How to Buy Airbnb Property: 6 Steps

The most important step for starting a profitable short term rental business is buying the right property. But with so many factors that determine the ROI and ultimately the success of a vacation rental property, it's hard to always make the right decision, especially for beginner investors.

This article guides you through the most important considerations and steps that go into buying an Airbnb property. We'll take a look at how to find the right market, calculating your potential expenses, and more.

If you're looking for full support throughout the process of buying an Airbnb property, Summer is here to help. We offer everything from investment advice and property acquisition to hands-on property management and design. Our Acquisitions Team will help you find the best opportunities in the U.S. market, while our tech tools, like SummerOS and Forecast, give you the insights you need to make smart decisions. With Summer by your side, you'll have all the guidance and tools you need to make a successful investment.

Ready to dive in and make your dream Airbnb investment a reality? Let's get started!

1. Determine the market you want to buy your Airbnb property in

Always start with the market. As you might already know, location is the single most important factor in the world of real estate investing. That's because where your property is located determines the sale price, average daily rate (ADR), Airbnb occupancy rate, revenue, startup and operating expenses, short term rental regulations, and more on your property.

There are many different types of markets that have historically performed well for Airbnb properties in the sense that they bring strong occupancy and generate above-average revenue. Some of the most popular kinds of Airbnb markets include:

• Major cities: Large cities such as New York, Los Angeles, Chicago, Houston, Phoenix, and Orlando have naturally been able to attract tons of Airbnb guests, making them a once preferred choice for investors. These places welcome millions of business and leisure travelers every year and bring constant demand. However, at the moment, many of these cities suffer from higher property prices and restrictive Airbnb rules.
• Rural areas: After the global pandemic, guest interest in Airbnbs located in rural markets with access to natural attractions and outdoor activities, away from busy cities, grew exponentially. Countryside short term rentals benefit from good price points, but on the flip side it might be more difficult to find an Airbnb manager and other professional help outside cities.
• Beach resorts: Oceanfront and lakefront vacation rentals have always been a top choice among investors and guests as they provide access to a range of water sports as well as the opportunity to relax on the beach. Some top destinations in this category include Key West, Myrtle Beach, Gulf Shores, Virginia Beach, and Honolulu. However, home prices might be high, demand is rather seasonal, and some of these resort cities have introduced strict vacation rental regulations.
• Ski destinations: Similarly, ski resorts have the potential to bring very positive results for investors. Popular ski destinations include Aspen, Lake Tahoe, Breckenridge, Mammoth Lakes, and Big Sky. Some disadvantages of these markets are the notoriously high property prices, the highlighted seasonality, and the frequently prohibitive regulations.
• National parks: The areas around national parks like the Grand Canyon, Yosemite, Yellowstone, and the Great Smoky Mountains have also proven to perform great for Airbnb properties. Importantly, most of these locations offer year-round opportunities for outdoor activities and family fun. Before diving in, though, investors need to be aware of the potentially unaffordable home values and existing local Airbnb laws.

Regardless of what type of location you want to go for, your choice of the top market for Airbnb should be based on the following features and indicators:

• Affordable property prices: The average sale price should make sense for your budget and financing method as well as for the revenue that you can expect in the market. Make sure to launch your Airbnb business with positive cash flow and strong ROI from day one.
• Year-round demand: In most cases, it's much easier to have positive cash flow if you enjoy a stable Airbnb income the whole entire instead of relying on making a killing over a few short, high-season months to make up for the rest of the year.
• Reasonable number of active Airbnb listings: You want to invest in an already developed Airbnb market that is, nevertheless, not oversaturated with listings yet. It's hard for a new host to establish their brand in a location where existing rentals easily satisfy demand.
• Strong revenue potential: You're probably getting into the vacation rental business in order to make money, right? Ensure that the location where you decide to invest is capable of generating good revenue with high nightly prices and excellent occupancy rates.
• Sensible rental expenses: In addition, a good short term rental location does not demand unreasonably high startup costs and ongoing expenses to run an Airbnb business. Expenses are factored in cash flow and ROI calculations, so they need to be significantly below monthly income to be profitable.
• Lenient Airbnb laws and regulations: Finally, STR regulations need to be reasonable in the sense that they don't prohibit non-owner occupied rentals, do not rule out zoning districts that are popular among tourists, do not severely limit the number of days per year for which you can rent out, and do not demand overly high taxes.

If you're not sure where to get started, you can check out this list of the top short term rental markets in the U.S.

Keep in mind that the Airbnb property you buy does not necessarily have to be located close to your home, especially if you live in an overpriced city or unpopular travel destination. Hiring one of the best Airbnb property management companies can help you invest in a market that makes sense financially. You'll get to earn passive income from your vacation rental investment while benefiting from professional, hospitality-quality services.

Ultimately, your decision on where to buy an Airbnb property should be based on the financials – after making sure that short term rentals are legal there, of course. That's why you need to analyze a few potential markets using the best software tools to access Airbnb data and analytics on the city-level to ensure strong potential.

Popular names in the short term rental data industry include Summer, AirDNA, Mashvisor, Rabbu, and Airbtics. For access to institutional-quality Airbnb data and forecasting tools to make smarter investment decisions, check out Summer Forecast. This is your go-to platform for building a high-performing vacation rental portfolio based on intuitive data and analytics and powerful forecasting tools that help you analyze market trends, compare markets, and generate revenue projections.

No matter what method and tools you use to choose the location, make sure that you go for a market that has what it takes to make profitable Airbnb investments.

2. Decide on the type of Airbnb property you want to buy

The second important decision that Airbnb investors face is the type of property that they want to buy. There are many types of properties that can qualify for Airbnb getaways as the website has very simple eligibility requirements.

Basically, Airbnb expects:

• Spaces to be used for lodging only
• Mobile homes, sailboats, yachts, and other vessels to be semi-permanently attached to a set location and be parked in a privately owned location during reservations
• Spaces to be accurately represented, be located where stated, and be bookable

That's it! And, when listing an Airbnb property, hosts can choose from four types of places:

• Entire home
• Private room
• Shared room
• Hotel room

Among these, entire homes are the most popular type of Airbnb properties and definitely the one that makes the most sense for individual investors. Private rooms and shared rooms are usually offered by homeowners who want to make some money when they are away from home, and hotel rooms are listed by commercial investors with hotel ownerships.

Meanwhile, certain types of homes have proven to perform particularly well as short term rentals, including:

• Houses and single family homes: This is often the best Airbnb property type for suburban and rural markets and for hosts who plan to cater to families on vacation. The main pros include good daily rates, ability to add multiple amenities, and options to attract different guests, while the most considerable cons are complicated maintenance, higher costs, and need to take care of outdoor spaces.
• City apartments: Apartments in downtown areas are a good choice for hosting business travelers and digital nomads. Benefits include easy maintenance and multiple management options, but cons can include expensive prices and potential city-level and HOA restrictions.
• Luxury condos: Units with high-end amenities are great for welcoming guests traveling on business looking for comfort. The major pros include readily-available amenities and little wear and tear, while the main cons are the need to provide exclusive concierge services and to comply with HOA regulations.
• Lofts: Lofts are the ideal Airbnb property type to cater to couples, groups of friends, or small families searching for a tranquil, comfortable, and cozy getaway. These can be affordable and easy to set up, but you'll be working with limited space which may mean hiring professional Airbnb furnishing services to optimize the space.
• Large villas: Luxury villas in resort areas allow hosts to welcome group travels, wedding parties, and other events as long as local regulations do not prohibit this. The most important benefits of this property type are the ability to add various amenities and high daily rates, while the main cons include expensive maintenance, expensive overall cost, and complicated repairs.
• Mountain cabins: Cabins are extremely popular in mountain getaway destinations. Today's digital nomads and city-dwellers will love these properties, but note that they'll be less accessible to your guests and contractors than other property types.
• Tiny homes: Another trending Airbnb property type to buy is tiny homes, which can come in different shapes and kinds and can be on foundations or on wheels. The main pros of tiny Airbnb houses are the cheap price and the easy management, while some major cons include challenging design and furnishing and limited guest count.
• Unique properties: Finally, unique Airbnb property types are becoming increasingly popular on the platform. Really, the sky's the limit when it comes to offering unique lodging experiences. Think of farms, cottages, chateaus, treehouses, yurts, huts, earthships, houseboats, submarines, igloos, barrels, and more!

When choosing the best type of Airbnb property to buy, take into consideration the amenities that are demanded in your local market and whether they can fit within your selected property. Some of the most popular Airbnb amenities include: 

• Free parking
• WiFi
• Air conditioning 
• Swimming pool
• Hot tub
• Jacuzzi
• Fireplace
• Fully equipped kitchen
• Home office
• Pet-friendly setup

Remember that there isn't one single best type of Airbnb property as different guests look for different options. The right type of vacation rental for your situation depends on your market, ideal guest persona, budget, and short term rental management solution.

3. Figure out how to finance your Airbnb property

Once you know where to invest and what type of Airbnb property to buy, it's time to choose the best method of financing your purchase. There are multiple ways to finance an investment property that can accommodate the needs of both first-time buyers and more seasoned investors.

The main finance options that Airbnb property investors can choose from include:

• Cash: Most cash buyers are experienced investors with ample funds as well as those investing in small homes in affordable markets.
• Mortgage loan: Conventional mortgages are by far the most popular type of financing that Airbnb hosts opt for. To meet the eligibility requirements, you have to have a good credit score, pay a minimum down payment of 20%, and typically commit to a longer loan term of 15 years or more. Interest rates are around 6-7% at the moment, and terms are generally fixed.
• Hard money loan: Airbnb investors can borrow from hard money lenders which are institutions that provide loans to those who can't qualify for a conventional mortgage, where the property is used as collateral. With hard money loans, you can borrow up to about 70-80% of the sale price, but you have to repay within 12-24 months and agree to higher interest rates of 8-15%. However, you can borrow with a poor credit score and bad credit history.
• Private money loan: Vacation rental buyers can borrow money from private institutions or individual real estate investors, and the conditions can be quite flexible. Since the property is used as collateral, there is no requirement for a minimum credit score or maximum loan amount. Nevertheless, loan terms are usually shorter (up to 12 months but can sometimes extend to five years), and interest rates are high, at 10-20%.
• FHA loan: Airbnb hosts who don't own a primary home might qualify for a loan provided by the Federal Housing Agency (FHA). The minimum credit score is 580, and the minimum down payment is 3.5%, while loan terms and interest rates are comparable to conventional mortgages. This method is only applicable to buyers who are thinking of purchasing a home (maybe a duplex) to live in one unit and rent out the rest, also known as house hacking.
• Cash-out refinance: Investors who are currently financing their home or another rental property can borrow against the equity they have in the first property to take a larger loan amount and finance two properties. The interest rate is usually a bit higher than with a conventional mortgage.
• Home equity loan: Property owners can use a home equity loan or line of credit (HELOC) to either borrow a lump sum or draw funds over a period of up to ten years, based on the equity they have in their primary home or another investment property. In this way, they can finance the down payment or the monthly payments on their Airbnb rental.
• Seller/owner financing: Some manage to buy an Airbnb property by making monthly or annual payments to the seller rather than a financial institution or a third-party individual. In this case, the original property owner acts as the lender. The loan terms, conditions, and interest can be very flexible depending on the arrangement between the buyer and the seller.
• Business loan: Besides a real estate loan, an Airbnb property can sometimes be financed with a small business loan if you're renting it out as part of a business. Business loans offer somewhat flexible conditions, but they require a solid business plan. Interest rates are similar to mortgage rates, at about 6-7% for Small Business Administration (SBA) 504 loans.
• Self-directed IRA: You can buy an Airbnb by using your funds within a self-directed IRA. This method requires a high down payment of 30-40%. Moreover, the property needs to be held within the IRA, and all income and expenses need to pass through the IRA.

With so many Airbnb loan options, it's important for buyers to choose the method that best suits their specific situation. The financing decision should take into account your savings, property price, down payment, estimated monthly revenue, and emergency funds. Don't borrow more than you can afford to pay back to avoid foreclosure.

4. Fully estimate your Airbnb property expenses

The property price will be your biggest expense when you buy an Airbnb property, no doubt, but there are numerous other associated costs that can amount to quite a lot.

The major startup expenses related to purchasing a vacation rental property include:

• Down payment: The minimum amount varies from 3.5% of the appraised value for an FHA loan to 40% for self-directed IRA.
• Closing costs: Typically 2-6% of the purchase price.
• Fixes, repairs, and design: The cost can vary widely depending on the condition of the property and your design plans.
• Airbnb amenities: The cost depends on the exact extras that you'd like to add, brands, and quality.
• Supplies: You will need to pay at least a few thousand dollars to equip your rental with sheets, towels, kitchen supplies, garbage bins, toiletries, cleaning supplies, and everything else required for your guests. 

When budgeting for your Airbnb business, you also need to consider the operating expenses that you have to cover every month or every year, such as:

• Airbnb service fee: The typical Airbnb host fee is equivalent to 3% of the booking revenue subtotal.
• Cleaning fees: You'll have to pay for Airbnb cleaning services, and the price depends on the location, type, and size of your property.
• Guest supplies: You need to restock things like toilet paper, tissues, soap, shampoo, coffee, and others between guests. Moreover, you need to change towels and sheets, at least on an annual basis.
• Utilities: As an Airbnb host, you need to cover the electricity, water, gas, and internet bills.
• Insurance: You have to hold Airbnb insurance that protects against both property damage and general liability.
• Taxes: These will typically include property tax, rental income tax, transient occupancy tax (TOT), and sales tax.
• HOA dues: If your property is governed by a homeowners association, you need to pay these fees as well.
• Maintenance: Airbnb properties are subject to increased wear and tear, and they need to be kept in a good condition to continue getting booked and receiving positive guest reviews.
• Management: If you plan to have your property professionally managed, keep in mind that Airbnb managers charge between 10% (half-service) and 40% (full-service) of revenue. Summer end-to-end management services start at 15% of booking revenue – excluding cleaning fees – depending on the market, property, and operations.

All the one-time costs and operating expenses add up to a significant amount that needs to be included in your budget when you're figuring out how to buy Airbnb property as an investment.

5. Determine your possible ROI

Now that you've calculated your expenses, you need to find out what profit the property can generate. Forecasting the ROI of a property is usually based on the performance of comparable listings – referred to as comps – in the local market. Look for listings of the same type and size, offering similar amenities and extras to see what daily rates they have and estimate what occupancy they generate. This will allow you to calculate your expected rental income. Then, you need to factor in all rental expenses to estimate the cash flow and return on investment.

When it comes to a good ROI for Airbnb properties, there isn't a single agreed upon number. It really depends on the situation and the metric. One thing is sure, though. Always aim for positive cash flow in order to make money from your investment. A negative cash flow signifies that you are losing money rather than earning money from your business.

With regards to ROI, one of the most widely used measures of profitability in real estate is the cap rate, or short for capitalization rate. A good cap rate for Airbnb properties is in the range of 8% to 12%. An ROI below 8% is not optimal as you can easily find a property that makes more. A cap rate above 12%, on the other hand, usually signifies an unnecessarily high risk associated with the investment.

Meanwhile, to avoid the need to make manual calculations based on unreliable Airbnb data sources, Summer Forecast can help you unlock exclusive Airbnb insights to not only find the best markets but also forecast the expected returns of any property within the U.S. market.

6. Bring in the pros

Finally, once you know which Airbnb property you want to buy, hire an investor-friendly real estate agent or broker to help you with the process.

It's important to look for an agent who specializes in working with Airbnb investors rather than homebuyers as they can offer tailored-made recommendations and services to help with the setup of your business. They can advise on things such as the optimal area, best property type, expected revenue, forecast expenses, legal regulations, top property managers, and more.

When looking for a brokerage and an agent, you can check out the following options:

• Connect with local hosts and ask for referrals
• Attend local real estate meetups
• Ask local short term rental property managers for recommendations
• Search online and read customer reviews
• Network with other investors on online forums
• Check out the online profiles of local real estate agents

Bottom line

Buying an Airbnb property is an exciting yet complex process, requiring smart decisions and careful analysis. From choosing the right market and property type to determining financing, estimating costs, and forecasting ROI, each step is crucial to your success. Focus on finding areas where short term rentals thrive and select a market with strong demand.

If you’re looking for expert guidance from start to finish—whether it’s identifying top locations, finding the best properties, or connecting with trusted professionals—Summer can help every step of the way.