App-based businesses are taking the world by storm. Apps like Uber have revolutionized the way we travel across big cities by using GPS-based car requests on smartphones. Overnight, individuals with vehicles could apply to be Uber drivers, and just like that, these drivers had a tremendous money-making opportunity in the palms of their hands. Uber was just the beginning.
Now, self-driven app-based entrepreneurship has made its way to the real estate market in the form of Airbnb rentals. Airbnb, like Uber, is an app-based service that allows users to rent out spare bedrooms, couches, and properties built to take advantage of the new service.
Airbnb is flexible and able to conform to whatever rental operation an individual wants to provide for their tenants. With the rise in popularity of the app, there is also an air of curiosity. The general question is whether it makes sense to convert a traditional rental property into one that caters to Airbnb users.
Who uses Airbnb rentals and why?
Airbnb has quickly become the go-to alternative to traditional boarding and can even be much more affordable and especially more accommodating than your run-of-the-mill hotel or motel. The people most likely to use Airbnb services are vacationers, travelers, and people on business trips. Ultimately, people look for short-term accommodations and something different from their standard hotel stay.
The Airbnb experiences your tenants have are entirely up to you. If you have a pool, WiFi, video games, cable, etc., it is your discretion to allow your tenants to enjoy these amenities. You can even provide a home-cooked meal or brunch. The services you have to offer will separate you from others in your area who are offering similar services.
Location, location, location!
The success of your rental properties, especially Airbnb property, depends on location. It does not matter what kind of services and amenities you can provide; nobody will frequent your property if you are in an undesirable area. That is where the conversion of traditional rentals to Airbnb comes into play.
If your rental property exists in a rural area with no state parks, attractions, etc., and you have steady long-term tenants, there is no use in kicking them out and converting your property into an Airbnb. That is because you will not get any tenants to stay; if you do, they will be few and far between.
However, if your property sits in an accessible section of a large city, near a national park, or another attraction, like a famous beach, then converting your property to an Airbnb unit starts to make more sense. That is because these locations have the attractions vacationers or travelers seek.
Converting properties into Airbnb rentals
Fortunately, the “conversion” of your property will be more about logistics than a complete overhaul. What is going to have to change is how you manage your properties. What are going to change are your rental rates, maintenance, and recruitment.
Regarding rental rates, you are now considering pricing no longer based on long-term stays but short-term. If your property is in the city, you need to consider keeping your pricing competitive because you want your potential tenants to choose you over a hotel but expect accommodations that are superior to those of a motel.
A quick check of local hotel and motel prices should provide you with an acceptable median price, and then you can adjust that price accordingly, considering the accommodations you will provide your tenants. That includes cable, high-speed internet, food, drinks, and hospitality services.
Speaking of hospitality services, before, when long-term tenants inhabited your property, you did not have to worry about cleaning up after them regularly. Now that the stays are much shorter, the maintenance falls on your shoulders. You have to clean up after Monday’s visit to prepare for Tuesday. That means there must be fresh sheets and a clean room every day awaiting all of your tenants staying the night.
Unfortunately, that list of duties extends in length the more amenities you offer in Airbnb rentals. If you have not guessed, maintaining your property will be more hands-on, meaning you may need some help managing it all.
Does it make sense converting?
The case for you to convert your traditional rental into an Airbnb property varies and depends on different variables. Your return on investment greatly depends on what your property has to offer and how you manage your properties.
Say you have a beach property that you have been leasing out for a year at a time. The rent you charge is $1,000 a month. Now, say you convert your property into an Airbnb and charge $180 a night. On average, your property is occupied four nights a week. That means you are, on average, making $720 weekly and $2,880 monthly.
Congratulations—you have nearly tripled your revenue! But wait before getting too excited! Since you are dealing with short-term stays, the utilities also fall on you. Water, electricity, internet, and cable now factor into your expenses if you provide those amenities.
After you have factored in those costs and you still come out ahead and have the means to take on a more hands-on real-estate experience, then by all means, start your conversion.
Give this some serious thought
Where you might end up with a bad tenant here and there with a long-term rental, the chances of having a bad resident with Airbnb rentals is much higher due to the number of residents you’ll be dealing with and the inability to perform the same level of pre-screening.
A quick search on YouTube for “Airbnb nightmare” brings up over 10,000 results with a wide range of issues. Here is one such video.
There is even airbnbhell.com website where you can read other horror stories.
While these nightmare stories certainly underscore some of the challenges with the short-term rental market, the considerations in terms of the operations required for success cannot be ignored. The truth is, the short-term rental market is an entirely different beast and does not mix well with existing long-term rental operations.
The bottom line
The conversion to Airbnb is more challenging than just installing the app on your iPhone. In addition to the fact that short-term rentals are an entirely different business model, the operation can be entirely different from a traditional rental. It primarily means more costs for you to swallow and a higher investment of your time.
When considering Airbnb rentals, you might want to think twice if everything on the other end of the pond is looking to be peaches and roses. Because that’s far from the truth.