In 2020, there are plenty of creative ways to invest, not only in real estate, but in many other arenas. Rising temperatures and summer is right around the corner and with that, we’re seeing people looking beyond their neighborhoods to vacation. In comes the Airbnb listing. An excellent way for a property owner to profit from their real estate and an exciting new space for guests to check out. It’s really a win win for both parties.
So, we asked luxury real estate agent Luis Pezzini why purchasing a home or apartment to convert into an Airbnb investment is a good idea, and here’s what he had to say:
“ Regular return on an investment property in Los Angeles is about 3-4%. I’m seeing some of my clients making anywhere from 6% to 12% return on their property in a matter of months.”
Now, it’s important to note that the above statement is just an observation and can vary from property to property, but wow!
Inside Airbnb, a data collection firm that tracks Airbnb listings had this to say about Los Angeles rental listings: “Of the entire homes on Airbnb, more than 1/3 (10,248 of 24,125; or 42%) are frequently rented out – estimated for an average of 205 nghts per year, with between 3 and 6 bookings per month.” Those are healthy rates – especially considering that the 42% is only coming from the “frequently rented out” category.
Now, there are always pros and cons to a good investment idea. So, let’s start with some of the major pros:
1. Tenant’s don’t have to be perfect
In many cases, apartments that are being rented out are matched with reliable and financially stable tenants. However, in many cases that’s not quite the case. With an Airbnb investment property, you don’t have to deal with a long term contract which means you can cycle through individuals and not worry about the risks of a tenant not making payments or treating the property poorly for long periods of time.
2. Here’s the fun one: Higher opportunity for profit than traditional renting
Let’s take a property you would rent out for $2,200 a month in Los Angeles. A 12 month lease would translate to about $26,400 of gross income annually. Now, the average nightly cost of an Airbnb in Los Angeles is $157. So, if your property is being rented out for only 70% of the year, you’re making about $40,035 gross – annually. That’s almost double the income from a property.
3. You have the ability to curate a wonderful experience to guests visiting your city
We’ll leave this host testimonial here:
“I am really crazy about the richness that has come into my life, and the opportunity to be of service… It’s a joy to be able to introduce New York living.”
As there are a few more topline pros, there are also some cons that need to be looked at. Here’s a couple:
1. Furnishing and maintaining the space
Don’t you forget this – it costs money to run an Airbnb. Considering that you not only have to fully furnish the place, you also have to add some personality to the decor to give it a unique yet comfortable touch that makes people want to stay at your listing. Additionally, you’re in charge of paying ALL utilities which need to be substantial because Airbnb guests typically look for places that have WiFi, Cable, Parking etc. You may also have to regularly clean the property to keep new guests happy and comfortable during their stay. Amenities are also something that go a long way in the Airbnb world. Nonetheless, if your Airbnb listing provides a quality experience, you can charge more and hopefully make up for the costs of running the place.
2. Inconsistent income
Traditionally, one reason rental properties are a great investment is for their ability to produce consistent cash flow on a monthly basis from a tenant. You’re not getting that with Airbnb’s. In fact, there will most likely be a couple weeks here and there where your property isn’t bringing in much income at all.
Airbnb has opened the door for investors to get creative with new properties and experiences. As always, sufficient research should be done before making the decision to purchase a property with the intentions of listing it as an Airbnb.
For more information contact Luis Pezzini at +1-310-275-2076 today and get first-hand knowledge and answers from one of the top LA real estate agents!