A recent study by the University of Southern California and Indiana University, found that homeowners in Los Angeles who rented their homes through Airbnb have increased their property values by ten percent. This is a compelling piece of evidence for those interested in investing in an Airbnb property. But, before you invest in a property, you’ll want to ask yourself a few questions.
Here is a quick guide to help you figure out if Airbnb is a good investment.
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A Quick Guide to Investing in Airbnb
Is it legal? The short answer is yes. Airbnb has received permission to operate in most major cities in the United States.
Is it the right time? Airbnb is now available in approximately 4,000 cities around the world. If your city doesn’t offer Airbnb, now is a good time to explore the possibility of becoming a host.
Is it risky? Most people see Airbnb as a fad that will quickly disappear. However, due to the rising popularity of the service, Airbnb will likely be around for years to come.
What Is the Difference Between an Airbnb Property and a Hostel?
Hotel: There are hundreds of thousands of hotel chains. However, unlike hotel chains, Airbnb properties are private homes that a host rents out.
Some characteristics of investments that you can look for include:
Low to Medium Risk. You should evaluate your risk tolerance before investing in any investment. An investment with high risk will also be a low to medium risk.
Interest Rate Risk. You want to be sure that your investment will continue to yield the same amount of money, either annually, or in case of a loss.
Market Risk. With Airbnb, you are a rental property owner, so you must be mindful of a potential market crash.
Pricing Risk. Airbnb changes the pricing of their properties constantly, so you need to be cautious that you are getting a deal.
Liability Risk. AirBnb allows you to only list your property’s good and bad aspects for the whole world to see. You must always be conscious of potential liability.
What are the risks of investing in Airbnb?
Airbnb is still a relatively new investment and there are many risks involved. Some of these risks include losing money, a lack of demand, a change in regulatory environment, and a security breach. All these potential risks mean that you need to have an excellent idea of what you are getting into. You don’t want to invest in an Airbnb property only to find out that you’ve invested in a ‘flop’ that has lost all its value.
It is important that you also make sure that you don’t invest in an Airbnb property that you wouldn’t normally rent. For instance, if you rent your home out for several months every year, this could mean that you are investing in something that you wouldn’t otherwise invest in. Always ensure that you find an Airbnb property that you think you would like to live in.
Homeowners who are considering buying Airbnb real estate should review the IRS Form 1099-B report to determine whether or not they are “self-reporting” their earnings, and if so, if they are properly deducting their real estate expenses. In addition, investors who are planning to buy an Airbnb property should make sure they are in the top income tax bracket (under a nominal amount of income tax). People who are earning more than $200,000 or earning a combined $250,000 or more in income should also be prepared to pay taxes, and possibly pay capital gains tax, if they sell their Airbnb property.