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Deciding between Airbnb and traditional property management

by Chicago Agent

When Airbnb launched in 2008, most people thought it was a wacky idea at best. Today, of course, it’s transformed the short-term rental market and has many property owners wondering whether they should offer their units by the night instead of the year (if, that is, short-term rentals are even legal for their properties).

Whether you work in property management or your clients are looking for advice on how to capitalize on these opportunities, it’s important to consider the ways managing a short-term rental property differs from managing one for long-term tenants. Here are a few key factors to weigh before making a decision.

Cash flow

One major difference is easy to spot as soon as you start crunching the numbers: Property owners have the potential to make more money with Airbnb and other sites than they do through a traditional long-term rental, thanks to higher, variable nightly rates and more frequent turnover.

The downside is that there’s no guarantee a unit will rent, and occupancy rates are all over the map, which makes it hard to estimate earnings.

Compare that with occupancy rates for long-term rentals: In the Chicago metro area, occupancy was more than 93 percent in 2017. Given the high likelihood of finding long-term renters, the uncertainty of Airbnb is a major mark against it for those who look to an investment property for steady income.

Rates and occupancy aren’t the only factors that will affect cash flow, though. Consider these:

  • Payment management logistics: Rent payment issues are landlords’ biggest concern, and the Airbnb platform makes this easy with secured credit card payments and timely transfers. But today, you don’t necessarily need a short-term rental site to manage payment issues: A variety of apps (Zelle, PayPal, Venmo and even my company’s app, Avail) allow long-term landlords to collect payment digitally.
  • Taxes: If you’re renting your property on Airbnb, you’ll probably pay self-employment taxes on the money you earn. If you rent your own property using a traditional model, you’ll likely benefit from real estate tax breaks (plus a few new ones introduced by 2017’s Tax Cuts and Jobs Act for those organized as LLCs), which may be a strong incentive for some property owners to stay off the platform.
  • Insurance: Airbnb listers need to get specific short-term rental insurance for their properties in addition to a landlord insurance policy. Although Airbnb offers a third-party policy that provides some coverage in case of accidental damage, it is far from comprehensive.

Maintenance, turnover and reporting

Some folks can’t imagine dealing with new tenants every week. On the other hand, others cringe at the thought of having limited access to their property for a full year.

There’s no question that renting via Airbnb will give you greater access to your property, including the option to use the property for personal vacations or visits. You’ll have the opportunity to check its condition between tenants and tackle small repairs before they become huge issues. Part of that is thanks to Airbnb’s platform, which allows for the seamless reporting, tracking and handling of any maintenance issues.

But most rental management software on the market now features digital maintenance management features similar to those on Airbnb, so the software is less of an edge than it used to be. And the constant coming and going can cause a lot of wear and tear on a property, even if your tenants aren’t dragging furniture with them. Couple that with the higher chances of short-term tenants living hard in your unit (and of long-term tenants treating it kindly), and the picture gets complicated.

Management and marketing

One of the main benefits to Airbnb is that it does a lot of marketing for your property. The company has a captive audience who uses its website with a specific set of expectations of cost and value. On the flip side, though, the short stays mean you’ll be in the tenant-finding phase of renting – which most landlords agree is time-consuming and stressful, even with the help of technology – more or less nonstop. Then again, you may find that rental management software can do much of the legwork for you, automatically posting openings across popular listing sites.

If the main goal for a rental property is to have something close to passive income, Airbnb is probably not the way to go. Staying on top of managing guest communications, cleaning, stocking amenities and making repairs will take up a great deal of time when property turns over every few nights.

If you or your clients are anything like the two-thirds of landlords who have careers outside of property management, managing a short-term rental can be burdensome. And while yearly rentals may require more work in the concentrated period between renters, it will demand less of your time day to day.

The larger social debate

There’s one final consideration in the short-term vs. long-term rental debate. While the option to rent a home on Airbnb might help your client expand their property portfolio, or might enable you to lower vacancy rates in a given area, there are considerations that go beyond the unit. The way a landlord decides to rent out a property can affect one’s neighborhood and city. Recent studies have found that Airbnb has been linked to increased rents, displaced hotel workers and lowered city tax revenue. Short-term rental landlords may also experience increased tensions with their neighbors, an important consideration for agents and homeowners alike.

Long-term rentals are often associated with greater stability and investment in a community, which may offer important benefits to property owners that don’t exactly fit on a balance sheet but are still important to consider. So whichever option you or your clients decides to go with, it’s important to make it with eyes wide open.

Laurence Jankelow is the co-founder and COO of Avail, an online property management software platform used by more than 115,000 landlords and 230,000 tenants.

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Comments

  • Daniel Rusteen says:

    Valid considerations. I help existing Airbnb hosts be successful if that’s the route they choose. Recently, I wrote a 3-part series for property owners who are considering Airbnb. It’s not a persuasive post. In fact, I try to make you not want to be an Airbnb host 😀

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