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Should you convert your rental into an Airbnb property?

Performance Property Real Estate Question

Q: Gerald, I use airbnb for lodging when I travel sometimes.  The tenant in my rental property is moving out soon–does it makes sense to convert my rental property into an airbnb property?  Kendra, Roxbury, MA

A: Great question, Kendra.  Does it make sense to convert a traditional rental property into an airbnb property?  I’m familiar with airbnb because I use airbnb a lot when I travel because I prefer to stay somewhere that is more like home rather than a hotel room.  There are investors now that actually look for investment properties to buy specifically to offer on airbnb, VRBO, homeaway or other real estate app platforms.

The main issue you have to recognize if you switch from a traditional rental to airbnb is that you are changing the nature of your investment from long term to short term, which brings with it potential costs and benefits.  Managing a short term rental like a rooming house or a motel is more time and resource intensive than managing a  long term rental. However, you may be able to make more money with a short term rental than with a traditional long term rental.  The operative word here is “may”, because as with most things in real estate, the income that you generate short term or long term will boil down to demand–how much demand from short term renters, who are likely to be travelers or vacationers vs. long term renters who will actually live in your property.

Demand is the key issue that you have to determine to make an intelligent decision.

You can determine demand by looking at your competition–other long term and short term rentals in the area where your property is located.  The location where your rental property is located will factor into the market demand for your place in either scenario, but the location will matter even more on airbnb than it will for long term rentals.

In my opinion, it doesn’t make sense to convert from long term to short term rentals unless you can reasonably expect to make more money (remember, that you will be responsible for paying utilities in an airbnb scenario so factor that into you analysis).  But even if after you do your analysis, you determine the demand and income potential is higher with airbnb, you still have to honestly ask yourself whether you are realistically willing to put in the extra effort required to run a short term rental which includes marketing, cleaning etc. because a short term rental is even more of an active investment than the more passive investment you’d have maintaining a traditional rental property.

Thanks for your question, Kendra.  For more real estate information and tips visit my blog at geraldlucas.com.

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