Best type of investment property AirBnB or Rental?

Question

About to deep my toe into the market, however I would like to seek a little wisdom from persons whose recently invested in the Orlando area in regards to short term vs long term rental.

Tyler Gibson · Answer

@Larry John I am an investor and realtor here in Orlando. Send me a message to connect and I would be happy to provide you any insight I might have. I know that there are some strict restrictions for STR in the city of Orlando. So what is best may depend on the neighborhood you find a deal in. Lets connect for more information.

Andrew Gingerich · Answer

@Larry John, can't speak to Orlando but in general the AirBnB is going to have more work in terms of customer service, cleaning and turning over compared to a long-term lease. Further, the expenses to furnish, clean, utilities etc., is more with the AirBnB approach. Whereas, in a long-term lease you can pass these expenses off on the tenants.

Having said that, in some places, provided you can keep your occupancy up AirBnB has the potential to have more revenue.

My advice is to build a spreadsheet where you list your estimated expenses for both in separate columns and follow that by listing your estimated revenue for each. Look at which one has a better net cash flow.

To get an estimate of AirBnB revenue look at houses that are listed in the area on AirBnB, check their nightly rates, and the calendars to estimate occupancy. Make sure your comps have similar amenities to what you will own (similar space, rooms, beds, etc).

If your AirBnB isn't expected to blow your long term lease out of the water.... my advice is to do the long-term lease, simply because it's less work and less upfront costs (no furnishing costs).

We have both. Our long term rentals are in less touristy areas and our AirBnB is in the heart of ski-country/downtown services. Both have their pros and cons so evaluate carefully!

Good luck and best,

Andrew

Sean McDonnell · Answer

@Andrew Gingerich nailed it.

One thing I would add is to try and get in touch with some successful airbnb hosts in your market.  Ask them if they can share their rough numbers. Looking at their calendars is a good start but it is hard to guess how much they are paying for utilities and cleaners. Some people probably will not want to share that but I am sure you can find some who will. Good luck!

Andrew Gingerich · Answer

@Chase Hoover Awesome. I'd be tempted to say your numbers, in this case, blow the long-term rental out of the water. But, this is the case provided your increases in expenses don't offset your gain in revenue. To be clear, this is what I mean. In our long-term rentals I pay zero utilities. In our AirBnB we pay, water, sewer, power, garbage, Netflix, 6500 in startup capex for furniture, decorating, towels, monthly expense in cleaning fees, monthly expenses in soap, coffee, toilet paper etc. Annual operating expenses for replacement towels, bed sheets, pillow cases, broken furniture, smart lock/home services, cleaning services, cameras/security. We don't have permit fees but some areas do have permit costs for shorterm rentals. I am forgetting other expenses too. Bottom line our AirBnB is at least an extra 500 a month in monthly expenses when you do the math compared to our long-term leases. To me I need to cashflow at least 500 bucks a month more than the long-term lease to justify the extra work. That means I have to have 1000 bucks more in revenue to cover the increased expenses and justify the additional effort. Just my preference some people might want more or less than 500 in increased cashflow.

I think the mistake is made when some folks say their long term lease is doing 1000/mnth and their AirBnb is doing 1500 so they think they are doing much better. In reality they are doing about the same since the vacation rental has so much more costs associated.

Further, I didn't mention before but having an AirBnB, depending on how it is ran, is considered more of a business rather than a passive expense and so the tax situation/considerations can change. With a long term lease it is truly considered a passive investment to the IRS so the taxes are much easier in IMO. But you should consult a tax professional on these differences.

I really like the AirBnB because of the potential upside but people should go in and evaluate honestly since it's not an apples to apples comparison.

Best to all.

Chase Hoover · Answer

@Larry John I am in West Palm Beach where I own and manage Airbnbs.  Our properties are generating up to 2x more revenue than the going annual rental rates.  It involves a bit more work, but as long as you have processes in place it is well worth it.  Feel free to send me a message and I'll be happy to share some numbers with you.

Larry John · Answer

@Andrew Gingerich

Excellent advice Andrew and thank you.

Best type of investment property AirBnB or Rental?

Most Popular Reply