Airbnb vs renting is a frequent topic of discussion for individuals and businesses interested in grasping the housing market. Both (Airbnb and traditional renting) offer short-term and long-term opportunities to generate profits in real estate. But to truly determine which option gives the best return on investment, we must examine the strengths and benefits of each option.
This article will explore the factors in assessing the ROI for Airbnb and renting, providing readers with a comprehensive guide to generating income in the housing market.
But before we begin, here are a few notable statistics:
- According to All The Rooms, Airbnb listings (at least two-bedroom apartments) with more than 100 positive reviews generate, on average, $23,862. Listings with no reviews tend to generate much less. This points to the fact that more positive reviews equals higher ROI.
- SmartAssets’ study found that Miami and San Diego are two of the most profitable cities for Airbnb hosts.
- Allied Market Research said the Global Vacation Rental Market was valued at $91 billion in 2021. By 2031, it’s projected to rise to $315 billion, representing a CAGR of 12.4% between 2022 and 2031.
- According to Statista, the total global revenue of Airbnb listings rose from $2.56 billion in 2017 to $8.4 billion in 2022.
- According to iPropertyManagement, 35% (~100 million people) of US households live in rental properties, with the rental rate increasing by 31% over the past decade.
Exploring Renting With Airbnb
Airbnb is a popular option for travelers and short-term renting. However, the pandemic has fundamentally changed the way people use Airbnb. Airbnb is becoming an increasingly popular option for long-term stays. According to Airbnb’s Q1 2022 survey, long-term stays on Airbnb are at an all-time high, nearly double from Q1 2019.
Airbnb presents a lucrative option for hosts, as Airbnb hosts have the potential to earn higher rental income compared to traditional renting. There’s also the flexibility factor, allowing hosts to rent out their space at their convenience. Lastly, Airbnb is fundamentally a platform where travelers and hosts can discover and connect.
This gives hosts access to a community of travelers seeking short-term accommodations.
Exploring Traditional Renting
Traditional renting involves leasing a property to long-term tenants. The renting period is typically upwards of six months. The inherent benefits of traditional renting are stability and long-term occupancy. This allows landlords to predict their rental income for the foreseeable future.
According to data from Zillow, renters spend nearly $500 billion on rent every year throughout the United States, with the majority coming from New York and New Jersey ($54 billion).
This shows that traditional renting is still alive and kicking, which presents landlords with plenty of options. However, there’s a lack of flexibility factor involved with traditional renting. Namely, landlords cannot change rental pricing due to lease agreements signed with tenants.
Let’s look at a general comparison of the most impactful factors of Airbnb vs renting to determine the ROI potential of both options.
Airbnb vs Renting Comparison
|Rental Income Potential
|Potentially higher income, especially in popular locations
|Stable income over the long term
|Flexible availability and usage of the property
|Limited flexibility due to long-term lease agreements
|Requires effort for guest communication and property upkeep
|Fewer operational responsibilities
|Subject to specific regulations and restrictions
|Generally faces fewer regulatory constraints
|Limited screening opportunities
|Ability to thoroughly screen tenants
|Security and Liability
|Potential for security concerns and property damage
|Fewer security concerns with long-term tenants
|Time and Effort Investment
|Requires ongoing time and effort for managing guests
|Requires less ongoing involvement and time investment
|Potential for shorter vacancy periods
|Longer vacancy periods when tenants move out
|Potential income fluctuations due to demand variations
|More stable income but limited potential for growth
Airbnb vs Renting Pros and Cons
Let’s explore the pros and cons of Airbnb vs renting to get the full picture.
Higher Rental Income
Airbnb allows property owners to earn higher rental income than traditional renting. Hosts can charge premium rates by offering short-term accommodations, especially in popular tourist destinations or during peak seasons.
As an Airbnb host, you can rent out your space on your own terms. You can choose when to make your property available for booking, giving you control over your schedule and allowing you to use the space for personal use when desired.
Extra Income Stream
For homeowners or property investors, Airbnb offers an opportunity to generate additional income by utilizing unused or spare space. This can help offset mortgage payments or contribute to overall financial goals.
In their survey, Airbnb said, “Nearly 40 percent [of hosts] said they host to earn money to make ends meet.“
Airbnb provides access to a vast global network of travelers seeking unique and personalized accommodations. The international access to accommodations allows hosts to connect with guests from all over the world, expanding their reach beyond local rental markets.
Airbnb is well-suited for short-term rentals, which can be advantageous in certain scenarios. It can be ideal for hosts who want to rent out their property temporarily, such as during vacations or when they are away for extended periods.
Hosting on Airbnb often involves personal interaction with guests. This can create a more engaging and fulfilling experience for hosts, enabling them to meet new people, share local insights, and receive direct feedback.
Enhanced Property Management
Airbnb offers various tools and features to assist hosts in managing their properties effectively. These include guest screening, secure payment processing, reviews and ratings, and communication platforms, simplifying the management process.
Many cities and jurisdictions have specific regulations and restrictions on short-term rentals. Hosts may need to comply with local laws, obtain permits or licenses, or face penalties for non-compliance from the HOA (Homeowners Association). Understanding and adhering to your area’s regulatory landscape is crucial to run a successful Airbnb business.
The demand for Airbnb rentals can fluctuate, especially in response to external factors such as travel trends, economic conditions, or unforeseen events (e.g., pandemics). Hosts may experience periods of low demand, impacting their rental income.
Hosting on Airbnb involves various operational responsibilities, including managing guest inquiries, coordinating check-ins and check-outs, cleaning and maintenance between stays, and addressing any guest issues or emergencies. Hosts need to dedicate time and effort to ensure a positive guest experience.
Competition and Price Sensitivity
The popularity of Airbnb has led to increased competition among hosts, particularly in highly sought-after areas. This can impact pricing and potentially lead to price sensitivity, where guests are more likely to choose lower-priced accommodations.
Time and Effort Investment
Hosting on Airbnb requires a significant investment of time and effort. From managing bookings and communication to maintaining cleanliness and ensuring a positive guest experience, hosts must be prepared to commit their time and attention to the hosting process.
Traditional Renting Pros
Stable Rental Income
Traditional renting typically involves long-term leases, providing landlords a stable and predictable rental income. This consistency can be advantageous for financial planning and budgeting.
Reduced Operational Responsibilities
Compared to short-term rentals, traditional renting often entails fewer operational responsibilities. Landlords typically have longer-term tenants, resulting in less frequent turnover and maintenance requirements.
Lower Regulatory Constraints
Traditional renting is generally subject to fewer regulatory constraints than Airbnb renting. Landlords may have fewer legal obligations or restrictions, making the process more straightforward.
Tenant Screening and Stability
With traditional renting, landlords can thoroughly screen potential tenants before entering lease agreements. This helps mitigate the risk of problematic tenants and promotes a more stable and secure living environment.
Lower Turnover Costs
Long-term tenants in traditional renting tend to stay for extended periods, resulting in lower turnover costs for landlords. There is less need for frequent marketing, cleaning, and refurbishing between tenants.
Reduced Effort and Time Investment
Traditional renting generally requires less ongoing effort and time investment from landlords. Once a tenant is in place, the landlord’s involvement typically revolves around regular property maintenance and addressing tenant concerns or repairs.
Fewer Security and Liability Concerns
Hosting long-term tenants in traditional renting can alleviate certain security and liability concerns associated with Airbnb rentals. Landlords generally have established relationships with tenants and reduced turnover, which may result in greater peace of mind.
Traditional Renting Cons
Limited Rental Income Potential
Traditional renting typically yields lower rental income compared to short-term rentals like Airbnb. Landlords may not have the opportunity to command premium rates or capitalize on peak tourist seasons.
Longer Vacancy Periods
When a tenant moves out in traditional renting, it may take longer to find a new tenant, resulting in potential vacancy periods. Landlords may experience rental income gaps during these periods, impacting their overall financial returns.
Traditional renting often involves longer lease agreements, which limit the flexibility for property owners to make changes or use the property for personal purposes. This can be a disadvantage for those seeking more flexibility or anticipating changes in their own living arrangements.
Limited Access to Property
With long-term tenants in traditional renting, landlords have limited access to their property during the lease period. This can restrict the ability to inspect or make changes to the property, and landlords must respect tenants’ privacy rights.
Dealing with tenant-related challenges, such as late payments, property damage, or disputes, can be a significant concern in traditional renting. Landlords may need to invest time and effort in addressing these issues and potentially navigate legal processes if disputes arise.
While traditional renting generally faces fewer regulatory constraints compared to Airbnb rentals, landlords still need to comply with local rental laws, fair housing regulations, and other legal obligations. Staying informed and meeting these requirements can add complexity and potential legal risks.
Potential for Rent Control
In certain areas with rent control policies, landlords may face limitations on increasing rental rates to keep up with market conditions. This can impact the potential for maximizing rental income.
The Airbnb vs renting debate is worth discussing for individuals looking to enter the housing market. The best way to determine the winner is to evaluate the ROI for both options carefully.
With that said, Airbnb and renting, in the traditional sense, offer their own set of pros and cons. While our guide outlines the advantages and drawbacks of both options, it’s down to you to process them and determine the winner of the Airbnb vs renting debate.
Generally speaking, Airbnb pays better than renting because Airbnb rentals can generate higher rental incomes. However, various factors, such as location, potential upfront costs, and demand, will ultimately determine the result.
It depends on the renting period. Airbnb rentals can be cheaper for long-term stays. But compared to traditional renting, renting through Airbnb is considered more expensive.
The cons of Airbnb include potential regulatory changes for short-term rentals, fluctuating demand, more operational responsibilities, potential security and liability concerns, greater time and effort investment, and increased competition.
Airbnbing your house might be more worthwhile than renting for individuals looking to make money on the housing market. This is because Airbnb hosts tend to charge more for short-term stays.