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Should you consider Airbnb as an investment strategy?

Should you consider Airbnb as an investment strategy?

person looking for a mortgage for an Airbnb

person looking for a mortgage for an Airbnb

Do you own an additional space or property that you’re not using? Have you ever stayed at an Airbnb and heard of the lucrative possibilities of owning an investment property? Hosting an Airbnb does present major opportunities for real estate investors. However, hosting an Airbnb does come with some challenges too.

This is my shortlist of what you need to know about Airbnbs and the pros and cons of turning your property into a short-term rental before you start your real estate buying adventure.

What is an Airbnb?

Let’s start at the beginning. An Airbnb is an online marketplace that connects people who want to rent out their homes with people who are looking for accommodations in that same area. If you own an investment property or vacation home that you do not use year-round, you can promote it on Airbnb where people can rent your property short-term. For Airbnb hosts, this is a great way to earn some extra cash on a property you’re not using all year round. For Airbnb guests, people can find a place to stay while on vacation without paying as much as they normally would for a hotel.

From a single room to a houseboat to an apartment…even a castle, a person can rent any kind of space to stay the night on Airbnb.

How is it different from traditional renting?

Unlike a traditional renter where a person signs a lease and lives in your investment property, an Airbnb is a short-term rental. While it may be more work to promote your property on Airbnb and things may start off slow, there is a lot of income potential. In some cases, you can even make more on your property through Airbnb than you could through a traditional renter.

Let’s break down the numbers:

In Toronto right now, the average price of rent for a 1-bedroom apartment is around $1,800. That is $21,600 annually.

The average price for an Airbnb in Toronto in 2019 is $97/night. If you were to rent out your apartment or property for $97 a night, that’s $2,910 a month. That’s $34,920 annually.

Right there, you’re making an additional $13,320 per year in your pocket compared to renting to a long-term tenant. The biggest benefit about hosting an Airbnb is the income you can potentially make in comparison to a traditional tenant. However, the biggest thing to watch here is the location. In cities such as Toronto, you’re likely to get more guests renting because it’s a tourist hotspot. Location is extremely important when it comes to Airbnbs. If your property is in the middle of nowhere and it’s not a spot where people would typically want to visit, you’re likely to not have as many guests.

What are the risks involved with Airbnb?

Yes, while there is a major income potential with hosting an Airbnb, there are also a few risks you should be aware of.

With a traditional, long-term renter, you are more likely to rent to someone who will take care of the property, pay their rent on time and you’re more guaranteed to receive a steady income.

With Airbnb rentals, you should expect business to start slow. It takes time to build a reputation with Airbnb and receive ratings from guests on their stay at your property. You also can not always guarantee your space will be rented 24/7, so income from month to month may vary.

There may also be more expenses involved with hosting an Airbnb. To rent out an Airbnb, space needs to be furnished (the nicer and more luxurious your space is, the more likely people are to choose your property on Airbnb – so it’s good to invest here). Unlike a regular tenant who takes care of the bills, you will be responsible for paying the bills and providing WIFI and cable to Airbnb renters. If you would expect to receive WIFI and cable in a hotel room, your Airbnb guests will expect it as well.

The biggest risk of all is being able to trust the people you are renting to. With a long-term renter, you’re more likely to trust that they will take care of your property and keep it in good condition. Short-term renters on the other hand are more likely to cause damages if you rent to the wrong people. So, before you promote your property on Airbnb, be sure to read the fine print and what you’re responsible for in terms of costs.

How do you secure a mortgage for an investment property?

Whether you want to buy a cottage up north to rent out or you’re thinking of buying a condo downtown Barrie to rent out on weekends, Airbnb may be your answer to make a little cash and potentially pay off your property and more with the income you earn. The first step to buying a property to rent as an Airbnb is to secure the mortgage you need to buy one. If you would like to learn more about investment properties and what options are available to you in terms of securing the mortgage you need, work with me, Darren Robinson, today!

With my experience as a mortgage broker and a financial advisor, I can guide you in the right direction. Let’s go through all your options and make the most informed decisions together so that you know your dream of owning an investment property will be a profitable reality. To get started, give me a call at 705-315-0516.

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