For about 14 years now, Airbnb has emerged as a great business idea and excellent source of income for millions around the world. In the first half of 2021, over 50% of Airbnb hosts in India falling in the age group of 25-40 collectively earned over Rs. 2.6 crore. On an average, in a tier-1 city, you could potentially earn between Rs. 50,000 to Rs. 75,000 on a monthly basis, provided your property is equipped with all the essentials. Now imagine how much more you could make if your property is sited at a prime location, has the perfect listing, and is advertised well. With the right approach, you could even replace your 9-5 job with an Airbnb business.
So, whether you have simply stayed in an Airbnb on your recent vacation or are now considering the idea of renting out your property on this short-term rental platform; remember that having a portfolio of Airbnb rentals can be a profitable real estate investment strategy as compared to conventional investment rental property. Not just real estate advisors but finance experts, too, firmly believe that the Airbnb business model has entirely changed the way the travel and tourism industry functioned – both from the perspective of travelers, as well as property hosts.
If you belong to the latter category, you can diversify your earnings and boost your passive income through Airbnb. Other than having great revenue potential, this business model also enables more control over one’s property. Taking into consideration some of these perks, the platform’s popularity has multiplied of late and more and more investors are now looking toward this alternative.
But what are the real costs involved in owning and managing an Airbnb property? Let’s find out.
Whether you are planning to offer just a single bedroom or an entire villa with a private pool, Airbnb has millions of listings across the globe, which means you have tough competition in the market. Your property might seem picture-perfect to you, but your guests may have different tastes. Thus, some redecorating is essential to make it attractive and homely for guests. Even if the idea is to just spare a room, invest in an appealing bed frame, curtains, mattress, and other décor items. Not to forget, a smartTV, reliable Wi-Fi, extra towels, pantry essentials, and toiletries are must-haves. Anything above and beyond, like ironing boards, microwave, or jacuzzis are a bonus.
Owning an Airbnb isn’t limited to managing the costs of furniture and décor items. You will also have to put in some time to analyze if it is actually legal to host guests on your property and the requirements you will need to fulfill, which may vary depending on the vicinity and type of property. For example, if you own an apartment in a high-rise, you may need to seek the authorization of the society to facilitate short-term rentals. While you could also evade this step and continue to host guests, it may later put you in legal trouble. Also, to protect your property, you will need to purchase short-term rental insurance. Alternatively, if fetching insurance seems challenging, thoroughly conduct a background verification of your guests and ask for a security deposit.
Airbnb claims that to function smoothly and cover the services they offer, such as telephone support, and 24/7 customer service, they charge a service fee once a booking is confirmed. This is usually done through two service fee structures: a host-only fee and shared host & guest fee. The former is the new norm whenever someone creates an Airbnb account. Here, the host pays the whole fee, and guests are not charged any additional cost apart from their booking amount. This fee starts from 14 percent and can perhaps go up to 20 percent. In case of a shared host & guest fee, hosts have to bear a charge of 3 percent or more each time a booking is finalized. Similarly, guests who make a booking are also subject to a charge of 13 percent in the form of service fees in addition to their booking total. The exact fee may vary depending on factors like the stay duration and booking amount.
Airbnb and other vacation rental platforms can fetch the best returns on investment, especially if you are willing to put in the effort to attract guests. However, it is important for the investors to weigh the pros and cons before taking the plunge, as the COVID-19 pandemic has fairly changed the way the industry functioned earlier. However, if the idea is to rent out your existing property on Airbnb or purchase a primary residence that can thrive on passive income, the risks are likely to be lower. Be sure to do your homework before leaping into the unknown. Alternatively, you can reach out to a professional financial consulting firm like Dezerv to know the best money investment plans or sources yielding the best return on investment.