Unless you’ve been living under a rock the past half decade, AirBnb is one of the first companies that comes to mind when you are thinking of staying overnight in just about any location. There is currently over 6 million AirBnb listings. These accommodations vary wildly from a 14 bedroom mansion with a lazy river to a damn air-mattress in the back of someones car. The question is, should you capitalize on this popularity as a landlord? Should you seek out properties for AirBnb? Or, even easier, do you convert a long term rental property into an AirBnb?
Convert a Rental Into an AirBnb
As real estate investors, we’ve debated dipping our toes into the AirBnb waters more than once. However, the waters in the pool of long term rentals was the perfect temperature for us. This means the temptation never amounted to anything, until now. After a few back and forth’s with each vacancy, we finally decided to diversify into the world of AirBnb and short-term rentals. There are quite a few considerations that need to be taken into account before you decide to convert your rental into an AirBnb. We are diving into some of those considerations today, and hopefully we can help the decision making process for you.
Cost to Convert a Rental to AirBnb
There is a higher carrying cost with short-term rentals. The typical costs that a long term rental landlord would have are: mortgage, insurance, taxes, vacancy, and repairs. Unfortunately, to convert your long term rental into an AirBnb, you’re going to need to open the wallet a little more. What’s that saying? “You’ve got to spend money to make money.” or some shit like that.
Some of these added costs are: furnishings, monthly utilities, internet, cable (or an alternative), toiletries, cleaners, etc. Throw in additional vacancies, and repairs. All of a sudden, your costs might have doubled. Not to mention the additional cost of a co-host or property management company if you choose to go that route. Also, important to add that some areas of the country impose taxes on short term rentals. If you are in one of those areas, be prepared for those costs as well. If you aren’t in one of those areas, it may be prudent to plan for it anyway as the rules can change at any point.
Higher Income from AirBnb
The flip side of the cost, is that with the additional services you’ll be offering, you can typically charge a premium price. By charging by the night, and offering the flexibility of a short-term rental you should be able to get significantly more per night than you were as a long term rental. Also, you are no longer competing with long term rentals in your area. However, now your main competition is hotels. If your market is flooded with rentals driving your price down, you could always convert your long term rental into an AirBnb or similar short-term rental.
Consistent Long Term Rental or Inconsistent AirBnb
The double edged sword of the higher income was touched on in the costs section. However, your income, while higher, could be much more inconsistent. A long term tenant provides the same amount of income every month. The costs can typically be planned for every month as well. An AirBnb that has 100% occupancy one month, but sits empty half the next month isn’t going to provide the same consistency. Also, this inconsistency makes it hard to plan and depend on the profits.
A huge thing to consider is the legality of a short-term rental. We have friends who had two AirBnb properties, and then the city passed an ordinance making them illegal. They bought them as short-term rentals but now are forced to choose between long term renting, selling, or have them sit vacant. That’s a serious inconsistency. Long term rentals have been around for centuries, but short term rentals and AirBnb is still relatively new, so there is some uncertainty about them. But, like any investment, the riskier ones usually pay more. That’s just the nature of investing.
Flexibility of AirBnb Compared to Rental Property
One of the biggest reasons we decided to convert one of our long term rentals into an AirBnb is the flexibility. There are many ways that an AirBnb can be more flexible than a long term rental. One of these ways is the varying rental price. If it’s the dead of winter, and there isn’t anything going on in your area, you can lower the price to make your place more appealing. On the other hand, if there is a large event happening in your area, and the demand is higher, you can raise the nightly rent to garner a little more money for yourself.
Another flexibility benefit is the availability that you can control. At any point, you can block off the calendar and not accept any reservations. This could be because of updates, renovations, having family over, holidays, or whatever. For us, this was huge because we can choose to block off the calendar whenever we come back to the States, and have a familiar place to stay without having to impose on our family. Our bed, our kitchen, our towels, our couch. That’s hard to beat in our opinion.
Managing Long Term Rental VS AirBnb
Managing is a big factor when it comes to converting a long term rental into an AirBnb. Some may disagree, but to us a long term rental is much easier than managing an AirBnb. Find one tenant, have them sign a lease, and your place should be set for a year. Barring any issues of course. You need to stay on top of rent collection, maintenance requests, paying the mortgage, and that’s about it. Converting a long term rental to an AirBnb, however, is going to take a little more oversight. It has all the management aspects of a long term rental on top of: cleaning yourself or managing cleaners, coordinating with visitors for check-in and out processes, maintaining toiletries, furniture, linens, and more.
We self manage all our long term rental properties. However, since we were unfamiliar with AirBnb hosting and decided to convert a long term rental into an AirBnb right when we were heading overseas, we decided it would be a good idea to get a co-host. Each co-host has their own agreements, but ours is great! For 15%, she manages every aspect of the AirBnb. From the guest inquiries to check-out and scheduling the cleaning crew, she handles it all. It also helps that her and her husband have a few properties of their own on AirBnb, so she’s pretty familiar with the whole process.
Furnishing an AirBnb
This is in the ‘Cost’ section, but we feel that it needs it’s own entry as well. Furnishing an AirBnb can be as easy or complicated as you want it to be. The larger a house, the more you’re going to need to put in it. Here’s a general idea of what you’re going to need:
- Living room: couch, chairs, coffee table, TV, viewing service (AppleTV, Roku, Amazon, Netflix, Hulu, cable, etc.)
- Bedrooms: bed frame, mattress, pillows, night stand, lamp, sheets, comforter, iron, ironing board.
- Kitchen: table, seating, plates, bowls, saucers, silverware, cooking utensils, pots and pans, baking sheet, coffee maker, toaster, soap.
- Bathrooms: rugs, shower curtain with liner, garbage can, hair dryer, bath towels, hand towels, wash cloths, plunger, toilet paper, soap.
- Cleaning supplies: broom, mop, swiffer, vacuum, duster, dish detergent, glass cleaner, Clorox wipes, air freshener, paper towels, etc.
Our goal was to have a clean, chic place without having to drop a ton of money in it. Not so trendy that we only get niche hipsters, but also not so outdated that only our grandmothers want to stay. By appealing to the most amount of people, you’ll have a larger pool of potential guests. It can be tempting to make your place look like it belongs in a ‘Better Homes & Garden’ magazine. However, if all those decorations aren’t going to raise the nightly rent, or help you have less vacancies, then it’s pointless. You can drop $3,000 on a new sectional that looks the exact same as a used one for $500 on Facebook Marketplace. Remember the 3 C’s: cheap, clean, and comfortable.
With the added costs, the inconsistency, the changing legal landscape, and the management is it worth it? Once we weigh in the additional income, and the flexibility, it tips the scales for us. We are definitely happy with converting our long term rental into an AirBnb…for now. Worst case scenario, we change our mind and convert it back to a long term rental. Having options is never a bad thing. If you are interested in hosting your own AirBnb, whether it’s a cupboard under the stairs, a tent out in the yard, a spare bedroom, or even a rental that you’ve converted into an AirBnb, please use our referral link and you’ll get yourself a $25 bonus after your first booking! Look for a separate articles on the costs of furnishing an AirBnb, and the financial breakdown of renting on AirBnb, and other AirBnb related info soon!