There appear to be huge premiums to be found in flipping houses and condos that are leased via Airbnb. So is this the new power tool for investors, or are there dangerous pitfalls which are being overlooked?
Airbnb Rentals
Airbnb is a short term rental ‘app’ allowing property owners and renters to lease all or part of a space to guests on nightly, weekly, and monthly rates. With over 1.5M listings in 34k cities the service is rapidly disrupting vacation rental markets, and has become a popular alternative to hotels and long term annual rentals.
Airbnb is changing the dynamics of the real estate market. On one hand it is reportedly adding millions to the local economies where it has a strong presence. On the flip side it is dramatically driving up both local rental rates and property values. Many real estate investors are finding this style of renting hugely popular. It means almost zero management versus old school practices, and there is a lot more cash flow. It isn’t just for buy and hold real estate investors either. If flippers and wholesalers secure a property line up a strong income stream with pre-booked Airbnb rentals they can almost turn over a turnkey product for a premium exit price, without any of the ongoing headaches. For many this realization can seem like a “Eureka!” moment. But what are the real pros and cons of this strategy?
The Pros of Flipping Airbnb Rentals
High Returns
Airbnb rental rates are producing amazing returns for those that get good deals on real estate. It is almost bewildering the rates that some units are fetching. In many cases they appear higher than local hotels.
Cash Flowing Property
Without Airbnb it seems it is getting harder to find positive cash flow in some neighborhoods. And instead of having to gamble on securing tenants or what real rental rates might be, selling in this way ensures cash flow for the end buyer.
Easy Management
Say goodbye to expensive and intensive marketing, tenant screening, and evictions. Airbnb makes it about as easy as it can get to lease a property.
Better Resale Product
For those flipping houses this strategy can result in a much more attractive product to resell. That also means premium profit margins, and faster resales.
The Cons of Flipping Airbnb Rentals
Legalities
Airbnb style short term rentals aren’t legal or allowed in every city, community, or building. Skirting the rules can be a major problem.
The Airbnb Effect
The Airbnb effect isn’t all good. Many are complaining that it is devaluing their buildings and neighborhoods due to wild party crowds. In other cases it is pushing year-round renters out because it erases affordability.
Consistency
Even though real estate investors may be able to successfully pre-lease units for a couple years, most won’t be able to guarantee long term cash flows or full occupancy.
Not Everyone Wants a Rental
The real downside is that not every end buyer wants a rental, nor a short term rental. Some are stuck on old-school annual leases, or want to remodel and resell properties, or use them to live in. If the property is pre-leased for several months next year it is going to make it harder to flip to these buyers.
So will you Airbnb it, or not?
Authored by Best Transaction Funding BestTransactionFunding.com is the leading source of transactional funding and hard money loans for real estate wholesalers in the US, where 100% financing, and saying “Yes” is what we love doing all day long.
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