Airbnb properties are among the most trending and high-yielding investment opportunities today. The short-term rental income can be rewarding beyond belief without requiring much effort in return. However, Airbnb properties have also proven to be quite unreliable and uncertain, which is why they have attracted the critical eye of many experienced investors and real estate agents in Mount Vernon, VA. Here are 5 downsides of Airbnb properties which render them an ill-advised investment.
5 Airbnb Disadvantages You Should Know about Before You Invest
1. Inconsistent Cash Flow
Airbnb’s are often advertised as a golden investment opportunity, and in some cases, they are. However, Airbnb properties are generally better for seasonal investments due to their inconsistent and somewhat unpredictable cash returns.
What makes Airbnb properties tempting are the high-paying short-term rentals that pay you a few hundred dollars per night and last for a night or two only. With such high paying customers, Airbnb investors easily make over $6,000 per month from a single property.
However, one of the biggest downsides of Airbnb properties is that these short-term rentals that make Airbnb investments, so rewarding aren’t reliable or predictable. This means that one month you’ll be flooded with bookings, packed from night to night, and the next month you could be facing a dry spell in which your Airbnb investment has essentially turned into a liability resulting in negative cash flow.
The worst part being that these fluctuations in high-rewarding short-term rentals aren’t limited to vacation rental properties as you’d think. In fact, some Airbnb investors have even reported facing dry months in their Airbnb properties situated in residential neighborhoods with no apparent reason behind the low demand. This makes it nearly impossible for some Airbnb investors to foresee slow months and plan their cash flow in advance.
If you’re someone who relies on your Airbnb rental income to cover your expenses or if your Airbnb property requires expensive upkeep, a dip in your revenue for a few months could deal you a major financial setback and may even force you to sell your Airbnb property.
2. High Entry Barrier
The high-profit returns boasted by Airbnb properties have attracted a ton of seasonal and year-round investors. While these investors may or may not have succeeded in establishing a profit generating business out of their Airbnb investments, what they did achieve was making the Airbnb market much more competitive.
With 5.6 million listings stretching over 100,000 cities and 220 countries and regions, Airbnb is a very competitive marketplace. Therefore, it is extremely difficult for novice Airbnb investors to get high-paying short-term rentals.
One way you could outdo the competition is to offer lower than market rates. However, that means compromising your quick, short-term profits, which would make Airbnb properties a relatively unwise investment since you could potentially earn more from a long-term rental on your traditional properties.
Another approach you may want to try is to offer better and more amenities than your competition, which could include newer furniture, modern appliances, welcoming guests with brochures and gift baskets, etc.
This, however, will increase your expenditures and may cost you more than you’re willing to or can afford to spend. As a result, getting your foot through the door can be quite difficult, seeing as how the Airbnb marketplace is saturated with property listings, each trying to outdo the other.
There is a silver lining, though: once you make it past the entry phase and rack up a good number of positive reviews, your property listings will automatically become more visible to users, and your likelihood of getting renters increases.
3. Overhead Expenses and Property Management
Before jumping on the Airbnb bandwagon, many novice investors forget to factor in the overhead and property management expenses they’ll have to cover. While managing your Airbnb property is pretty easy, you may not have the time to do so if you have other commitments, such as running another business.
Tasks such as entertaining inquiries from prospects, scheduling cleaning, repairs, etc., require mindful and prompt action. Otherwise, it could negatively impact your Airbnb rating. You could hire a property manager to handle all these tasks. However, most managers charge a hefty fee which can be as high as 25-30% of your net revenue. This will leave you with a skinny profit margin, not nearly enough to make Airbnb properties a justifiable investment.
Furthermore, having guests on your property can sometimes leave you with property damages such as food and drink spillages or broken coffee tables. These replacements and cleanups can cost you quite a bit of money, even more so if the damaged item is an expensive appliance such as a TV or air conditioner. There have even been reports of guests getting drunk or into a fight and breaking property windows.
While Airbnb offers a Host Guarantee program that provides assurances in case of property damage, the program may not cover all your damages and may leave out some to be addressed at your own expense. In addition, complaints about the program taking too long to process host complaints have been received.
4. Legal Airbnb Issues
Perhaps one of the most significant downsides of Airbnb is that the platform is not legal across all of the United States. Numerous areas throughout the United States have imposed laws prohibiting the use of Airbnb. This could be because Airbnb promotes a culture of expensive and short-term housing while there is a shortage of affordable housing in the country. That is why some local governments have enforced restrictions on short-term rentals in an effort to encourage long-term rentals.
The cities that have illegalized Airbnb are Los Angeles, New York City, Las Vegas, Santa Monica, and San Francisco. Several other cities and states are viewing this housing platform with a critical eye and may illegalize it in the near future. Furthermore, some state and city governments even require the Airbnb host to hold special licenses or permits. The failure to do so can get you fined or may even get you jail time.
The legal implications of Airbnb make it a somewhat uncertain and unreliable platform to invest your money in since your Airbnb business could come to an immediate halt if the government in your locality chooses to ban the platform.
You could instead enlist the help of professional real estate agents in Mount Vernon, VA, to find a legally safe property and put it up for rent on a long-term contract. Your revenue will be lower than an Airbnb short-term rental, but it will be much more consistent and reliable.
5. Unreasonable and Difficult Guests
One of the most significant Airbnb disadvantages, one that has deterred away many novice investors, is the trouble of dealing with unreasonable and difficult guests. It is worth noting that a majority of guests you host will be polite and easy to deal with. However, you will occasionally run into those who exhibit antisocial conduct and are unreasonable to deal with.
These difficult guests can cause a series of headaches for you, such as not emptying your property on time and staying longer than they paid for.
Additionally, you could also run into some loud and bothersome visitors. Then there are also those who refuse to pay their rent or pay it late. The worst of all are guests who deliberately leave you with a bad review regardless of how well you treat them and how excellent your property is. Hosting such clients can be very discouraging and even force you to pull out your investment from Airbnb.
What type of guests you get is typically a matter of chance. You can take specific precautionary measures to lessen the risk of meeting such guests, such as actively screening your Airbnb guests beforehand, reading the reviews that other hosts have left on their Airbnb accounts, and avoiding people who have gathered a lot of negative feedback on their accounts. Nevertheless, there will still be no guarantee that you won’t run into unpleasant visitors.
Michael Gailliot Homes – Dependable Real Estate Agents in Alexandria, VA, at Your Service
In light of the 5 Airbnb disadvantages outlined above, we can conclude that investing in Airbnb properties is an ill-advised business strategy. On the other hand, the American real estate market offers one of the most rewarding and secure ROIs.
Michael Gailliot Homes is at your service with the most reliable realtor services in town. Our team of industry-trained real estate agents in Alexandria, VA, has over 20 years of experience and is up-to-date with the latest real estate trends. So, call us now and let us find you the home of your dreams.