Many people are looking for new ways to create passive income. One of the best ways is through vacation rentals through a popular service called Airbnb. Whether you use AirBnB or do something similar to it, there are a few aspects to keep in mind in order for your business to be successful. This article will discuss those aspects, so you can have the best chance of success.
What is the Airbnb Business Model?
Before you can succeed, you need to understand how the business model works. Airbnb allows everyday people to invest in properties that they turn into rentals. These rentals could be as simple as an extra apartment, a guest house, or a separate living space entirely. Those individuals then rent the living space out to vacationers for a set value of money each night.
Some Airbnb hosts go above and beyond for their clients. They may offer to cook meals for them, provide them with fine wine, shuttle them around the area, or just leave them alone in peace if their guests wish it. How you choose to operate your own business is entirely up to you. Just keep in mind that the added service could warrant an increase in their nightly stay cost.
Many people choose to rent small cabins, homes, guest homes, and even apartments for their vacations because it gives them some autonomy. At a hotel, they’re always reliant upon the hotel staff for doing things for them. They’re also typically crammed into a smaller space with a lot of people around them.
Vacation rentals give them room and privacy. They’re able to feel like they’re at a resort without paying for the resort prices. For some vacationers, they may feel more like the locals, which is the kind of experience that they’re going for.
This business model is a great method for being in passive income because it allows the hosts to pay for the cost of the house out of the money that the business makes. It also gives them enough of a profit to use themselves.
Hospitality can be a booming business if you know what aspects to look out for in order to boost your return on investment. Here are a few of those aspects.
1. Know City and State Regulations for Your Business Model
Depending on what state and city you live in, you may have regulations that govern how big the vacation rental has to be. There may also be other regulations that dictate whether or not you can rent a space out if it rests on the property of your primary residence.
If you intend to build a vacation rental, then you also need to make sure that the construction follows all of the regulations of the city and state. Even your local township may have rules about its construction.
Taxes, especially, are important to understand. Real estate income taxes can be difficult to understand. You’ll want to make sure that your city and state doesn’t demand a ridiculous cut of your profits through taxes alone.
2. Calculate ROI
As with any business, you’re going to invest a great deal in it. This might mean renovating certain parts of the rental to make it brand new. Most vacationers will want to stay in a home that looks clean and new. This is especially true if you’re going to charge a high price for their nightly stay.
Some additional investments that you may consider are putting in a hot tub, a small pool, or a game room. These added amenities can bring in a lot of traffic to your rental. However, if the cost of putting them in takes a heavy toll on your returns, you may not be able to make enough money for those investments to pay off in any great way.
You’ll also need to consider costs like electricity, water, sewer, property taxes, and other costs that you’ll have to pay for. While the business should pay those off itself, if you’re not making a return in the 5-10% range, then your investment isn’t exactly worth it.
3. Property Taxes
When choosing a place to either buy or build a vacation rental, you’ll also need to consider property taxes. These can be hefty prices that will drive up the monthly cost of owning the rental. If you’re not seeing a lot of traffic in the rental throughout the year, you might have to pay those taxes and monthly costs out of your own pocket.
It’s a good idea to try and find a place that has low property taxes. However, if you can find a sweet spot in an area that has a lot of tourists, then you might be able to take on higher property taxes as long as you have a steady flow of vacationers using your rental.
The gamble is ultimately up to you.
4. Location, Location, Location
Perhaps the most important decision you’re going to make is where to place your rental. You’ll want to choose an area that has a heavy tourist flow like Old Town Scottsdale in Arizona. This area should see tourists, but it should have a heavy business flow.
Businesses should hold regular meetings at a conference center nearby. This allows you to attract not only vacationers but also business executives who have to travel to the area for their meetings. In this way, you can diversify your renters and ensure you have a steady income throughout the year.
Another aspect to consider is having a rental close to a conference center for comic cons. Every year, thousands and thousands of nerds travel across the country for comic conventions. Many of the hotels quickly become filled up. These travelers are eager to find a space where they can stretch out and have fun while attending the comic con. Your rental could be the perfect choice for them if it resides close to a convention center.
City and downtown areas also offer a lot of opportunities for bachelor and bachelorette parties. You could market your rental as the place to party and prepare for a wedding. You could even take it a step above their expectations and give them bridal or groom gifts as a token of appreciation for choosing your rental. They’ll likely remember the gesture and use your rental again in the future.
Sticking close to tourist hotspots, conference centers, and in areas that see a lot of seasonal traffic is a great way to ensure that your rental sees traffic throughout the year. Take the time to research an area to determine just how active its city center is before you make an investment.
5. Affordable Property Value
One final thing to consider is the property value. You don’t want to spend all of your money on just buying the rental. This won’t leave you much for renovating it to suit the needs of your guests.
However, the investment might be worth it if you can find a rental that’s close to the city center or a conference center. This is because you might be able to charge higher nightly costs. People are willing to pay more if they’re closer to the shops and activities that they’re there for in the first place.
One good way to ensure you keep seeing business is to lower your price just that of the popular hotels in the area. Those looking for a deal will choose you even if it’s only a few dollars cheaper than the hotel.
If you happen to be looking in the Scottsdale, AZ area to start in Airbnb, look up the Scottsdale realtor team The Kay-Grant Group. They specialize in this type of investment property.
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