Which is better, annual multifamily rentals or Airbnb style short term vacation investments?
Short term vacation rentals like those you see on Airbnb have become very trendy among new real estate investors. They tease with the hope of higher rents per night, and the chance to flex your interior design and hospitality skills. How do they really stack up against multifamily apartments as annual rentals? Which is better for your portfolio?
Consistency in Income & Returns
The ‘promise’ or higher rental rates by renting out units to short term guests can be seductive. However, vacation rentals face stiff competition and generally have much higher vacancy rates. They are also far more volatile. Even if you can rent for double the rate of an annual rental for five months of the year, during local vacation season, once you add up the empty months, additional booking fees, and the cost of cleaning between tenants, it’s still often a net loser. Then consider the impact of a storm or shifting travel trends and all it can take is one event to wipe out your entire income for a year or two or more.
Short term rentals are incredibly management intensive. You may have to keep up with cleaning, maintenance, check-ins, and move-outs, as well as bookings and reviews daily — all for each unit. Great Airbnb hosts who want repeat business, referrals and to stand out and be trusted online can have to go to great lengths to provide a fantastic experience throughout the stay too. It’s not passive at all. It may be more work than your old job — all in stark contrast to annual tenants.
The true profitability of any investment is how much you get to keep at the end of the day. In addition to booking commissions and other expenses, short term rental hosts with guests staying less than six months are often subject to higher or additional taxes as well. Watch out for any potential impact on your income taxes, as well as triggering additional local taxes and permit fees.
Value & Growth
You’ll typically find properties to use as short term rentals in the most competitive and highest-priced areas. That’s true whether they are in dense urban areas or resort towns. These types of rentals have become so prevalent in these areas that properties being listed are already priced for Airbnb investors, with the most optimistic rents. That means you may be paying two or three times as much for the same property versus a couple of years ago. You may not be able to make the numbers work on an annual lease basis. Experienced investors might call those prices unsustainable. If tourism falters for any reason, those properties may come down in value pretty quickly. Whereas multifamily apartments are often acquired with room for value add improvements and offer more room to grow in value and appreciate over time.
Many people and cities are up in arms over what short term rentals have done to their neighborhoods, buildings, and affordability in their communities. It is still illegal or restricted in many areas. There are many ways to make money and even great investment returns. If you also want to be sure your investments have a positive impact, are a force for good, or at least aren’t doing harm, annual rental apartments can be a great way to help provide access to affordable housing instead.
ABOUT THE AUTHOR
Bill Zahller is the President of Park Capital Properties and resides in Asheville, NC. As a Multifamily Real Estate Investor and Syndicator, he founded Park Capital Properties in 2016 after 14 years involvement in real estate investment. He works with accredited investors and professionals who are interested in real estate investment, diversification, and financial freedom.
Bill has been flying since high school. His father was a Naval Aviator and Captain for TWA. Bill has been flying professionally for over 25 years, 23 of those at his current company. He has accumulated over 12,000 hours and 7 Jet type ratings. He has also held Instructor, IOE Instructor and NRFO pilot positions with a large fractional flight company. He is currently flying the Global 6000 in a long range mission capacity. This keeps it interesting – one week its Beijing or Sydney; the next Rio or Rome.
Bill is also the founder of the Asheville Multifamily Investor Club. Visit www.ParkCapitalProperties.com for more information.