By Michelle Lim on Jun 2, 2019 1:18:14 AM
You're probably wondering why you should invest in a vacation home or buy an apartment for AirBNB. A vacation rental home as a real estate investment has huge potential for positive cashflow, hence why many people turn to hosting at AirBNB these days.
It might sound scary, diving into real estate investment, but it's actually getting really popular. This doesn't mean that you should just dive in recklessly though 😅
So let's talk about why you should.
Why should I invest in an apartment for AirBNB?
1. Be a Multi-purpose Property Owner
Getting a home for hosting purposes has its benefits! You can vacation with your loved ones at the place and rent it to other people for the rest of the year. Sounds great, isn't it?
If you buy real estate just for renting, it just doesn't work as well. You might as well get a second home where you can have a vacation AND rent out.
2. Money, money, money
One of the, if not the biggest reason why people invest in real estate - income! How? Through rental income :) Rent out the place when you aren't using it~ As it's a vacation home, it's way more appealing.
When you use it for short-term rental, you make money from bookings. The money from that helps you pay the mortgage and expenses like property tax, repairs and maintenance.
3. Accumulate value with appreciation
A vacation home is still real estate property, and real estate usually increases in value over time. There's no time limit on this, so you can sell it whenever you want :)
So now you've got the interest. But where to start?
Where to start?
1. Check and research the obstacles.
Setting up an investment isn't that easy or simple. There's a lot more to buying a place, listing it on Airbnb and welcoming guests. Every city's obstacles are different due to things like culture and regulations.
Some things you should check on are:
- How long can I rent out the property?
- Is there a fixed amount of time for the tenancy?
- Will it be taxed? If so, for how long?
- What's the average rental income and occupancy rates? How is the competition like?
You should also see if there's a homeowners' association. If there is, there might be rules and regulations that you have to abide by. If you can sublet the property or not, if there's going to be an impact on your taxes and stuff - the list goes on. Better to check than never :)
2. Make a list and see if there's additional expenses.
Grab a notebook and pen. Start writing down a list of expenses - water, electricity, plumbing and everything you can think of that you need to budget for. If you have other things like loan installments to pay, mortgages and others, add those too.
You also need to factor in costs like:
- Cleaning services
Ask if you can afford to maintain it over a period of time and consider if you can't rent it out ASAP. Some homeowners don't realize how huge the responsibility is and miss out on considering these factors, which can lead to loss of income or overspending on repairs for example. Theft and the just-in-case risk of your tenant getting injured.
Another thing to consider is if the home's value declines and you might have to decrease your asking price.... whew.
Oh, also, AirBNB also takes a 3% service fee from hosts per reservation (RIP 3%).
3. Remember, it's not just a rental
You're investing in a home that's gonna be used for vacations and renting out to others.
The beauty of AirBNB is providing unique experiences to travellers. Some travellers prefer being in the heart of the city. Others might prefer the countryside, the beach, islands - the list goes on. You can also make your place have its own charm - quirky vintage and retro-inspired decos for example.
Make sure you also provide the essentials - towels, shampoo, laundry detergent and so on. Make a check-list if you need one. If you have anything that can enhance the experience like highlights or small signs saying "Enjoy sunsets here", those help too.
4. Don't forget the legal stuff!
Once you have the place, don't forget to sort out all the legal stuff and check out the laws and regulations. Make sure that you know the regulations for short-term rental well too :)
Research well and make a checklist or two. Ample preparations will lessen a lot of the potential risks later on :)
If you're not sure about investing in real estate yet or being a landlord, check out our ultimate landlord guide here.