The key to every real estate investment business’s success is locating the ideal property in an ideal location. Similarly, investing in an Airbnb rental home is a good idea. Regardless of how good a property manager and Airbnb host you are, you cannot succeed and earn a lot of money unless you first purchase a successful home. To assist both novice and experienced investors in this endeavor, we’ve compiled a list of the most critical measures to take to select the greatest Airbnb property.
1. Establish Your Budget
In terms of property valuation, the greatest investment property is one that you can afford comfortably without risking a mortgage payment failure and subsequent foreclosure. To accomplish this aim, proper budgeting is required. Consider all of your regular sources of income, as well as continuous costs and savings. Establish a maximum price that you can afford within your financial constraints and adhere to it. Avoid being lured by immaculate-looking residences that are out of your price range throughout the property search process.
Bear in mind that the home’s purchase price is not the only expense you will incur. Several extras and sometimes hidden costs are connected with purchasing an investment property, including closing costs, appraisal, inspection, property tax, and insurance. They may add up to several thousand dollars when combined.
2. Decide on a prominent location
The occupancy rate is a critical factor in determining your return on investment with Airbnb properties. Naturally, the more visitors you have and the fewer days your house is unoccupied every month, the more money you will earn. This implies that you should seek a city with a high volume of visitors, tourists, or business travelers. Begin with renowned tourism destinations, but keep in mind that smaller towns may also be excellent markets for Airbnb investments. Bear in mind that California, Florida, Nevada, Texas, and New York are the most visited states.
To locate an appropriate location for your rental property, you should look at both the city and neighborhood occupancy rates to ensure that your future investment property will have the greatest potential rental demand. Keep the real estate slogan of location, location, location in mind.
3. Review the Airbnb Policies and Regulations
Following the explosive rise of the short-term rental sector over the past decade, local governments around the United States and abroad have begun implementing stringent rules and, in some cases, bans on the operation of Airbnb rentals, particularly non-owner-occupied ones. As a real estate investor, the last thing you want is to breach the law and suffer legal and financial consequences. As a result, before finalizing your vacation rental market selection, you should examine the local Airbnb laws and regulations regulating short-term rentals. Consult the websites of local governments, the Chamber of Commerce, local media, and other internet sources. Ascertain that you understand the criteria for running an Airbnb company in a particular market and the associated taxes and fees.
4. Select the Most Appropriate Type of Property
The characteristics of your market will influence the sort of property in which to invest. For instance, if you want to live in the city center of a bustling metropolis teeming with business visitors, it makes the most sense to purchase a tiny apartment or condo, assuming that the homeowners association permits short-term rentals. On the other hand, if you want to purchase an Airbnb property near the beach or in the mountains to host families or friends on vacation, a single-family house is a better alternative.
The kind of property determines how appealing it is to visitors, which affects the occupancy rent and revenue. Additionally, the sort of rental property you purchase will determine the amount you spend, which will affect your return on investment.
5. Conduct a Property Search
Once you’ve determined your budget for your Airbnb rental, begin looking for genuine houses for sale. Exhaust all feasible sources, including internet listing websites, local newspaper real estate sections, and relatives and acquaintances. Don’t limit your search to MLS homes; aggressively seek foreclosures, bank-owned, and off-market houses, since they may considerably increase your return on investment owing to their cheap purchase price.
Keep your budget in mind during the property hunt. Avoid falling for an unaffordable house. After all, you’re purchasing an investment property with the intent of profiting from it, so your selection should be sensible and founded on facts. You are not purchasing a house to live in.
6. Collaborate with an Agent
Engaging the services of a real estate agent may assist you in locating an appropriate home for your Airbnb rental company. Agents and brokers are industry experts that have access to the greatest bargains available. Additionally, they possess the required bargaining abilities to get a far higher deal than you could obtain independently. Additionally, the seller – not the buyer – is responsible for agency fees, so you won’t need to worry about adding to your budget. To get the greatest results, work with an agent with expertise in renting out Airbnb properties. In this manner, they can advise you on the finest areas, the most suitable property types, and the local legal and regulatory environment.
7. Conduct Extensive Analysis
Once you’ve narrowed your search to a few houses that meet your budget and other search criteria, do a thorough investigation. Begin by doing a comparative market analysis, or CMA. This entails locating a few houses identical to the ones you’re interested in that are nearby and were sold within the last couple of months. Examine their pricing and make a comparison to the houses you’re considering. This will assist you in determining the fair market value of your Airbnb rental and ensure that you do not pay an excessive amount for it. Consider using a tool like AirDNA to conduct your research.
8. Physically Examine the Property
The investment property analysis process begins by predicting the monthly rental revenue you may anticipate from your short-term rental property based on the market’s average occupancy rate and the prevalent daily rate. Make a list of the up-front and continuing expenditures associated with purchasing and operating a rental property. Think about what interior designs you can implement. This is the only method to ensure that your home generates a profit. Never accept a property with a negative cash flow or one that barely breaks even in the expectation of greater success in the future. Invest only in properties with a good cash flow. Additionally, you should compute the projected return on investment using the cap rate and cash on cash return formulas. While real estate professionals disagree on what makes good cash on cash return, a decent cap rate is more than 8%.
Once you have done proper research and determined what property you want to get. You should prepare to get it ready by creating an account for Airbnb and Vrbo. One of the best ways to ensure you are successful is to list on multiples sites like Airbnb and Vrbo. A vacation rental channel manager will do this for you seamlessly making sure that you do not get any double bookings.