How to Buy a Great Airbnb Property: The Key to Finding the Best One
Have you ever considered expanding your Airbnb business by investing in new rental properties? You’ll need to follow the key steps to avoid any losses of effort, time and finance to achieve this goal.
The key to the success of any real estate investment business is finding the right property in a top location. The same holds true for investing in an Airbnb rental property.
No matter how great of a property manager and an Airbnb host you are, you cannot do well and make a lot of money unless you buy a profitable property first. To help the beginner and more experienced investors in this quest, we’ve compiled a list of the most important steps to follow to find the best Airbnb rental.
Is Airbnb Real Estate a Good Investment?
Buying any traditional investment properties can be rewarding, but investing in an Airbnb vacation rental business has the potential to provide you with greater returns if you play your cards right. Let’s take a closer look at the pros and cons of owning Airbnb vacation rentals:
Pros of Airbnb Rental Properties
Property owners can charge a higher nightly rate than traditional renting, meaning Airbnb income can be higher than rent from a long-term rental.
Vacation rental software allows property owners to automate their vacation rental management.
Easy and low-cost advertising through listing on Airbnb.
Cons of Airbnb Rental Properties
High guest turnover means more frequent daily hosting tasks, like cleaning. This means you forego the passive income associated with long-term rentals.
Risk of low occupancy during slow seasons
Higher initial costs when you furnish and decorate your Airbnb property.
How to Buy Airbnb Property: 7 Key Steps
If you’ve decided to enter the industry and buy your own Airbnb property, a few steps will guide you along the way. Follow these key steps to ensure you start your business on the right foot:
Choose a Top Location
The occupancy rate is one of the most critical determinants of your return on investment with Airbnb rentals. Naturally, the more guests you have and the fewer days a month your property stays vacant, the more money you will make. This means that you should look for a city that enjoys a large number of visitors – whether tourists or business travellers. Start out with some popular travel destinations, but don’t forget smaller towns, too, as they can also make for top markets for Airbnb investments.
To choose a good location for your rental property, you should find the occupancy rate at the city and neighbourhood levels to ensure that your future investment property will enjoy the highest possible rental demand. Always remember the real estate mantra location, location, location.
Check Out the Airbnb Laws and Regulations
After the tremendous growth of the short-term rental industry in the last decade, local authorities in many places across Canada and globally have started imposing strict regulations and sometimes even prohibitions on the work of Airbnb rentals, especially non-owner-occupied ones. The last thing you want as a real estate investor is to break the law and face legal and financial penalties. Consequently, before you make your final decision on a housing market for your vacation rental, you should research the local Airbnb rules and regulations governing short-term rentals. Check out local government websites, the Chamber of Commerce website, local newspapers, and other online sources. Make sure that you understand well under what conditions you can operate an Airbnb business in the given market and what taxes and fees you will be expected to pay.
Decide on the Most Appropriate Property Type
The nature of your market will dictate the best property type to invest in. For example, if you go for the city center of a busy city flooded with business travellers, buying a small apartment or a condo makes the most sense, provided that the Condo Rules allow short-term leases. If, on the other hand, you decide to buy an Airbnb property on the beach or a cabin in the mountain to host families or friends on vacation, the smarter choice will be a single-family home. The property type will determine how attractive your property is to guests, which will push your occupancy rent and hence your rental income up or down. Moreover, the type of rental property you buy will also set the price you must pay for it, affecting the return on investment.
Set Up Your Budget and Plan Your Financing
Speaking of property value, the best investment property is one you can comfortably afford without risking a default on your mortgage payments and a consequent foreclosure. To achieve this goal, you have to budget carefully. Take into consideration all your regular sources of income as well as your ongoing expenses in addition to your savings. Set a maximum price you can afford with your budget and stick to it. Don’t get tempted by perfect-looking properties beyond your budget in the property search process. Remember that the actual price of the property is not the only cost you will have to cover. Additionally, sometimes hidden expenses are associated with buying an investment property, such as closing fees, appraisal, inspection, property tax, insurance, etc. Altogether they can add up to several thousand dollars. Of course, financing options are also available to help real estate investors purchase a property. There are also ways to enter the short-term rental industry without owning a property at all. Here are some of the most popular options for financing your short-term rental business.
Search for Your Real Estate Investment Property Thoroughly
Once you know how much you can spend on your Airbnb rental, start searching for actual properties on sale. Exhaust all possible sources, such as online listing websites, the real estate sections of local newspapers, friends, and acquaintances. Don’t go for MLS properties only, but also actively look for foreclosures, bank-owned, and off-markets properties as they can bring your return on investment significantly higher due to the low price you’ll have to pay for them. Throughout the property search, keep your budget in mind. Don’t fall for a property that you cannot afford. After all, you are buying an investment property to make money from, so your decision should be rational and based on numbers. You are not buying your dream home to live in.
Work with an Agent
Hiring a real estate agent can help you find a suitable property for your Airbnb rental business. Agents and brokers are professionals who have access to the best deals on the market. Moreover, they have the necessary negotiation skills to get you a much better price than you can achieve alone. In addition, the seller – not the buyer – pays the agent fees, so you don’t have to worry about adding more costs to your budget. To achieve the best results, look for an agent who has experience with Airbnb rentals. In this way, they will be able to advise you on the top neighbourhoods, the best property type, and the local legal and regulatory framework. Also, consider the reputation of any agency you partner with. Finding a respected and experienced industry professional at a company like BuyRealty.ca Brokerage will streamline your experience of buying a property.
Conduct Thorough Analysis
Once you have identified a few properties that match your budget and other search criteria, perform careful analysis. Start with comparative market analysis or CMA. This means finding a few properties that are similar to those you’re interested in, located in close proximity and sold no more than a couple of months ago. Check out their prices and account for the differences between them and the properties you are considering. This will help you establish the fair market value of your Airbnb rental and ensure that you don’t overpay for it. The next step in your real estate analysis is to analyze the properties themselves. Investment property analysis starts by estimating the monthly rental income you can expect from your short-term rental based on the average occupancy rate in the market and the predominant daily rate. Make a list of the one-time startup costs as well as ongoing expenses related to buying and owning a rental property. This is the only way to make sure that your property will yield positive cash flow. Do not ever settle for a property with negative cash flow or that barely breaks even in the hope of better luck soon. Only invest in favourable cash flow properties. In addition, you should calculate the expected return on investment in terms of cap rate and cash-on-cash return. While real estate experts disagree on what constitutes good cash-on-cash return as it depends on your method of financing, a reasonable cap rate is above 6%.