An Airbnb can be a great investment opportunity, but so can more stable long term investments. The first step is deciding what’s right for you.
If you determine that Airbnb is the way to go, the path forward isn't always simple. You'll likely deal with competitors, opposition from community organizations that have an interest in exclusivity, long-term tenancy, and other factors. There are many positives, though. You’ll have support from companies like Airbnb, VRBO, and HomeAway to facilitate the brokerage of short term rentals (STRs) if you’re willing to learn their systems.
Our goal is to offer multiple sides of this complex question. When you're checking links, remember that some sources may have an economic interest in persuading you to pursue either traditional real estate investing or vacation rentals. Here’s a quick rule of thumb to use as you go:
Overall, condo associations tend to reduce liability by prohibiting Airbnb investments, but there are some big exceptions.
The mile-high city is a little bit like the wild west of STRs. It's basically illegal to do short term rentals in Colorado cities like Denver unless it's your primary residence. Further, most developments in the city write one-month rental minimums into their bylaws to discourage short term rentals. However, if you check Airbnb for rentals in Denver, you'll find plenty. Some residents might think the income is worth the risk of getting caught.
The city that contains what's arguably Ohio's hottest real estate market isn’t too friendly to Airbnb investments. Only a handful of condo properties in downtown Cleveland officially allow less than six-month rental periods.
Most high-end, exclusive Loop buildings have strict rental guidelines. If you're interested in investing in a STR in the Windy City, you may want to look at Trump Tower downtown.
Las Vegas is the perfect condo market for Airbnb buyers. Because tourism is such a big part of the city’s economy, there are plenty of buildings that will allow nightly rentals. Buildings like these are commonly referred to as "condotels". The MGM Grand Signature Residences, Turnberry Place, Vdara, and Palms Place are just a few of the buildings where you can own a condo for your personal use and rent it out nightly when you're away. The only issue with these buildings is that, because they do operate as hotels, it can be tough to secure financing. You may have to use cash or a hard money loan to purchase one.
You may want to think twice about investing in an STR condo in KC if you're worried about association action. Most HOAs don’t view short term rentals favorably here. On the other hand, laws allowing the registration of STRs may indicate a change in the tide of opinion.
Similar to Kansas City, St. Louis is considering the registration of short term rentals. Still, most buildings currently only allow long-term rentals in their bylaws. Failing to follow the rules could put owners in conflict with their association.
Some Austin downtown condo properties do allow Airbnb investments. However, there's often significant competition by investors over Airbnb-friendly units when they come up for sale. The rest of the buildings forbid it but, when big festivals like SXSW and ACL are in full swing, some owners have a hard time resisting the big payday their condo can bring. However, many HOAs monitor Airbnb for listings in their buildings, and if you're caught the penalties can be steep.
Most Houston condos have boilerplate agreements that restrict STRs as do associations across the state and the country. A notable exception is Herrin Lofts near the downtown and EaDo neighborhoods, which carries extra insurance and documents Airbnb stays.
Dallas is very restrictive when it comes to Airbnb regulations. However, you can see that there are definitely homes available when you check the city's listings on short-term rental sites.
You could potentially stay within regulations if you aim for longer-term vacation rental condos in the Portland market. Here are some buildings that have seven-day rental minimums:
Nashville is showing some progressive development when it comes to STRs. The hot, upcoming Contralto Condos tower allows owners to apply for a special type of Airbnb investment permit, making it one of the safer places to do STRs in the city.
You've heard the success stories, but Airbnb wealth doesn't just happen. You have to do your homework first, researching everything from a property’s prospective performance to the local regulatory atmosphere both now and in the future.
The work doesn't stop there. At their core, these STRs are hospitality businesses. You'll probably have to do some of the guest-facing work yourself and that's a pretty big step, even if you have an extensive property management background.
The other option is to hand the hospitality element off to someone competent and reliable enough to interact with guests, deal with bookings, and handle issues. Unlike traditional rental property management companies, this is a bit of a niche market.
There's good news, too. The people who do STRs right often see huge returns. The social review systems that are built into online rental giants like Airbnb tend to create positive feedback loops. If you make a couple of guests happy, you get good reviews. Those reviews get other guests interested, bumping you up in the rankings. Eventually, you may even land on the front page for your city. If you can manage to stay focused on creating the best possible experience for your guests, you could start to see some stellar ROI.
Keep in mind that no licensed agents should ever recommend that you buy a property for a use that runs counter to laws, regulations, or HOA bylaws. For agents, advising a client to buy condo units for Airbnb investments in an anti-STR environment could lead to charges of fraud or deceptive business practices. You as a client could also get fined or sued in some cities, which can quickly reflect poorly on the agency.
Most agents would advise you to go for a fee-simple property instead of a condo, and that advice is worth considering in many cases. It often solves the basic problem you're likely to face with luxury high-rises: Everyone has to agree on how to use the property. You may still run into issues with local ordinances in a fee-simple townhome, but the restrictions are unlikely to be as strict as in a private condo. Uses like these are written into the HOA bylaws, and some of your ownership rights could depend on following all the rules.
Finally, don’t assume that you're buying into boilerplate condo rules. Before you put pen to paper, it is important that you and your agent examine all of the owner's materials from the HOA. It also can’t hurt to get a feeling for the building by speaking to some of the other owners or board members.
Developers understand that people want units in hot downtown areas that they can rent out to short-term renters. In fact, as you may have noticed above, some cities have exciting new projects coming up that are designed to boost STRs. However, with the higher insurance overhead and niche market premiums, your ROI for official Airbnb investment units could end up being close to a standard investment property.
What's your motivation for wanting to get into the Airbnb rental business? If you're looking for fast cash, you are probably going to be disappointed by the complexities of the process such as learning the Airbnb system and keeping up with constantly evolving rules.
If you buy into a building without a rental cap, you can pivot to traditional leasing if it turns out that you don't really want to deal with the business element of the digital STR game.
There is one way that Airbnb can work out really well from an investment perspective, and that's covering the holding costs for your real estate portfolio. If that piques your interest, you probably fall into one of a few categories:
Short-term rentals with relatively high per-diem rates can add up quickly. Even weekly or monthly rentals have slightly higher prices and slightly lower overhead. This revenue stream could offset any mortgage costs you may have, along with assessments and taxes for a condo investment. If you'll be away from your property during the times that people like to visit, even better. For high-risk investors, the freedom to liquidate at any time is also a major benefit.
When you've decided that Airbnb investment is a good fit for you, approach the process systematically. Here's a checklist of things you can do to prepare for success.
1. Learn the booking system. Just like any other investment, you'll be able to perform a lot better if you know the system. How do you make your property available? How do you handle guest cancellation requests? What type of profile photos do users find most professional? How does the booking company handle regulations in the area where you're purchasing? When do you get paid for a reservation?
2. Check the potential performance of your property. You wouldn't skip the comparative value assessment when you're buying a property, so don't ignore research for your rental enterprise either. Go beyond monthly rents in your target area and use an analysis tool for short-term rentals — there are plenty available online. Most will give you a small amount of information up front and a full report once you subscribe to their services. It's usually worth getting detailed analytics to inform a major purchase. Pay a special level of attention to occupancy rates, hot times of year, and, of course, the average daily rate for comparable units.
3. Gather advisors. There are a lot of rules that could affect the profitability of your Airbnb investment condo. Get some reliable professionals to weigh in on the legal issues, the insurance requirements, and the property that you're considering overall. If you can find real estate attorneys who are willing to keep you updated on relevant changes in the law, even better. Your agent might even be able to provide you with a referral.
4. Visit your prospective unit as a guest. Most of your guests will probably be coming from out of town. Some guests might want to use public transportation to get to your unit. Use a combination of in-person visits and transit mapping to get a holistic idea of the start-to-finish guest experience of your property. Sometimes ease of access is just as important as how you decorate or communicate with your guests.
5. Craft your listing. Once you've signed on your new property, it's time to create a listing that will give your unit a real advantage in the marketplace. One of the best ways to do this is with quality photos. If you don't know a professional photographer in your city, your real estate agent may be a great resource for a referral. Realtors often work with specialized property photographers who will be able to depict your unit in a favorable light for a reasonable cost.
Browse our condo listing directory for high rises in cities across the U.S. Once you have identified your target market, reach out to an agent to get started.