Airbnb vs Long-Term Rental: What’s a Better Investment?

Since its founding in 2008, Airbnb has risen to the top for its convenience, reliability, and affordability.

In a study by Price Economics, more and more landlords realize the earning potential of this rental platform, favoring short-term renting over the long-term alternatives. But is Airbnb actually worth the effort, and does it beat long-term renting?

What is Airbnb?

Airbnb is an online service that lets users rent homes, with prices comparable to (or more competitive than) hotels. It is also a convenient way for hosts to make extra cash.

After the financial crisis in 2008, many Americans wanted to earn extra money with a side job, according to Price Economics.

This led to what is now known as the “gig economy,” referring to the growing number of online platforms that employ temporary workers. The platforms were diverse, ranging from e-commerce to ride-sharing, to short-term renting.

According to the Pew Research Center, a quarter of Americans earned money through these platforms in 2016. Statistics from i-Property Management show that over 50% of Airbnb users preferred Airbnb to traditional hotels.

What does renting mean?

When someone “rents” something, it means they have temporary access to that item. The same goes for an apartment, room, or other living space. Traditional renting usually encompasses a landlord owning the space, and a renter paying the landlord to occupy the residence for a limited time after signing a long-term lease.

Renting has been utilized for hundreds of years, and is a method of income for many landlords. There have been many debates over whether renting or buying a home is better, and while there are benefits to both, renting may be more financially plausible for a greater number of people.

Many millennials are renting instead of buying a home because of the lack of affordable housing, the increase in national student loan debt, and this generation’s decision to delay other life milestones (like marriage).

For this generation, renting is a suitable alternative to the long-term commitment of homeownership. It is not hard to understand why the potential benefits of renting drive people to sign a traditional lease agreement over a deed or mortgage.

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What are the pros and cons of Airbnb?

Though hosting an Airbnb may seem like the perfect side job, there are some pros and cons to consider before renting out your home.

The Good

• Hosts choose the price for their rental, creating a competitive atmosphere.
• There is more potential for income than with traditional rentals due to the high volume of renters.
• Insurance is given through the company, providing a higher-limit supplement to your basic home insurance policy, and allowing owners to pay less for insurance while protecting their rental property.
• Hosts have access to a worldwide pool of renters, not just customers that are in their local area, as people may be booking for a vacation rental.

The Bad

• There is no guaranteed income from bookings or monthly rentals. As well, your customers may be long-term renters or short-term renters.
• A high volume of renters can cause wear and tear on the home.
• Hosts are reviewed after each stay, which means renters need the best experience possible.
• Maintenance takes up a lot of time because of the frequent renter turnover rate.

What are the pros and cons of renting out your home?

As with all things, there are also pros and cons of renting a home to a long-term tenant.

The Good

• There is a consistent income every month. Renters have to sign a lease for at least six months.
• Landlords get more free time because renters don’t need constant hospitality.
• Landlords can require rental insurance which helps with damage costs and provides a supplement to their own property insurance.
• The owners can choose their tenants through an interview process.

The Bad

• Maintenance can be costly — most landlords do it themselves or contract out the work.
• Landlords have 24-hour responsibilities. If a renter has an emergency, they have to answer.
• Their rental prices are fixed and based on the market.
• The owners deal with the same tenants for long periods of time.

How much money can you make?

The potential for how much money you can make through Airbnb depends on the location, the local housing market, and the property itself.

For example, a five-bedroom townhouse in New York City costs a nightly rate of $695 while a five-bedroom condo in downtown Salt Lake City costs $65 a night.

And even those prices are not set in stone; they can fluctuate with the market, competitor rentals, or during a holiday or event.

It’s important to understand what is convenient for travelers, such as proximity to shops and nightlife. Many people who rent through Airbnb are on vacation and don’t want to spend most of their time commuting. It’s also essential for owners to compare prices around the area for hotels and other rentals. Since hosts are in control of the pricing, there is room to be competitive.

Both Airbnb and long-term rentals have many pros and cons. Gauging which is the right investment will come down to evaluating the individual needs of the landlord or host. There are many factors to consider, but one thing is for sure: there is no shortage of renters.