Just as Uber is changing the car transportation business model, Airbnb is changing the way people book their travel for business and leisure. Travelers who need a comfortable, short-term place to stay are often attracted to the rates and accommodations of an Airbnb over those of modest and fine hotels. These are also the type of consumers who don’t want to stay in the less elegant accommodations of an inexpensive motel. These consumers are not only vacationers. Some have a business or personal need to stay in short-term housing for as little as a few days to a few months.
In search of higher monthly profits, some property owners who have traditionally rented their units to long-term tenants are opting to forego lease arrangements and rent units on a nightly and weekly basis as an Airbnb. This kind of rental business differs greatly in many aspects from the tenant and landlord arrangement. If you’re wondering whether converting your property to an Airbnb is right for you, consider all the following factors. It might not be as simple as you think.
1. Check the zoning laws in your area. As the owner of your rental property, you might assume that you’re able to use it however you choose to make money. However, cities and towns have zoning laws, and in some cases there may already be laws on the books that prevent you from legally using your property as a hospitality business. Indeed, Airbnb may arguably be more of a hospitality business than a property rental. There are also building codes that govern businesses such as hotels and bed and breakfasts that your property might not meet. There are many questions that make legality a gray area in cities where the interpretations of the law are unclear. Questions have arisen as to whether such properties require fire sprinklers, on-site parking, and regular inspections. Also note that if you own a condo unit, many condo associations ban the use of a unit for such a purpose.
If you rent out your property, Airbnb considers you a “host” and requires you to agree to follow the laws of your area as well as pay whatever taxes, license, or registrations fees are required where you live. Do your research and don’t rely on lax enforcement of the law. Fines can be in the thousands for violations.
2. Decide whether you’re ready to add hospitality to your real estate business. If you’re currently a landlord, you know that challenges often arise when serving the needs of tenants. Converting your property to an Airbnb means you’re now serving more of a concierge role, which will require more time and effort to be attentive to guests rather than tenants. It also requires friendly customer service and patience. Online reviews can make or break the success of an Airbnb. On the flip side, you’ll also need to know how to deal with unruly guests who become a nuisance to neighbors.
3. Research your competition. “Location, location, location” still applies. The closer you are to a city or local attraction, the more potential renters you’ll get. Most travelers want easy access to points of interest or business. Remote locations don’t fare as well as urban Airbnbs. More importantly, look at what local hotels are charging per night and how their amenities compare to yours. High speed internet, cable TV, fresh sheets, towels, and clean, attractive accommodations are a must. Find the median price and adjust as needed to be competitive.
4. Calculate your costs and estimate profits. Obviously converting to an Airbnb has to make financial sense. You’ll incur initial costs to furnish your units and present a contemporary décor. You’ll also have costs associated with each guest turnover. Even if you’re the one to clean the unit from top to bottom instead of hiring a cleaning service, you’ll be doing this much more often than with tenants who typically stay a year or longer. If you have back-to-back guests, you may need to clean up a unit Monday morning in order to be ready for new guests on Monday afternoon. And don’t forget to add up the little extras such as soaps, shampoos, and bottled water. Assuming you’ll make a nice increase in profit over the traditional long-term tenant, does the extra money cover the extra time you’re spending in upkeep and serving your guests? Keep track of the hours you spend driving to and from the property, time spent preparing the property for the next guest, as well as time communicating with guests.
Finally, will you be able to sustain profitability year-round? If your Airbnb will fare the best during the summer, for example, will the profit be enough to offset less popular, colder months? Let’s say you’ll be able to double profits compared to traditional rental for four months out of the year. If you have trouble equaling your traditional rental profit the rest of the year, then you may find the temporary extra profit wasn’t worth it in the long run.
Converting rental property you own to an Airbnb can definitely bring attractive profits with the right location, amenities, and service. But it’s unlikely to come without additional cost, time, and effort. Running an Airbnb is far more than the act of listing your unit online. Weigh all of the factors, including what you’re willing to put into the business from a time and service standpoint.