to help you get a better sense of the two.
Airbnb: There is no set price when using Airbnb. You can modify the pricing as you please. Generally prices can increase during peak season times, days, and demand. Your revenue with this option can vary greatly, fluctuating from non-existent to significant earnings.
Renting: When you have a long term renter, you have a contract with a set price. The income you get every month is the same and you cannot make any price modifications until the contract expires. Your revenue with this option is reliable.
2. Consumer Demand
Airbnb: Generally the demand for properties changes with the seasons. Higher demands in the peak summer months, with the winter months being lower in bookings. Better reviews left from guests also bring your property more positive spotlight.
Renting: Consumer demand is based less off of peak seasons. Variations in the market will not have any effect on the monthly income you bring in.
Airbnb: When you first start listing your property as an Airbnb, you will most likely need to pay more at the beginning to have a fully stocked and fully furnished rental. This also includes restocking between guests. Your expenses will fluctuate slightly based on what is needing to be replaced.
Renting: Unless you plan on renting your property fully furnished, you will only need to be concerned with overseeing maintenance, repairs needed, and bills.
Airbnb: Airbnb is a short term business and as so, the taxes are different from a long term rental property. You may have to pay certain other taxes such as an occupancy tax.
Renting: Usually renting has more tax obligations as a conventional rental property, such as federal, state, and property taxes. Renting usually has more allowances than an Airbnb.
Airbnb: Airbnb has a “Host Guarantee” coverage that gives you some protection but it is not all-inclusive. In order to reduce your risks and monetary losses, you will need to purchase additional vacation rental insurance. You will most likely pay more for insurance if you pick this option.
Renting: You may only need to purchase basic insurance if you have reliable tenants who have renters insurance. There are fewer liabilities, so you might only need commercial and landlord insurances.
The Positives and Negatives to Airbnb vs. Renting
If you’re still trying to decide which is best between renting or turning your rental into an Airbnb, your primary goal in your picking should be whichever maximizes your rental profit. Here are some positives and negatives to consider for helping you pick what is best for your goals.
Positives to Airbnb
Potential for higher income gains - Hosts have the ability to charge higher daily rates. Hosts can also change the booking price daily. If you live in an area with constant high demand, you can bring in the same amount of money as a typical landlord in half the amount of time.
Host assurance – Airbnb offers up to one million dollars of coverage for the host. With the ability for guests to leave reviews, the reviews can contribute to higher interactions which in turn creates more bookings.
No lease agreements – The only rules you need to stick by are the rules you set in place at the time of booking for your property and the ones you have with Airbnb.
Negatives to Airbnb
Higher risk for property damages – More frequent guests means your property is at a higher risk of guests unintentionally causing damages to your property.
Fluctuating revenue – Varying factors can impact your financial earnings. There may be times when your property sits empty and there may be times when you are fully booked. The variance in incoming revenue makes financial planning more difficult.
Upkeep can be costly – Because of the short term stays of your guests, your property needs to be cleaned after each visit as well as items need to be restocked and if an object is damaged, needs to be replaced before the new guests arrive. Over time, these costs can add up.
“On call” – Being a host of an Airbnb property means that your visitors may need to connect with you at all hours of the day or night. Being available to answer and address any issues in a timely manner can boost your positive reviews.
Positives to Renting
Dependable income – You can anticipate regular payments every month. This dependable income helps you to be able to plan for upcoming repairs, maintenance, upgrades, and other unexpected expenses.
Minimal vacancy and turnover rate – Depending on the length of your lease agreement, you won’t have to worry about your rental property sitting unoccupied for a long period of time. This brings in a regular income and less work for you.
Self-sufficient tenants – While it is still good professionalism to be able to respond to your tenants inquiries in a timely manner, you do not need to micromanage them. This gives you greater freedom with your time and energy to focus on other personal plans.
Negatives to Renting
Lease agreement required – This binds you and your renter to contractual and legal obligations as well as it is limiting your ability to make modifications in current time.
Idle income – The income through renting is consistent but it cannot grow during the extent of the lease agreement. And unless you have reliable tenants, there isn’t a guarantee that they will pay their rent on time or at all each month.
Little flexibleness – as a result of your lease agreement, you have less flexibility in how you can control your rental property. You cannot raise the monthly rent until the end of the lease. You cannot perform self evictions without using the correct legal authorities.This can inhibit your ability to take swift action against renters who violate the lease agreement.
Some other considerations:
- Local laws and HOAs: Both renting and Airbnb have laws and regulations that differ across the country. Look into the local regulations to ensure you are compliant with any and all local laws and HOA rules (if applicable).
- Location: You can use your location information to adjust your advertising towards specific demographics. Your location also plays a big factor in how well you will be able to appeal to potential tenants or guests.
- Best financial income: Only the Airbnbs that are consistently booked and have high occupancy rates will produce higher financial income profits when compared to traditional renting.
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