Is investing in annual apartment rentals or short term stay Airbnb units better?
Airbnb seems to be an increasingly appealing choice for smaller and amateur investors who are lured in by the higher daily rents. Others aren’t convinced it’s a better deal.
The Pros & Cons of Airbnb as an Investment
The promise of high daily rental rates of short term and vacation rentals can be seductive. Especially when those rates can be double or triple the equivalent of annual rental rates on a daily basis.
Some may also find appeal in being able to use the same units for their own vacations when they aren’t reserved. Though of course that may rarely be the case when you really want to use them in the peak season.
Of course, for every pro there is a con. While the daily rates may be higher, you maybe renting for far fewer days per month and year. Check occupancy rates in your area. If 50% is average, the premium rates may be a wash.
Then there is the intensity of management. Short term rentals can mean dealing with new tenants, applications, move-ins and outs and cleaning on a daily basis. You don’t have to do it yourself, but then it means extra costs coming out of your proceeds.
There may also be extra taxes for short term stays.
Many investors also seem to be oblivious to the fact that Airbnb rentals are still illegal in many areas, or are banned by community associations. Where that is the case it is not worth the fines. Many communities that do not currently prohibit Airbnb rentals are looking into restrictions, or even outright bans.
The Advantages of Annual Apartment Building Rentals
Investing in multifamily apartments has several clear advantages.
First are the economies of scale. Price per unit can be lower in multifamily. Annual rentals mean consistent income, reduced management burden and expenses, and typically retaining a higher percentage of your rents, while enjoying more consistent income.
More importantly, you are also making sure your math works at lower annual rental rates. That means you can keep making a profit and keep your units rented when Airbnb landlords are panicking that no one wants to pay their rates, and realize they’ve paid far too much for their assets.
Plus, this can give you the satisfaction that you are helping to provide much needed housing.
The Lines are Blurring
Some investors are increasingly blurring these lines as well. Some apartment building owners are reserving some of their units for short term Airbnb style leasing, and the rest for the steady income of annual and multi-year leases. Airbnb is even starting their own hotel chain.
If you have vacant units and the timing isn’t optimal for locking in a new long term tenant, you could also temporarily Airbnb it until you can lock in a new annual tenant on the best terms in the hottest season.
But if you’re more interested in investing in longer term rentals, you may consider talking to the seasoned professionals at Praxis Capital.