Buying Property for Airbnb: Selecting, Buying and Operating

Airbnb has turned into a profitable real estate investing strategy that offers investors an opportunity to make more money than with traditional rentals while also using their investment property as a second home. However, just buying any property and listing it for renting does not guarantee a successful short term rental business. 

The best place to identify a property is with the Summer Search team. For a flat fee Summer’s in-house team has found 1,000’s of properties across multiple asset classes including short-term rentals. The best part is that part of the fee can be applied to furnishing and/or managing the property.

What Qualifies a Property for Airbnb

An Airbnb property is a residential property that is listed for renting on a short term basis, usually per night. There is no strict definition of what qualifies a property for Airbnb. Indeed, many different types of real estate properties get listed as vacation rentals, from luxury mansions and large single family homes, to small condos and tiny homes. No market is off limits as long as short term rentals are not prohibited by local regulations.

The Airbnb platform has minimal requirements to what properties can be listed there, including:

• The space should only be used for lodging.
• Mobile homes, sailboats, yachts, and other vessels should be semi-permanently attached to a set location and parked in a privately owned space during the reservation.
• The space should be accurately represented, located where the host says it is, and be bookable.

There are 4 types of places that can be rented out via Airbnb:

• Entire homes
• Private rooms
• Shared rooms
• Hotel rooms (that doesn’t apply to individual investors)

As long as a home or a vehicle meets the requirements above, it can be turned into an Airbnb property and listed on the Airbnb website.

Airbnb Property vs Traditional Rental Property

Buying a property for Airbnb is very different from buying a property for a traditional rental business. While in both cases the property gets listed for renting by third-party renters, there are major differences between the two situations.

The main differences between Airbnb properties and long term rental properties include:

• Duration of rent: A short term rental is rented out on a daily (nightly) basis, while a traditional rental is rented out on a monthly (or sometimes annual) basis. Airbnb guests typically stay for a few days, whereas tenants can remain in the same home for multiple years.
• Purpose of stay: Airbnb guests look for a place to stay during their vacation or business trip as an alternative to more expensive or less personable hotels. They are frequently looking for special experiences to take advantage of local culture. Long term tenants, on the other hand, need a place to live alone or with their family because they cannot afford or do not want to buy their own home. 
• Type of renters: Airbnb guests can be solo travelers, couples, families on vacation, groups of friends traveling together, wedding parties, digital nomads, or business travelers. Tenants are usually individuals, friends, or families that need a place to call home without committing to homeownership.
• Furnishing: Airbnb properties need to be fully furnished providing all necessary items for a comfortable stay. Moreover, they need to be stocked with supplies like linen, toilet paper, shampoo, soap, coffee, and others, depending on the experience that they aim to provide. Most long term rentals are not furnished, but there are furnished rentals too.
• Property owner duties and responsibilities: Becoming an Airbnb host requires a lot of active work and can easily resemble having a full-time job. Hosts need to deal with the listing, marketing, housekeeping, maintenance, and other issues. Meanwhile, becoming a traditional landlord is a much more passive endeavor. Once you find a good tenant, all you need to do is to make sure that you provide required maintenance.
• Pricing: Vacation rentals are priced on a daily basis to optimize rates and occupancy based on seasonality, supply, and demand. With traditional rentals, pricing is much less flexible. Once you rent out a property for a certain monthly rent, you need to inform tenants a few months in advance between each rent increase, and in many US locations rent increases are capped at a certain percentage.
• Location: Short term rental properties are usually located in city centers and busy parts of town, close to public transportation and tourist attractions. This is done for guests’ convenience and easy access. At the same time, traditional long term rentals are typically located in quiet residential neighborhoods in good school districts.

These differences need to be taken into consideration by investors who might have experience with long term rentals and who are now planning to buy an Airbnb property.

The Best Properties for Airbnb

There isn’t one single type of property that makes for the best Airbnb rentals in the US market. It all depends on the market, the target guest type, and the expected revenue.

Nevertheless, some of the best properties for Airbnb include:

• Downtown apartments: While downtown apartments might be costly to purchase, especially in major cities, they usually have a relatively high average daily rate (ADR) and occupancy, bringing above-average income for hosts. This is the best Airbnb type for business travelers.
• City condos: Condos located in the city center are another type of property that does well as a short term rental. They have the added benefit of offering access to shared amenities like swimming pools, gyms, and others, which makes them an attractive option for high-end business travelers. Daily rates are usually very strong.
• Beachfront houses: Beachfront single family homes are a top choice for vacationing families and friends and a popular option for those investing in seaside or oceanside resorts. Demand might be seasonal, but the revenue that hosts generate over the summer season is enough to secure high ROI for the entire year.
• Lakefront homes: Houses with lake views are another great type of Airbnb as they attract nature lovers and sports enthusiasts throughout the year. Some hosts offer boats or other facilities for water sports for additional demand from guests.
• Luxury villas: Luxury villas and mansions can also work out well as vacation rentals. They are less popular due to the high initial cost and the high maintenance expenses, so occupancy rate is good because of the limited supply. Moreover, nightly prices can reach $10,000 or more, depending on the number of rooms, the guest capacity, and the available amenities. Sometimes these spaces are used as wedding venues.
• Cabins: Cabins are one of the best properties for Airbnb, especially in mountainous destinations. The seclusion that they offer attracts those who enjoy the beauty and quietness of nature and who like outdoor activities.
• Unique property types: Finally, unique Airbnbs also have their own segment of guests who like adventures. These include but are not limited to towers, igloos, barns, caves, treehouses, yurts, huts, domes, and more.

While short term rentals can be as diverse as it gets, there are certain characteristics that the best Airbnbs share.

Some of these common characteristics in Airbnb rentals include:

• Being placed in a top location
• Facing year-round demand
• Offering great amenities like a swimming pool, a hot tub, a home movie theater, a mini golf course, and others
• Providing a fully equipped kitchen
• Offering unique experiences such as local tours, local food and drinks tasting, mini local language courses, arts classes, and daily homemade food
• Generating a high occupancy rate
• Having strong daily rates
• Earning excellent revenue

Keeping in mind the types and features of the best Airbnb properties when buying one is important, but the success of your business also depends on how many efforts you put into preparing your property for listing and into providing the best hospitality for your guests after you’ve purchased the home.

How to Buy a Property for Airbnb

Buying an Airbnb property is a demanding process that needs to be handled with a lot of analysis and attention to detail. There are many factors that go into finding the best market and the right property that will maximize revenue and profit.

When you buy a property for Airbnb, you need to go through the following steps:

• Set up a budget: Based on your savings, income, expenses, and other financial considerations, you need to decide on a realistic budget for the purchase of the property and stick to it. This will guide your selection of the financing method and your property search as well.
• Figure out financing: You have to choose the most appropriate financing method for your situation. Different Airbnb loan options come with different terms and requirements including credit score, loan amount, down payment, interest rate, and repayment period. Details are discussed below.
• Select a market: You need to perform Airbnb rental market research and analysis to choose the best location for your budget and objectives. You can invest locally or remotely. The best Airbnb markets have no seasonality, attract different guests, boast high occupancies, and provide above-average nightly rates. You can check out the top short term rental markets in the US.
• Study the location: After you select a market, you need to analyze it. The first step is to confirm that Airbnb activities are legal and to check the short term rental regulations that govern them. Next, scope the competition to see what the most popular types of Airbnb properties are. Finally, analyze local daily rates, occupancy rates, revenue, and profit to make sure that this market is capable of meeting your expectations.
• Analyze competition: It’s important to take a deep look at the competition. Focus your analysis on properties similar to the one that you plan to buy in terms of type, number of rooms, and amenities. Check what experiences they offer to guests. See what prices they have and how often they get booked.
• Look for properties for sale: The next step in buying a property for Airbnb is to search for real estate listings. Before you do that, you need to have a list of specific features that your property should have based on local market analysis. You can check out major real estate websites and investment platforms, consult with an agent, see if local hosts might be selling, and contact property managers as their customers might be selling.
• Conduct analysis of shortlisted properties: After you choose a few properties, you have to diligently analyze them using tools like an Airbnb calculator. You have to use reliable Airbnb data from comps to estimate the ADR, Airbnb occupancy rate, operating expenses, cash flow, income, and return on investment. An Airbnb property is an investment decision, so you should be led by the numbers, not by your emotions.
• Hire an agent: When you have a property for sale in mind, you need to connect with a real estate agent if you haven’t done so yet. The agent will help you make an offer, negotiate the best terms, and close the deal.
• Complete the purchase: Finally, you have to walk through all the steps associated with the actual purchase, such as home inspections, appraisals, getting the loan, and closing.

Buying a short term rental property is a multi-step process, and it’s important to complete each step with the necessary amount of diligence in order to emerge as a successful Airbnb property owner.

Selecting a Property for Airbnb

When you choose a property to buy to rent out on Airbnb, you should be entirely driven by data and reason. You need to identify the home that is within your budget that will bring you the highest revenue and profit, not the home that you personally like the most.

These factors should guide the selection of your vacation rental investment property:

• Location: Find an area that’s close to tourist attractions, public transportation, restaurants, cafes, shops, and other places of interest. Check local zoning laws to confirm that running an Airbnb business in this exact neighborhood is allowed.
• Price: Stick to the budget that you’ve determined. Don’t get tempted by expensive properties that you cannot afford and that might not bring the best ROI.
• Targeted guest persona: Look for a property that has the features that your intended guest types will enjoy. For instance, if you want to host families with children, go for a single family home with a garden where you can place toys for the kids.
• Amenities: Check out the amenities that your competitors offer and also the amenities that are missing from the market. Search for a property that can accommodate all must-have amenities besides some unique extras.
• Competition: What your competition does well and what they do poorly should guide your entire selection of an Airbnb property. Learn from the successes of the top-performing listings on the Airbnb website and the failures of the bottom ones.
• Expected performance: Before you decide on any property, make sure that the numbers make sense. The expected income should be more than enough to cover financing, repairs, furnishing, and all operating expenses and still bring positive cash flow. Don’t settle for a negative cash flow property hoping that your luck will turn soon.

If you take all these factors into consideration, you are guaranteed to select a top property for Airbnb.

Alternatively, Summer can help you with the Airbnb investing process. The Summer acquisitions team will work hand-in-hand with you to understand your preferences, expectations, and requirements based on your budget. 

Then, the Summer team will identify homes for sale that match your exact requirements and share them with you, including a comprehensive report with the design and renovation recommendations, the projected returns, and other details. After you select a home, the team might be able to recommend a lender and an agent.

Buying Airbnb Property Remotely vs Locally

Investors don’t always buy an Airbnb property close to home because their home market might be unaffordable or unprofitable for this strategy. However, purchasing a short term rental locally and remotely is quite different.

The differences between investing in Airbnb remotely and locally include:

• Familiarity with the local market: When you invest locally, you are largely aware of the market, both the real estate market and the Airbnb rental market. You lose this familiarity when buying a property remotely, so you have to rely more heavily on third-party sources for data and analysis.
• Property search: Local investors can apply the driving for dollars strategy or just talk to their friends to identify potentially profitable opportunities. Remote investors need to search for real estate listings online or hire an agent early on.
• Ability to check properties for sale: If you want to buy a property close to home, you can easily visit and inspect listings in person. This is not feasible for properties located a few thousand miles away. Nevertheless, all Airbnb investors should focus on quantitative analysis rather than personal preferences when buying an investment property.
• Property purchase: When you buy an Airbnb locally, you can be more involved in the process. The further your investment is located from home, the more difficult it becomes to be present in person, so you have to work with a trustworthy agent.
• Management: After you buy the property, you can potentially self-manage it if it’s located in your market, while you have to hire a property manager if it’s located away.

No matter if you invest locally or remotely, the selection of the property needs to be based on reliable short term rental data and detailed analysis.

Financing a Property for Airbnb

Financing the purchase of an investment property for Airbnb is very similar to financing the purchase of a traditional rental property.

Investors have the following options for Airbnb loans or financing:

• Cash: Very few Airbnb investors manage to buy their property fully in cash. This is usually done by serial investors who can use income from other rental properties to save enough to purchase a new property.
• Conventional mortgage: Mortgage loans are the most popular financing strategy for Airbnb properties. This is a good option for investors with a solid credit history and enough money to put down. With rental properties, the minimum down payment is 20% of the sales price. Moreover, buyers need to cover closing costs of 2-6% of the loan amount and have a credit score of at least 620.
• Hard money loan: Investors with poor credit scores may resort to hard money lenders for the financing of their vacation rental. These lenders are different from banks and offer more flexible terms. However, down payments are higher, interest rates are more, and loan durations are shorter. That’s a feasible option for hosts who are certain about the performance of their Airbnb so they are able to return the loan in a couple of years.
• Private money loan: Private money lenders can also finance the purchase of an Airbnb property. The terms of private money loans are highly negotiable between the lender and the borrower but generally result in large down payments, high interest rates, and short repayment periods. They are best for investors who have no other option.
• Cash-out refinance: With cash-out refinancing, Airbnb investors who already own a primary home that’s being financed can borrow against the equity they hold in their primary home. Basically, the existing mortgage is changed with a bigger one, and the loan repayment period is 15-30 years. Interest rates are 0.125%-0.25% higher than with conventional mortgages because of the increased risk of default.
• Home equity line of credit (HELOC): The HELOC strategy allows homeowners to access funds based on equity in their primary home. Over a draw period of typically 10 years, borrowers pay only interest, after which they start repaying both the principal amount and interest, usually over 10-20 years. The interest rate is higher than on conventional mortgages but lower than on hard money loans and private money loans.

With so many financing options, investors need to carefully analyze their financial situation and the expected performance of their investment when buying a property for Airbnb. Short term rental property analysis based on reliable data is a must to ensure that the monthly income will be enough to cover loan payments and operating expenses and leave hosts with positive cash flow.

Purchasing a Property for Airbnb

When buying an Airbnb property, it’s recommended for investors to work with a reputable real estate agent who has experience in short term rental properties unless they have expertise in real estate transactions.

There are a lot of legalities, documents, and details that go into purchasing a property, and a good agent will be able to easily and smoothly navigate the process for you, without any hiccups along the way.

The process of buying property for Airbnb entails the following steps: 

• Get pre-approved for a mortgage (if you plan to use a conventional mortgage)
• Hire a real estate agent who specializes in investment properties
• Make an offer
• Get the mortgage
• Buy homeowners insurance (additionally you’ll need Airbnb insurance)
• Have the property inspected
• Get a home appraisal
• Negotiate the price and purchase terms with the seller
• Close the deal

Your agent should help you along these steps and make the process significantly faster and less stressful. Moreover, leveraging their professional network, they can connect you with other professionals needed, such as real estate lawyers, lenders, home inspectors, designers, maintenance contractors, property managers, and more.

The success of your Airbnb property purchase depends largely on the capabilities and the work ethics of the agent. That’s why it’s important to hire someone who comes with strong recommendations. Referrals are the best option in this situation. Reach out to people you know who have recently bought a property in the market and ask for their recommendations.

Furnishing a Property for Airbnb

One of the main differences between short term and long term rentals is that the former always come fully furnished, equipped, and stocked with guest supplies. Furnishing a property for Airbnb is different from furnishing your own home. When designing and furnishing your vacation rental, all your decisions should be driven by what will bring the highest return on investment.

You need to choose furniture and decors that are neutral enough to attract different types of guests, that look good on photos, and that will not become outdated in a few short years. You need to comply with hospitality standards and trends in the local market.

Moreover, you should go for durable items that don’t need to be frequently replaced as this will negatively impact your profit. Meanwhile, you should stay away from overly luxurious and expensive brands unless you specialize in luxury Airbnbs due to the increased wear and tear associated with vacation rentals.

Keep in mind that the average cost to furnish a house for Airbnb is between $3,500 and $40,000 and depends on the property size and type, the number of rooms, the location, the amount and quality of furniture, and the included amenities. 

Speaking of amenities, you need to include basic amenities like a furnished kitchen and linen as well as some special amenities such as a pool or a hot tub. But before you do that, make sure that the cost of any amenity will be compensated for by the expected additional revenue that it will generate.

If you need help in getting your property ready for listing and guests, Summer provides customizable Airbnb interior design and furnishing packages. The process is headed by a professional New York-based designer with more than 10 years of experience in residential interior design. Hosts can choose how involved to be in the process. Pricing starts at $10,000.

Managing a Property for Airbnb

Even before you buy your Airbnb property, you have to decide on the best short term rental management solution for your needs.

Airbnb hosts can choose between 4 main options:

Self-Managing Your Airbnb Property

You can become a DIY Airbnb host and take care of your vacation rental on your own. This entails a lot of active work, from marketing and pricing to housekeeping and assisting guests. An average host needs to spend at least a couple of hours a day on managing their property, depending on the type of property and the occupancy.

Generally speaking, this is a good solution for investors who buy a property close to home, have a lot of free time, don’t mind working in hospitality, and have strong interpersonal and hospitality skills. They might still need to hire a local team of cleaners and maintenance staff unless they want to perform these tasks by themselves. Access to the best Airbnb management software is key for success without losing your sanity.

The main benefits of this strategy is that you retain full control over your business and you get to keep all revenue (minus operating expenses and loan payments).

Having an Airbnb Co-Host

Some Airbnb investors choose to work with a co-host who can be a family member, a friend, a co-investor, or a fellow investor. With this solution, the management work can be divided in a way that makes the most sense for your particular situation, there is no one-fit-all model.

This option works for hosts who want to be engaged in the management of their Airbnb property but don’t want to carry all responsibility and be constantly occupied. It’s also a good idea for new hosts who’d like to learn from more experienced investors.

Similar to the responsibilities, the revenue is also shared based on the understanding between you and your co-host. As the success of your Airbnb business will largely depend on your partner, you need to choose someone with the right skills whom you can trust.

Working with a Half-Service Airbnb Manager

Another solution is to hire a half-service Airbnb property management company, like Evolve or RedAwning. These companies help automate the most time-consuming tasks such as listing optimization, marketing, dynamic pricing, communication, and review management. Meanwhile, hosts remain in charge of cleaning, restocking, inspections, and maintenance.

Working with a half-service property manager is the right fit for investors who would like to be involved in the management of their Airbnb without doing all the legwork on their own. It could work for remote hosts who hire local housekeeping and maintenance personnel.

On the downside, you lose control over some important aspects of managing your property and you share revenue with the Airbnb manager. Half-service companies usually charge around 10% of monthly income.

Hiring a Full-Service Airbnb Property Management Company

Last but not least, you can have a full-service short term rental property manager take care of your Airbnb. Popular names include Vacasa, Casago, and Air Concierge.

The services of the best Airbnb management companies include design and furnishing, legal help with permitting and licensing, professional photography, listing, distribution, marketing, pricing, revenue management, insurance, cleaning, linen changing and laundry, supply restocking, guest communication and support, inspections, maintenance, and more.

Since the services offered by these companies can vary a lot, it’s important to get a clear understanding of what your preferred property manager does and how much they charge for it. Most Airbnb management fees are between 25% and 40% of monthly revenue.

With full-service management, you can make passive income from your Airbnb property, while performance can be optimized due to the professional services. However, you lost control over business operations.

This option is right for remote investors, those with full-time jobs, and those looking for passive investments.

Summer is a top-ranked full-service short term rental management company that does all the work, from end to end. Because of the high quality of services, Summer-managed properties perform better than at least 95% of comps in each market. Monthly rates start at only 20% of booking revenue excluding cleaning fees, with no hidden fees.

Bottom Line

Buying an Airbnb property is an exciting endeavor that can bring a lot of financial benefits in the short and long term. However, there are many considerations that need to go into choosing the right market and selecting the best property. If you follow our guide, you should be able to go through the process with no troubles and be on your way to becoming a successful Airbnb host.