Can you Make More Money with Airbnb vs Renting? (2024)

Are you a real estate investor trying to decide between Airbnb and traditional renting? Let’s break it down.

In this guide, I’ll look at factors like stay duration, income potential, taxes, and workload to help you choose your goals. For example, I prefer traditional rentals for my single-family homes to allow me to focus on my commercial properties.

Consider the pros and cons when planning your rental strategy. I’ll provide key comparisons to help you decide. Remember, economics matter, but so does your work-life balance.

Now, let’s dive into the Airbnb vs. renting debate and choose the smartest path for YOUR investment journey.

TL;DR:

• Airbnb property and traditional renting are two popular options for real estate investors.
• Airbnb rentals can make more rental income, but they also are more work.
• Renting offers more stability, but it may not generate as much income.
• The market also plays a role in making profitable choices in today’s environment.

Understanding Airbnb and Renting?

Real estate investors often wonder how best to use their properties. Tourist areas are more competitive because more people want houses than are available.

Rents for long-term stays have gone up. Investors are thinking about whether to change their Airbnb places to long-term rentals. New investors are trying to decide which path to take.

The rise in short-term rentals has affected nightly rates in many markets. For a comprehensive analysis of the increase in 2022, check out AirDNA’s published findings:

Why You Should Understand the Airbnb vs. Renting Dynamic

The dynamics of Airbnb vs. traditional renting is multi-faceted. Here are some key considerations every investor should be aware of:

• Regular Assessments: Regularly assessing your real estate investment strategy is crucial.
• Re-evaluation: If your business plan criteria don’t meet your expectations.
• Scaling: When aiming to grow your business, a change in approach might be necessary.
• Single-family Properties: Consider all available options to determine the best investment use.

Factors to Consider When Choosing Between Airbnb and Traditional Renting

Several factors differentiate vacation properties from traditional renting. You should look at rent revenue, taxes, and expenses. Also, check initial setup costs, insurance, tourism trends, market factors, and personal preferences. I’ll go into each aspect in more detail.

Length of Stays and Rental Income

Airbnb rentals and long-term rentals differ in stay duration. Vacation rentals through Airbnb offer you more rental income than traditional leases. It’s because you only rent your property for a few nights at a time.

Investors can generate higher rental income through short-term rentals than traditional leasing arrangements.

I see the same thing in hotels. My hotel properties make more money per unit (“key” in the hotel industry) than my apartment complexes. But, these properties are more involved than long-term rental property.

Comparing per-night rates between Airbnb and long-term leases

Mashvisor’s analysis shows that you could earn significantly more in some markets by listing your investment property on Airbnb vs renting. However, this varies greatly depending on location, demand, and competition, among other listings. Mashvisor also compared the top ten cities with profitable traditional rental opportunities. Data from their post is below:

Factors affecting rental income potential in both models

Factors affecting rental income potential include:

• Local Regulations: Understanding laws related to short-term rentals in your area.
• Occupancy Rates: Variations in demand due to seasonality.
• Neighborhood Appeal: How attractive your neighborhood is to tourists or potential tenants.
• Maintenance Costs: The expenses related to keeping your property in top shape.
• Marketing: The effectiveness of your online property promotion.

Consider one of my investor peers who owns a condo in downtown San Francisco. While Airbnb seemed a good choice due to its high nightly rates, local regulations and competition made it challenging. Instead, a long-term rental to a tech worker ensured consistent returns.

Comparing the Workload and Expenses: Airbnb vs. Traditional Renting

A key area to consider between a vacation rental and a traditional lease is the workload and expenses of managing your property. The two rental models differ significantly regarding responsibilities, costs, and time commitments.

Maintenance Responsibilities for Airbnb versus Renting

Frequent tenant turnover in an Airbnb property requires more work from the owner in cleaning, restocking items, and continually marketing efforts to attract new guests. Long-term occupants usually require less maintenance as they are responsible for keeping up their living area throughout the rental period.

Costs Associated with Setting up an Attractive Airbnb Listing

Converting an investment property into a vacation rental listing may increase costs related to furnishing the space and providing amenities such as linens and toiletries. Additionally, you’ll need to invest time into creating a compelling listing that stands out among competitors on the platform.

Weight these factors against potential revenue streams from both short and traditional rental property:

• The cost of furnishings – Calculate how much you’ll spend on furniture if opting for Airbnb hosting versus leasing unfurnished or partially furnished spaces through traditional methods.
• Cleaning fees – Consider whether hiring professional cleaners will be necessary after each guest’s stay or if self-cleaning is feasible within your schedule constraints.
• Promotional efforts – Assess how much effort you’re willing to put into promoting your listing online and offline to attract guests and maintain a steady flow of bookings. This is significantly more work than advertising a traditional rental property available for rent.

Taxation Implications

Both options require you to pay federal and state income tax on your earnings, but specific regulations may vary depending on location and rental arrangement.

I know an investor from Texas who once overlooked local occupancy taxes for her Airbnb property. It resulted in unexpected costs. She then sought advice from a local accountant to avoid oversight like this in the future.

Federal Taxes Applicable on Different Types of Rental Incomes

Federal taxes vary depending on whether you earn income from an Airbnb or rental property. For example, if you rent out your property for less than 15 days per year through Airbnb, that income is generally not taxable at the federal level. 

In contrast, long-term rentals are subject to taxation as regular income, with deductions allowed for expenses like mortgage interest, repairs, insurance premiums, and depreciation.

State-Specific Regulations Governing Taxation on Real Estate Investments

Beyond federal taxes, real estate investors must also consider state-specific taxation regulations. Some states have additional lodging or occupancy taxes applicable to short-term rentals like those offered through Airbnb. 

To better understand these complexities related to taxation implications when choosing between listing a property on Airbnb vs traditional renting, consider the following:

• Analyze local tax rates: Determine how much more (or less) you’ll owe in taxes by comparing short-term vs long-term rental incomes in your area.
• Contact a professional: A knowledgeable accountant can help you navigate the tax landscape and make decisions about your real estate investments.
• Stay updated on regulations: Tax laws can change frequently, so you must be aware of updates that may impact your investment strategy.

You should understand the tax implications when deciding whether to list your property on Airbnb or opt for traditional renting methods. Research and consult with experts as part of your due diligence.

Insurance Considerations for Airbnb and Traditional Rentals

Always consider insurance options for both Airbnb and long-term rentals.

A fellow investor learned this the hard way. His Airbnb guest accidentally caused water damage to his apartment. Because he had proper insurance coverage, he could handle the repairs without any financial setbacks.

Airbnb Host Guarantee Program Details

Airbnb offers a Host Guarantee program, which provides liability coverage up to $1 million for every booking made through their platform. This insurance is designed to cover damages caused by guests during their stay, offering some peace of mind for hosts who choose this vacation rental option.

Aribnb requires that hosts comply with all the terms and conditions of the host damage protection terms to be eligible to receive payments for covered losses.

Typical Insurance Policies for Long-Term Rentals

In contrast, landlords opting for traditional renting must explore other insurance coverage types specifically tailored toward traditional rentals. These may include landlord-specific policies such as dwelling or building insurance, general liability protection, and loss-of-rent coverage if tenants default on payments or cause damage that renders the investment property uninhabitable.

 Consult an insurance agent for advice on which policies are best for your rental.

Renters’ Insurance: An Additional Layer of Protection?

To further safeguard your investment property from potential losses due to tenant negligence or accidents, you might also want to require renters’ insurance as part of your lease agreement. Renters’ insurance typically covers personal belongings within the rented space while providing additional liability protection against accidental injuries sustained by visitors.

Finding The Right Balance Between Cost And Coverage

• Evaluate different insurance providers to find the best coverage options and rates for your rental property.
• Consider bundling policies, such as combining landlord insurance with homeowners’ or auto insurance, to save on premiums potentially.
• Regularly review your coverage needs, especially if you make significant changes to the property or its use, which may affect required landlord insurance levels.

Market Stability: Airbnb vs. Long-term Rentals

Long-term rentals provide steady income, market stability, dependable property value, and lower costs than Airbnb rentals. Meanwhile, short-term rental hosts are subject to seasonal trends impacting occupancy rates and overall revenue.

Consistent Monthly Rent Payments vs Fluctuating Nightly Rates

The main advantage of long-term renting is the stability of monthly rent payments, which allows for better financial planning. However, this also means you might miss out on potential higher earnings during peak seasons when demand for accommodations increases.

With Airbnb properties, property owners can adapt to market fluctuations and take advantage of higher nightly rates during peak seasons. Plus, rents are collected online, typically through a booking platform.

However, Airbnb properties come with increased risk as there’s no guarantee your property will be booked consistently throughout the year.

How Local Tourism Trends Affect the Success of an Airbnb Listing

Local tourism trends in your area largely drive your success as an Airbnb host. Understanding these trends helps determine whether listing your property on Airbnb would be profitable.

Analyze factors such as popular tourist attractions nearby, events happening throughout the year, seasonality patterns affecting travel demands, and competition from other accommodation providers like hotels or vacation rentals before deciding to enter the short-term rental business via platforms like Airbnb.

Maximizing Revenue Potential Through Seasonal Pricing Strategies

• Determine peak seasons: Identify periods when demand for accommodations is highest in your area so you can adjust the pricing accordingly.
• Offer discounts during low seasons: Encourage bookings by offering discounted rates or special promotions during periods of lower demand.
• Analyze competitor pricing: Compare Airbnb pricing in your area charge to ensure you remain competitive and attractive to potential guests.

Balancing Personal Preferences and Financial Risks

Finally, consider your preferences, lifestyle, and risk tolerance when deciding between Airbnb hosting and traditional renting. Short-term rental hosts work with Airbnb guests worldwide and shouldn’t mind frequent tenant turnover.

On the other hand, if stability is more important to you than potentially higher rental income,a long-term rental agreement may be a more suitable option.

Key Decision Points: Airbnb or Traditional Renting?

I recommend analyzing the short-term versus long-term lease revenue numbers if you decide to buy a property and explore options. Investing in a profitable property with a long-term rental strategy is viable since this approach is more conservative than vacation rentals.

If you already own a property, your lease is ending, and you’re contemplating converting it into a short-term rental, calculate the expenses for furnishing and repairing it. Additionally, consider the data regarding potential revenue and the time it will take to recover this investment. If listing the property on Airbnb doesn’t yield the desired results, or you decide it’s not the right fit, you can revert to a long-term rental or even explore medium-term rentals.

Exploring Alternatives: The Rise of Medium-Term Rentals

An alternative to choosing between Airbnb vacation rentals and long-term rentals is medium-term rentals. This strategy involves renting out a property for an extended period, typically from one month to several months.

It provides a flexible housing solution for people who need temporary accommodations for a medium-length stay, such as corporate travelers, students, or professionals on short-term assignments like traveling nurses.

Medium-term rentals offer a “home away from home” experience with fully furnished spaces and amenities. Property owners benefit from stable income streams and reduced turnover compared to short-term rentals.

Conclusion: My Personal Experience and Insights on Airbnb vs. Renting

I’ve grappled with the Airbnb vs renting dilemma firsthand.

Hotels can generate higher revenues but volatile swings between peak and off-seasons. The constant hustle of hospitality operations and maintenance is no joke, either. Conventional rentals offer stability if you screen tenants and set clear expectations upfront. But capping income in touristy areas is a tradeoff.

My take? If your Airbnb rental property underperforms, consider medium-term rentals before abandoning short-term altogether. Recoup your furnishing investments first.

Use professional guidance to weigh taxes, insurance coverage, and local demand. Airbnb requires allure – professional photography, top-notch amenities, and design. A traditional rental means finding (and keeping) reliable tenants.

There’s no one-size-fits-all answer. Align your choice with personal goals and market realities. Start small to test the short-term rental waters before diving in.