Airbnb vs. renting the debate is a major topic among real estate investors and for a good reason. The global real estate market size was valued at USD 3.69 trillion in 2021 and is expected to expand at a compound annual growth rate (CAGR) of 5.2% from 2022 to 2030.
Now as a property owner, you’re likely wondering which investment approach will provide the best income Airbnb for short-term stays or opt for traditional long-term renting. Both strategies have merits and challenges that could significantly impact your business’s profitability and management.
In today’s article, we compare the perks and roadblocks of Airbnb vs. Renting and help you identify a strategy that suits you the best.
1. Airbnb Vs. Renting: Potential Income
Airbnb
Airbnb focuses on short-term rentals, typically for travelers and vacationers. Property owners can earn higher nightly rates but may face more frequent turnover and maintenance requirements. This model offers flexibility and the potential for higher profits, especially in popular tourist destinations. Using Airbnb, you can often charge higher nightly rates compared to monthly rent.
For instance, if you rent out a property for $100 per night and have an occupancy rate of 70%, you could earn $2,100 per month. In contrast, the same property might only bring in $1,500 per month as a traditional rental.
Airbnb allows you to capitalize on peak seasons. A property in a tourist area might generate $200 per night during the holiday season. Even if it’s only booked for 15 nights in December, that’s $3,000 in a single month, which is significantly higher than the steady income from long-term renting.
By leveraging Airbnb’s platform, you have the potential to earn more, especially during high-demand periods, compared to the consistent but often lower income from traditional renting.
Traditional Renting
Traditional renting involves long-term leases, usually for six months to a year or more. It provides a steady, predictable income stream with less frequent tenant turnover. While the monthly income may be lower than Airbnb’s potential earnings, it often requires less day-to-day management and can offer more stability.
The choice between Airbnb and renting out depends on factors such as location, local regulations, time commitment, and financial goals. Each option has its pros and cons, and property owners should carefully consider their circumstances before deciding.
2. Airbnb Vs Renting: Upfront Expenses
Airbnb
Operating an Airbnb rental involves a variety of expenses that go beyond the basic costs associated with traditional renting. One major expense is property management. With frequent turnovers, you’ll likely require frequent cleaning services and possibly even professional property management, which can cost around 20% of your rental income. You’ll also need to invest in amenities and furnishings to meet the expectations of short-term guests. These costs can add up, particularly if you’re aiming to maintain high occupancy rates and positive reviews.
Traditional Renting
In contrast, traditional renting usually involves lower ongoing expenses. For one, you’ll experience fewer turnovers, which means fewer cleaning sessions and less frequent need for property maintenance. Property management fees are also generally lower, as the tasks involved are less time-consuming than managing short-term rentals.
And if you decide to turn your property into an Airbnb rental, try to keep the property furnished and fully stocked. This often requires a hefty upfront investment. The general expenses are also higher as you must replace or restock items regularly and keep the place in perfect condition at all times.
3. Airbnb Vs. Renting: Market and Demand
Airbnb
While discussing pricing, one of the most important things to be discussed would be market demand. Reports show that the vacation rental market is projected to reach $107.70 billion by 2027. This shows that short-term rentals are quite popular currently. While demand for Airbnb rentals is steadily increasing, their occupancy is subject to seasonality. You can make money during the holiday or high-demand season, but it doesn’t guarantee a steady revenue throughout the year.
Traditional Renting
For traditional rentals, market and demand dynamics are different but generally more stable. Residential properties often have a consistent demand, especially in urban areas with a strong job market. People are always in need of long-term housing, making this an evergreen market.
4. Airbnb Vs. Renting: Tax Considerations
Airbnb
Tax considerations are an essential aspect of managing an Airbnb rental. Short-term rentals may be subject to additional taxes such as lodging and occupancy taxes, similar to those imposed on hotels. These taxes vary by location and can add a significant cost. For instance, in some cities, you might be required to collect and remit a transient occupancy tax, which can be a percentage of the rental income.
Traditional Renting
For long-term rentals, the primary tax consideration is the income tax on rental income. Rental income is taxed as ordinary income, but you can offset this by deducting expenses such as mortgage interest, property taxes, maintenance costs, and insurance premiums. These deductions can significantly reduce your taxable income, making traditional renting tax-efficient.
Both Airbnb and traditional renting have unique tax implications that require careful consideration. While Airbnb offers more opportunities for deductions, it also comes with additional taxes and more complex record-keeping requirements.
5. Airbnb Vs. Renting: Legal Rules and Regulations
Airbnb
Operating a short-term rental through Airbnb involves navigating a complex and varied legal landscape. Cities often have different rules and regulations governing short-term rentals. Some jurisdictions have enacted stringent regulations, including permit requirements, zoning restrictions, and even outright bans in certain areas. It’s essential to be aware of and comply with these local ordinances to avoid hefty fines and legal complications.
For example, in New York City, short-term rentals are heavily regulated, and hosts must comply with multiple legal requirements. Short-term rentals of less than 30 days are generally prohibited in multi-unit buildings unless the host is also living in the unit during the guest’s stay. Violating these rules can result in significant penalties, making it crucial to fully understand and adhere to local laws.
Traditional Renting
Traditional renting typically faces fewer regulatory hurdles. Most local laws governing long-term rentals are well-established and straightforward. Key regulations include landlord-tenant laws that outline the rights and responsibilities of both parties involved. These laws cover issues such as eviction procedures, rent control policies, security deposit limits, and maintenance obligations.
One significant aspect of traditional renting is the lease agreement. This legal document clearly defines the terms of the rental, including the duration, rent amount, maintenance responsibilities, and other key terms. Ensuring your lease agreement is thorough and compliant with local laws can protect you from potential legal disputes.
6. Airbnb Vs. Renting: Property Insurance
Airbnb
Airbnb offers a Host Guarantee, which provides coverage up to $1 million for property damage. While this guarantee is a valuable benefit, it’s not a substitute for comprehensive insurance. For instance, the Host Guarantee excludes certain types of damage and does not cover liability incidents involving guest injuries. Relying solely on this guarantee can leave you vulnerable to significant financial losses.
In addition to the Host Guarantee, Airbnb offers Host Protection Insurance, which provides liability coverage up to $1 million per occurrence. This policy covers claims related to bodily injury or property damage but may have limitations and exclusions. It’s essential to thoroughly review these details and consider additional coverage to fill any gaps.
Traditional Renting:
Insurance considerations for traditional renting are generally more straightforward. Landlord insurance is designed specifically for rental properties and offers comprehensive coverage for property damage, liability, and loss of rental income. These policies typically cover risks such as fire, vandalism, and certain natural disasters. They also provide liability protection in case a tenant or visitor suffers an injury on the property.
7. Airbnb Vs. Renting: Pros and Cons
Still not sure which one to go with? Here are the advantages of both approaches to help you weigh in your options:
If you decide to list your property on Airbnb, you must have a streamlined process to set the right price. Our Airbnb pricing tool can be a big help with smart customizations and competitive pricing according to the rental market trends. PriceLabs analyzes the market to determine the influence of local trends, seasonal changes, and specific days of the week on pricing.
Frequently Asked Questions
1. Is Airbnb the Same as Renting?
No. Right from payment frequency, method to amount – everything different between Airbnb vs Traditional renting differs. Since, Airbnb is used to rent for a shorter period, payment happens as and when a guest checks out and is calculated on a nightly basis.
2. What is the 90 Day Rule on Airbnb?
Airbnb doesn’t allow properties to be rented out for more than 90 nights per year. If your limit for bookings is reached, Airbnb will automatically close your property until the end of the calendar year. In addition to 90 consecutive days, the 90-day limit also applies to 90 days spread throughout the year.
3. Why is Airbnb 2 Night Minimum?
Airbnb enforces a 2 night minimum to avoid parties in the property.
4. What’s more profitable airbnb or renting
Airbnb can be more profitable than traditional renting due to higher nightly rates and the potential for increased revenue during peak seasons. However, this comes with higher management and operational costs, such as cleaning and maintenance, and variable occupancy rates.
The Bottomline
There is no definite answer to whether Airbnb rentals are a better option for real-estate owners or the traditional route of long-term renting. Both offer some incredible advantages, but they also have their challenges.
The key to making the right choice here is to compare the pros and cons against your aspirations. Do you want to create a steady cash flow to help with the bills? Long-term tenants may just be perfect for you.
However, if your goal is to maximize returns and build a scalable rental business, listing your property on Airbnb is worth your consideration. If you choose to turn your property into a popular short-term rental, PriceLabs can help you streamline the process and eliminate hassles. Our tool finds market trends, analyzes demands, and enables you to set up and even automate competitive pricing for your property. You can also track your listing’s performance, improve it, and attract more guests, optimizing revenue further.
About PriceLabs
PriceLabs is a revenue management solution for the short-term rental and hospitality industry. It was founded in 2014 and is headquartered in Chicago, IL. Our platform helps individual hosts and hospitality professionals optimize pricing and revenue management. It does so by adapting to changing market trends and occupancy levels.
With dynamic pricing, automation rules, and customizations, we manage pricing and minimum-stay restrictions for any portfolio size, with prices automatically uploaded to preferred channels.
Every day, we price over 300,000+ listings globally across 135+ countries, offering world-class tools like the Base Price Help and Minimum Stay Recommendation Engine. Choose PriceLabs to increase revenue and streamline pricing and revenue management. Sign up for a free trial at pricelabs.co today.