For the past 14 years, since Airbnb’s creation in 2008, owners of vacation rental properties have been faced with an important decision: Airbnb vs Renting. Even as a dynamic pricing company for vacation rentals, we still get asked questions about whether renting is more profitable, easier, and more dependable than the Airbnb option.
In all honesty, it all depends on how much time you’re able to allocate to managing your vacation rental property. If you work full-time at a regular 9 to 5 job, you likely won’t find the time to manage constant guest turnover with an Airbnb rather than just managing one guest moving in and staying several months, as is the case with long-term rentals.
In this post, we will examine which is better – Airbnb vs Renting on a longer-term basis – in three categories: ROI (return on investment), Operating Cost, and Management Time.
More About Airbnb
Airbnb was founded in 2008 by two friends looking to make some money out of their spare room. Since then, it has grown into one of the biggest tourism industry businesses in the world. The company currently boasts 4 million hosts and over 6 million property listings. Airbnb properties are available to rent for anything from one night to months at a time, it just depends on the owner’s discretion. It was started as a short-term rental platform and that still represents the vast majority of its function today.
More About Renting
When we refer to ‘renting’, we’re talking about properties that are leased on an annual basis. If you’re moving to a new city, it isn’t wise to look for a new home on Airbnb. These properties are priced per day. When you’re looking to rent a property on an annual basis, it’s priced per month, which usually means the daily cost is lower. Renting on a longer-term basis means fewer guests, less admin, and more dependable income, but that income could potentially be much lower than the same period could generate on vacation rental sites like Airbnb.
Airbnb vs Renting: Return on Investment
Let’s start with the basics, what is ROI (Return on Investment)? According to Forbes.com, Return on Investment is “a simple ratio that divides the net profit (or loss) from an investment by its cost. Because it is expressed as a percentage, you can compare the effectiveness or profitability of different investment choices.”
What this essentially means is ROI is a way to determine whether or not the money you have invested in something has generated any return and if it has, what percentage of return it has generated in relation to that initial investment.
Forbes goes on to say that “Just keep in mind that ROI is only as good as the numbers you feed into your calculation, and ROI cannot eliminate risk or uncertainty. When you use ROI to decide on future investments, you still need to factor in the risk that your projections of net profits can be too optimistic or even too pessimistic. And, as with all investments, historical performance is no guarantee of future success.”
Before you can calculate the ROI, you first need to consider the initial investment costs. Of course, this depends on the size of the property, its location, the amenities it has, and the way you purchased it – cash vs mortgage.
Investopedia advises that you calculate ROI with this simple calculation:
Return on Investment Continued…
Without actual figures, you won’t be able to calculate ROI accurately. So if you’re just starting, then approximations may have to do for now. Work out what you would charge for monthly rent over a 12-month lease. Then head to Markets by DPGO to calculate the average daily rate, occupancy rate, and day-of-the-week price factor. These insights will help you create a profile for what your income could look like from an Airbnb property perspective.
We would love to be able to tell you which would earn you more money – Airbnb vs Renting – but there are too many variables, and therefore each case is completely unique.
TOP TIP: Remember that the vast majority of Airbnb properties see reasonably stark seasonal changes. Your income over peak season is going to be considerably higher than that of off-peak season.
Airbnb vs Renting: Operating Cost
In the rental game, you’re always going to have operating costs, whether you opt for short-term rentals or long-term rentals. It’s also exceedingly hard to break down. Investopedia defines operating costs as being “associated with the maintenance and administration of a business on a day-to-day basis. Operating costs include direct costs of goods sold (COGS) and other operating expenses—often called selling, general, and administrative (SG&A)—which include rent, payroll, and other overhead costs, as well as raw materials and maintenance expenses.”
Airbnb Operating Costs
- Property taxes
- Consumable Amenities like tea, coffee, salt, and pepper
- Cleaning services or materials
- Property management software
- Dynamic pricing software
Long-Term Rental Operating Costs
- Property taxes
- Professional services like property lawyers on retainers
Airbnb vs Renting: Management Time
This is probably the biggest difference between short and long-term rentals. For vacation rental hosts, managing their properties can be a full-time job, depending on the length of your guests’ bookings. If your calendar is populated by shorter bookings, most of your day will be filled with laundry and cleaning.
However, if you hire a cleaning crew and a maintenance team, your list of daily tasks would be considerably shorter.
For longer-term rentals, you really wouldn’t have much to worry about on a daily basis. Long-term tenants don’t like to be bothered, especially if they’ve signed an annual lease. Rather, make sure that they have your updated contact information and encourage them to contact you if they have any issues. It’s better to leave the ball in their court and allow them to contact you when there is an issue.
Okay, so after all of the discussion, which do we think is better – Airbnb vs renting? In our eyes, it depends on the type of host/landlord that you want to be. Airbnb rentals are hugely profitable in summer, but they take a dip in winter. Long-term rentals represent a more consistent form of income, but they never reach the price highs of vacation rentals. This is because the rent is fixed and charged on a monthly basis.
The best configuration of rental formats would be short-term for the three main months of summer, and long-term rentals for the other nine months. Sadly, very few long-term tenants would be willing to move out for three months in order for you to make more money. Plus, there is no guarantee you would succeed in filling that three-month period with enough bookings to equal your normal tenant’s monthly rent. This depends on the location of your rental, the nature of your pricing, your property’s amenities, and the overall health of the tourism market at that time.