There are few investors in the U.S. that have not been at least curious about AIRBNB investing and what the potential benefits and landmines are. The truth is that there are solid financial returns if you do it right, but also huge potential disasters if you fail to understand the business model or complete correct due diligence. So what are the Top Five things you need to know about AIRBNB investing?
Educate yourself before you even begin looking at properties
AIRBNB is a new concept. It’s only been around since 2007 – just a little over a decade. Everyone in the business is still learning and adapting. There is a huge amount of education you can get on the topic. Of course there are on-line articles and listings, but better year call and talk to people who already engage in this business and pick their minds. You can never get too much information before making a decision.
Understand the regulations
In the early days of the on-line concepts such as AIRBNB, not many people were in that line of business and much slipped by city hall. Not any longer. Today there are regulations in most cities regarding what properties can be utilized for this service, and how many days a year this is allowed to occur. These regulations go beyond merely using your property as an AIRBNB site. There are also tax implications that need to be worked out and approvals from homeowners’ associations (HOAs) and even your mortgage company. On top of that, your insurance company may also have limitations on this practice, as well. The bottom line is that investing in an AIRBNB property starts off with a huge amount of analysis to make sure that you are good to go with every possible controlling group.
Have a real handle on expenses
There’s much more to owning an AIRBNB property than the initial purchase price. While there’s certainly a mortgage, property tax and insurance to pay, there are many other bills that some buyers forget. These include cleaning services, landscaping, utilities, pool service and repair and maintenance. Then, of course, there’s the 3% fee that AIRBNB charges on each reservation. But one of the key items that many investors miss is the impact of vacancy. You have to create a realistic budget based on conservative occupancy numbers. Remember that the biggest contributor to financial pressure with your AIRBNB property may simply be the absence of continual customers.
Competition
AIRBNB is believed to have 3 million listings in over 65,000 cities – that’s a huge amount of competition. So you have to take this into account when investing in one. Equally importantly, you’ll need to make sure that you stay completely on top of competitor’s rates (and match or beat them) as well as get spectacular reviews from your customers to push up your rankings on social media.
Start slow
About the worst thing you can do in any investing sector is to jump in aggressively before you’ve learned the real-life way this type of property works. Don’t let anyone railroad you into getting in over your head. If you go slow, your chance of success is much greater and you have the ability to adapt as you learn more about what works and what doesn’t.
Conclusion
AIRBNB investing can be highly profitable if you do it correctly. These five tips will help you make proper decisions and focus on the reality and not the fantasy of owning an AIRBNB.