Airbnb investment property: Tips on how to do it right

Short-term rentals like Airbnb have reshaped real estate investing. Instead of relying only on long-term tenants, investors can use vacation rentals to generate more flexible income.

But how can a new investor succeed in this growing market? 

By learning as much as possible about the process and finding the most affordable loans to finance the investment .

How does Airbnb as an investment work?

As anyone who's ever rented an Airbnb or VRBO knows, these properties earn money by hosting visitors for short stays. In some markets, a guest stays one to three nights while attending a work event, a friend's college graduation, or enjoying a weekend away.

In other places, like beaches and resort areas, guests may stay a week or two. 

Short-term renting can be simpler than operating a long-term residential property, but Airbnbs also create unique challenges, like quick turnaround times and dealing with multiple clients each month.

Short-term rentals work best when they generate more than enough income to cover the monthly mortgage payment on the rental property.

...in as little as 3 minutes – no credit impact

What is the difference between investing in an Airbnb and a conventional rental property?

With a conventional rental property, landlords usually sign year-long leases and collect stable monthly payments. This predictable occupancy can create income stability, especially when the tenant and the landlord work well together.

Earning income from Airbnb rentals, on the other hand, requires keeping the rental property occupied. Occupancy rates rely more on seasonal demand, customer reviews, and local regulations, 

In some areas, an Airbnb host can earn more than a traditional landlord; in other places, an Airbnb property may struggle to break even. 

Keeping financing costs low with the right type of loan helps increase profitability.

Pros and cons of investing in Airbnbs

Whether you can earn enough rent as an Airbnb host will depend a lot on whether your Airbnb business can achieve the right balance between these pros and cons of Airbnbs: 

Pros of investing in an Airbnb

• Potential for higher profits: For properties with strong occupancy demand and competitive rates, rents can exceed those of traditional residential properties.
• Flexibility: Owners can block off dates for their own personal use or adjust rates based on demand.
• Secured payment systems: Platforms like Airbnb handle bookings, payments, and deposits, reducing risk of nonpayment. This is a big pro for long-term rental landlords who are used to collecting rent in person.
• Dynamic pricing tools: Technology on short-term rental platforms allows hosts to optimize nightly rates to automatically adjust for demand.
• Growing demand: As travel preferences shift toward unique stays, short-term rentals remain popular.

Cons of investing in an Airbnb

• Higher operating costs: Furnishings, utilities, amenities, and frequent cleanings can add to costs.
• Labor-intensive management: Guest communication, check-ins, and reviews can become a second job. Property management firms can help, but they'll take part of the profit. 
• Regulatory hurdles: More and more cities and neighborhoods are requiring short-term rental permits that set rules on how often, and for how long, a property can be rented.
• Seasonality risk: Income may fluctuate based on local tourism cycles.
• High upfront costs: Investors must budget for furniture, renovations, and compliance fees. They also may pay higher interest rates on financing.

Working with a lender like Better can help lower costs by taking advantage of efficient online tools.

How to invest in an Airbnb property: 9 steps

The most successful Airbnb investors enter every deal with a plan for success. Here are key steps:

1. Have a clear budget

Before diving in, find out how much you can afford for the down payment, mortgage payment, furnishings, and other startup costs. 

Better's fast online pre-approval for mortgage loans can help here. You could get a sense for your mortgage payment in as little as three minutes. 

...in as little as 3 minutes – no credit impact

2. Investigate market trends

Research the local real estate market and demand for short-term rentals. Tools like AirDNA can offer important insights into occupancy rates and nightly pricing in your target area.

It's easier to stay profitable in areas with consistent demand, places near tourist destinations, sports and concert arenas, and large universities. 

3. Research Airbnb rules in your city

Zoning, permits, and short-term rental laws vary widely, and they change often. Some cities now ban or restrict Airbnb rentals, while others impose taxes or require registration.

It's essential to know about these rules before investing. 

4. Secure financing and close the purchase

Loans for investment properties work a little differently than loans for primary residences. They may require more money down and a higher credit score, for example.

If you already own a home, a HELOC from Better could help leverage your current home value to invest in a short-term rental. 

5. Furnish and set up the property

Guests expect fully furnished, well-equipped homes. Think about the home from an outsider's point of view. For example, if the ice machine doesn't work, get it fixed or remove it. Non-working appliances can spark bad reviews which make it harder to stay profitable. 

Invest in durable furniture, high-speed internet, and thoughtful touches like coffee makers, local guides to activities, public transportation, and dining.

6. List strategically

Use high-quality photos, compelling descriptions, and dynamic pricing strategies to maximize bookings.

Be careful to avoid cliches and catch phrases that might not accurately reflect the property or the surrounding area. For example, short-term rental operators shouldn't claim a property is "right around the corner" from a state park if it's really a half hour drive away.

7. Plan for management

Decide whether you’ll self-manage or hire a professional property manager. Co-hosting arrangements can reduce stress, but they also cut into profits.

If the property is close to your residence, it'll be easier to self-manage. You may even be able to clean the propertyyourself after each rental, adding to your profits.

8. Set competitive pricing

Analyze comparable listings and adjust nightly rates based on seasonality and local events. If there's a big trade show in town, or if Taylor Swift is selling out the local arena all weekend, you can probably afford to charge more.

But if it's a sleepy weekend, operators can lower prices to attract more guests and better compete with other short-term rentals. 

9. Plan for taxes and insurance

Work with a tax pro to understand short-term rental income rules, and buy insurance that covers both property and liability. A financial advisor can help with tax deductions that may be different from the tax policies on your primary residence.

More tips to have a successful Airbnb

Offer the right amenities

Fast Wi-Fi, easy-to-operate smart TVs, plenty of pillows and towels, thermostats that actually renter can actually control – these amenities can boost guest satisfaction and lead to better reviews which are the lifeblood of short-term rental profits.

It's usually best to avoid amenities that break easily like electric blinds or motion sensor trash cans. Guests don't miss these kinds of extras, but they can still prompt negative reviews when they don't work.

Optimize listing visuals and branding

Professional photography and a well-crafted listing description can make your property pop on short-term rentalplatforms.

That said, list honest descriptions and photos. Avoid cliches like "immaculate" and "nestled" and "convenient." Instead, zero in on what makes your property different. Be specific.

Weigh self-management against professional help

If managing guests, cleaning up, and regular maintenance is too time-consuming, consider hiring a property manager. Yes, this will lower your passive income, but it may also make your income more passive. You'll be spending less time managing the property. 

Leverage guest reviews

Positive reviews increase trust and booking rates. Encourage guests to leave feedback by providing excellent service. Be responsive, or hire a quality property manager who will treat your guests with care and respect.

In any rental market, many successful real estate investments depend on return visits and word-of-mouth. Developing these types of relationships can lead to more success.

Investing in Airbnb without buying a property

Not every investor wants to buy a new property. Here are some alternatives:

• Co-host or property manager: Partner with an existing Airbnb host and earn a share of revenue for managing guest communication, cleaning, and logistics.
• Airbnb rental arbitrage: Lease a long-term property, then legally sublet it as a short-term rental with the landlord's approval, of course.
• Invest in Airbnb stock: Participate in Airbnb’s growth through equity markets.
• Short-term rental funds or REITs: Some real estate investment trust funds specialize in vacation rentalinvestments. This is a good way to earn passive income from the overall market for short-term rentals.
• Joint ventures: Partner with other investors to pool capital and share responsibilities.
• Convert your primary residence: You may need to refinance first if you have an FHA or VA loan.

Airbnb investing FAQs

Which feature matters most when choosing an Airbnb?

Location matters most. Proximity to attractions, walkability, and safety strongly affect occupancy and pricing power.

Do I have to live close to my Airbnb?

Not necessarily. Many investors manage properties remotely with the help of digital tools and local property managers. Being nearby can save costs if you do maintenance and cleaning yourself.

How can I estimate ROI for an Airbnb?

Calculate potential occupancy rates, nightly pricing, and expenses. Subtract costs such as mortgage, utilities, cleaning, and platform fees to determine net operating income. Compare to your investment to assess ROI.

Do I need special insurance for an Airbnb?

Yes. Standard homeowners insurance often excludes short-term rentals. Look into landlord or short-term rental insurance that covers personal liability and guest-related damages. Some home insurers may offer add-ons for Airbnb hosts. 

Start your Airbnb investment with the right financing

Airbnb apartments, condos, and homes offer an exciting alternative to ordinary rentals.

The first step for new investors: Find the best financing strategy that keeps costs low and avoids unnecessary fees and delays.

Better's HELOC and home equity loans can leverage your existing home value to invest in a short-term rental.

...in as little as 3 minutes – no credit impact