5 Reasons Airbnb Might NOT Be a Good Investment | Short Term Rental

Five reasons why Airbnb might not be the best investment strategy for your property

When it comes to investing in real estate, there are many strategies to choose from - each with its pros and cons. One of these strategies is Airbnb, which involves renting your property on a short-term basis to vacationers or business travelers.

With the potential to make 3-5 times the passive income than you would in a long-term lease, many investors wonder if Airbnb is worth it. 

While Airbnb can be an attractive option for some investors, there might be better investment strategies for some.  

There are several potential drawbacks to investing in an Airbnb property.

Here are five things to consider when deciding if Airbnb is a good investment for your property:

1.No Guaranteed Income: 
Airbnb can be unpredictable, and there is no guaranteed income each month. Just because you list your property on Airbnb doesn't mean people will stay in your place, and bookings can fluctuate monthly.  

You'll need to factor in the local attractions and proximity to business hubs when deciding if your property will be attractive enough for guests.  

In addition, there are additional upfront costs of furnishing the property and bringing in a theme for the property.  

Furthermore, a long-term rent-ready property may be a different caliber of rehab than a short-term rent-ready rehab for which you want to get top dollar.

2.Bad Tenants: 
This is another potential downside to investing in Airbnb that you can't control.
With long-term rentals, you can do background checks, verify financial stability, and call past landlords. However, with Airbnb, you must rely on the customer ratings by previous hosts.
Good and bad tenants treat the home as a hotel. 

They don't care about broken items, cleaning up after themselves, or scuffs on the paint.
Profound explanation: They usually cause more damage because they are using someone else's furniture and not being mindful of the home as if it were their own. 

In addition, unless you have a security system with cameras in the main areas, you can't dissuade them from having a party or other activities that may damage the home. 

This means you spend extra time and money dealing with any issues that may arise from having less-than-ideal tenants. And you may need help to recoup the costs from the security deposit.

3.Additional Costs Involved: 
Investing in Airbnb comes with many additional costs that can add up quickly. It is about more than just making money; there are many expenses that you'll have to carry.

When you calculate your potential net income from renting out your property on Airbnb, you have to consider the following:

Maintenance Costs such as handyman repairs, not to mention the constant cleaning fees:  Depending on the condition of the unit, you may need to hire someone to perform regular maintenance and repair costs.

Utilities, including cable and internet: These are additional costs you will have to pay whether or not it contains renters. As an Airbnb investor, you will also have to factor in the price of Wi-Fi and cable since guests expect these amenities when they rent a property.

Advertising Costs: Although advertising your Airbnb is a discretionary choice, it may be required if you compete with other Airbnb properties for a few vacationers. Depending on the region, you may spend significant money advertising your property. This cost can range from paying for online ads to getting professional photographs of your rental property.

Additional Liability Insurance Coverage and Hazard Insurance Coverage for Personal Property: If this is a second home, you may have to pay for additional liability insurance through Airbnb or another company. 
Likewise, if this is a rental property, you may have additional liability insurance coverage; however, you will want to acquire insurance coverage for any personal property you decide to furnish the property with. This means you must purchase specialized hazard insurance coverage for the furniture and any other personal property you choose to include in your Airbnb rental.

Additional Taxes and Fees: These are taxes required by local governments for short-term rentals and fees collected by Airbnb or other platforms promoting your property. Depending on the region, you may need to obtain special permits for renting out properties on a short-term basis. You may also be required to remit hotel, tourism, or other taxes to the local government. Finally, you will need to pay any fees charged by the platform on which you are listing your property. These fees can range from a percentage of the total rental price to a commission for each night rented out.

4.Local Regulations and HOAs:  
Local regulations and HOAs are something to consider when investing in Airbnb. Depending on where you live, there may be local regulations governing short-term rentals like those offered on Airbnb that you'll need to comply with or risk getting fined or having your rental permit revoked. 

Additionally, several HOAs restrict short-term rentals to no shorter duration than monthly or even refuse to allow short-term rentals altogether. Before investing in Airbnb, ensure you understand all the rules and regulations related to renting your property to avoid surprises down the road.

5.Property location might not be suitable: Depending on your property, the tourism-heavy vacation destinations for Airbnb have taken a hard hit since inflation has significantly increased and discretionary spending has been depleted. 

This means that it may be challenging to achieve consistent bookings if you have a property in an area that relies heavily on tourism. Before investing in Airbnb, it is essential to research the local economy and ensure that enough travelers are looking for short-term rentals in the area. 

If the economy is not conducive to short-term rentals, you may pass on investing as it is a location-based decision.

Final Words:
Ultimately, investing in Airbnb is not a decision that should be taken lightly. Before deciding if Airbnb suits you, you must consider all associated factors. 

Research local regulations, understand advertising costs, review the additional insurance coverage you may need to acquire, and understand the local economy before investing. 
If these things do not align with your goals, investing in Airbnb is not your best decision. As with any investment, make sure you do your due diligence before deciding on an exit strategy.

If you are interested in investing in Texas, our team and I at Best Life Texas would be more than happy to assist you and answer any questions about investing in real estate. Please do not hesitate to reach out with any questions or inquiries at info@bestlifetexas.com. 

We look forward to hearing from you soon!