As a property owner, you're likely looking for the best ways to maximize your investment. Perhaps you've considered traditional renting, or maybe you've thought about jumping into the Airbnb game. Both options have their merits, but they also come with distinct differences. In this article, we'll delve into the 5 major differences between renting and Airbnb. We'll cover everything from potential income and time commitment to dealing with guests and managing property upkeep. By the end of this article, you'll be equipped with valuable insights to help you make an informed decision that's right for your property and your personal needs.
What Is the Difference Between Airbnb vs Renting?
There are many differences between an Airbnb versus a traditional rental. Airbnb operates on a platform that connects hosts with guests seeking short-term accommodations. You'll host a variety of guests, each staying for a few days to a few weeks. On the other hand, traditional rentals involve longer-term agreements—typically six months to a year. It's more about providing a consistent home for your tenants.
Airbnb vs. Renting: Which Is More Profitable?
When it comes to Airbnb, you've got the potential to make more money on a per-night basis. But keep in mind that it can be a bit of a rollercoaster. Some months, you might be booked solid; other months you could have little to no bookings.
On the flip side, traditional renting provides a steady income every month. You won't get the same high nightly rates, but you also won't have as many additional expenses. Plus, there's something to be said for the peace of mind that comes with knowing exactly how much you're going to make each month.
So, which one is more profitable? Well, it really depends on your situation. If your property is located in a popular destination for vacations and you don't mind being hands-on, Airbnb could be a real money maker. But if you prefer stability, less day-to-day involvement, and if your property is located in a more suburban area, traditional renting might be more your speed.
Five Differences Between Airbnb and Renting
Here are five critical differences for you to consider between Airbnb vs. renting:
- Pricing and revenue
- Upfront and continuing expenses
- Consumer demand
- Taxes
- Insurance
1. Pricing and Revenue
Renting: When you rent out your property to a long-term tenant, the contract binds you and your renter to the agreed price. You will receive the same rental income every month and cannot make any adjustments to the price until the lease agreement expires. Your revenue with this option is steady but stagnant.
Airbnb: Unlike renting, there is no set price for Airbnb. As the hosts, you can adjust the pricing as you please, usually based on various factors, such as the day, season, consumer demand, etc. Your revenue can vary with this option, ranging from high profitability to non-existent.
2. Upfront and Continuing Expenses
Renting: The traditional renting route requires less upfront financial involvement. In most cases, the tenant will bring their furniture and belongings to the property, so all you need to worry about is managing the bills, maintenance, and repairs. If you find a good tenant, they can care for your property themselves.
Airbnb: For your Airbnb business, you may have to pay more upfront costs than renting--a necessity to fully furnish and stock your property between bookings. So, your expenses are ongoing and may increase depending on the size of your guests’ party.
3. Consumer Demand
Renting: Consumer demand has less influence over a property you rent to a tenant. Once the tenant signs the lease agreement and moves in, your rental earnings are secure. As such, fluctuations in the consumer market will not affect the monthly income you earn.
Airbnb: When you use the Airbnb model, consumer demand for your property can change with the seasons. For example, you might have peak demand during the summer months but attract fewer bookings during the winter. It will also help if you receive five-star reviews from customers to garner more positive attention.
4. Taxes
Renting: There are usually more tax obligations for a traditional rental property, such as property taxes, state taxes, federal taxes, and other related expenses. However, renting usually provides more concessions than Airbnb.
Airbnb: Since Airbnb is a short-term rental business, the tax implications differ from long-term traditional rentals. For example, if you turn your property into an Airbnb, you might have to pay a special occupancy tax.
5. Insurance
Renting: Traditional rental property owners can expect to pay less for insurance since they have a consistent tenant. Fewer risks are involved, so they may only need basic insurance coverage, like commercial and landlord insurance.
Airbnb: The Airbnb Host Guarantee coverage provides some protection to you as the host. However, it is not comprehensive, and you will need additional vacation rental insurance to lower your risks and financial losses. Therefore, you can expect to pay more for insurance if you choose this route.
Pros and Cons of Airbnb vs. Renting Out
You might still be unsure whether it is best to rent out your property or convert it into an Airbnb. Ultimately, your primary goal should be to maximize your rental profit. To help you in that process, compare the pros and cons of each option to inform you about what is best for your business needs and goals.
Renting Pros
Consistent income
The most significant benefit of renting out a property to a long-term tenant is you can expect regular rent payments every month. This consistent revenue stream helps you plan for upcoming expenses, such as utilities, unexpected repairs, maintenance costs, upgrades, and other investments.
Lower vacancy and turnover rate
Leasing your property to a tenant means you are less likely to deal with high renter turnover rates. For the duration of the contract, you won’t have to worry about your property sitting vacant for a long time, which translates to a regular cash flow and less work for you.
Tenants are more independent
Unlike Airbnb, you don’t have to micromanage or be extra attentive to your tenants. They have greater independence and do not often require constant turnaround on inquiries. This dynamic frees up time and energy for you to focus on other personal and financial endeavors.
Renting Cons
Requires a lease agreement
For better or worse, renting the traditional way requires a lease agreement to seal the deal. It binds you and your tenant to contractual and legal obligations regarding the rental property and limits your ability to adjust to current situations.
Income may stagnate
Though your income is consistent with renting, it is stagnant for the duration of the lease agreement. There is no guarantee that your renter will pay their monthly rent. Even one missed payment can be detrimental to your income.
Less flexibility
Because of the lease agreement, you have less flexibility in managing your rental property. You can’t increase the rent until the end of the contract, if your renter doesn’t pay rent or violates the lease agreement, you can’t perform self-help eviction; you have to go through the proper legal channels. This can impact your ability to take quick and necessary action against tenants who violate the agreement.
Airbnb Pros
Potential for higher income gains
Airbnb hosts have the unique authority to charge higher daily rates, allowing them to make substantial financial gains quickly. What standard renting can make a landlord in one month, a host can make the same amount or more in half the time under the right conditions.
Greater flexibility
When it comes to pricing, Airbnb hosts have the greatest flexibility. They can change the booking price daily to meet local area rates, seasonal traffic hikes, and other industry standards. As a host, the power is in your hands to customize your listing as you see fit. Whether you want to rent out a spare room or the entire house, the choice is up to you.
Host protection
Airbnb hosts can breathe a little easier because the service provides protection and up to one million dollars of coverage. The review system can also protect the host’s reputation, as more positive reviews help them gain more traffic and bookings as a trustworthy lodging destination.
There is no lease agreement
Relish the fact you are free from the bindings of a lease agreement. These contracts tether you to a stringent set of rules and regulations you must abide by. Since you don’t need this contract for Airbnb, you have more autonomy over managing your property and short-term occupants.
Airbnb Cons
Must rent furnished
If you decide to rent your property out through Airbnb, you will be required to fully furnish your property for any guests. But if you decide to rent out your property the traditional way, you won’t have to worry about furnishing your property since most renters will move in their own furniture.
Greater potential for property damages
With Airbnb, high turnover rates mean frequent new guests. This puts your rental at greater risk because there is a higher probability that one of your new visitors may accidentally damage your home—whether breaking furniture, staining your carpet, scuffing the walls, or scratching the hardwood floors.
Inconsistent income
While Airbnb can produce high financial gains, the money you earn is inconsistent. It is a volatile market that depends on a variety of factors. Sometimes, you can make a lot of money and other times, you may struggle to attract a few visitors. This inconsistency can make financial planning more challenging.
More upkeep required
Every new booking is like a property reset. You have to restock specific items such as toiletries, clean every crevice of the unit, and even replace some objects a previous guest may have damaged. Constant upkeep of the property can strain your wallet over time.
Always “on call”
Hosting an Airbnb means you are almost always “on-call.” Visitors may contact you about property-related concerns day or night, such as a broken lock, a door that won’t open, or missing features. As a host, you want to make yourself available to answer guest inquiries promptly.
Other Factors to Consider
Here are some other factors you should consider when determining whether Airbnb or renting out your property is right for you.
- Local laws: Renting and Airbnb laws often vary across the nation. Review your local laws to ensure you comply with city ordinances and avoid legal trouble.
- Location: The location of your property plays a significant factor in how well you can attract potential renters or guests.
- Maximum financial earnings: Airbnb has a higher chance of achieving maximum financial gains than traditional renting. But remember, this only applies to Airbnbs that achieve consistently high occupancy and booking rates; this means that you would have to have every day of the year booked to earn the most income out of your property.
In conclusion, when deciding between Airbnb and traditional renting, it's important to consider your lifestyle and financial goals. With Airbnb, you have the potential for higher daily rates and the excitement of a fluctuating market, along with the opportunity to meet a diverse range of guests. However, it's crucial to acknowledge the challenges of frequent guest turnover and compliance with regulations.
On the other hand, traditional renting offers a steady and reliable income stream with less day-to-day management. However, the returns may not be as high as Airbnb, especially during peak travel seasons. Ultimately, the choice depends on what aligns with your personal circumstances. Consider your available time and resources and make an informed decision.
If you choose traditional renting, Apartments.com can help you advertise your property. Apartments.com can give you everything you need to have a standout listing to help you find the perfect tenants. Once you have found a tenant, Apartments.com can help you with creating a lease agreement, collecting rent payments, receiving maintenance requests, and organizing your expenses.
