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The popularity of short-term rentals through online sites like Airbnb or VRBO has grown post-pandemic—with trends like remote and hybrid work, digital nomadic lifestyles, and blended work and leisure (or “bleisure”) travel making getaways easier than ever before. Even if your company has reverted to the dark ages of in-office attendance, you can take advantage of this growing market by participating not just as a traveler, but as an investor. Whether you’re a first time home buyer or a seasoned real estate mogul, you can turn your home into a rental or a profitable Airbnb when you’re not planning on living there. But what exactly are the requirements to buy a house to use as an Airbnb? While the extra revenue potential is enticing, it’s important to understand both the opportunities and challenges when it comes to exploring this as a viable investment option. Let’s get started.
To Airbnb or Not to Airbnb?
First, decide if your current lifestyle could accommodate the flexibility needed to support such a shift. Are you planning on spending the summer traveling abroad and the winter living in your home? Does your company have a work-from-anywhere policy? Are you a first time home buyer who travels frequently for work? Or perhaps you’re an experienced home buyer looking to expand your real estate portfolio. Be realistic about your current situation as well as your ability to take on the added effort of managing a property. If managing a rental property seems overwhelming, don’t let that stop you. You can always hire a management company to take care of the details for you.
There are major benefits to owning a property that you use as a short-term rental, but there are also requirements to buy a house that you must consider and plan for. Let’s unpack the perks first. The rental income earned can contribute significantly to your monthly budget, allowing you to afford a larger or more desirable property than you would have been able to afford otherwise. For example, perhaps it enables you to opt for a multi-unit property, which could open up the opportunity for a down payment reduction. Plus, by living in one unit and renting out the others as Airbnb spaces, you can generate substantial income that helps offset mortgage payments and other expenses.
If your home is large enough, renting out part of your primary residence can also offer tax advantages. Certain expenses related to the rental portion, like maintenance, utilities, and even portions of your mortgage interest, may be tax-deductible. Whether you opt for a multi-unit property or a spacious primary property, you have flexibility in how you use it, should your circumstances change. Scale your Airbnb operation up or down or convert all units back into your primary residence, depending on your changing needs.
Rules for Using a Home as a Short-Term Rental
While investing in a property to use as a short-term rental can be a lucrative venture, there are certain requirements to buy a house to use as an Airbnb. Understanding the rules for how much and how long you have to live on property is key. What are your local regulations regarding short-term rentals? Some areas have zoning laws or homeowner association rules that restrict or regulate Airbnb operations. Discovering these restrictions after you purchase an intended investment property is a very quick way to kill your real estate buzz.
Review your homeowner’s insurance policy to ensure it covers short-term rentals or consider purchasing short-term rental insurance. Obtain any necessary permits or licenses required by your local authorities for operating an Airbnb. While you may see headlines about loopholes and other evasive measures used by owners, it’s important to follow the rules, so that your investment doesn’t become a liability. Also, don’t let April come around and surprise you. Research, understand, and comply with your local tax laws related to short-term rentals. This may include occupancy taxes, sales taxes, or income taxes on rental earnings.
Once you familiarize yourself with the rules for using a home as a short-term rental, you may want to think about the rules you’ll enforce as an Airbnb host. While most guests are used to bagging up trash or starting a load of laundry, you’ll get canceled before you even begin your side hustle as a host if your list of must-dos is too lengthy or laughable!
Opportunities for First Time Home Buyers
If your real-estate portfolio currently sits at zero, you might not consider Airbnb as an option. But by prioritizing home ownership and becoming a first time home buyer, you can set yourself up for a more successful future. An easy transition is if you’ve been renting with roommates. Simply find a property, determine the down payment, and you become the homeowner—while your roommates help pay the mortgage!
If you plan on being somewhere for at least five years, you can transition it to a rental after just two, either as a long-term offering or Airbnb. Homeownership is one of the more reliable creators of wealth and prices tend to trend up (even as interest rates fluctuate). So if you sell, you often build the equity needed to make it worthwhile.
Top Requirements to Buy a House to Use as an Airbnb
You’ve reflected on your lifestyle and if your live/work/play plan could accommodate a rental property. You’ve read the rules with which you’ll need to comply to make your investment legit. If you’re ready to roll, here’s what you need to do to get started.
Get out the map and pick the right location. Having an Airbnb or a short-term rental in a location that isn’t desirable won’t lead to revenue. The most profitable Airbnb cities in the world are often areas that offer travelers access to great restaurants, nightlife, or unique tourist opportunities. A little research goes a long way.
For cities where the current rental market is inundated with rental options, your property will only thrive if there is something that sets it apart. Analyze the competition, occupancy rates, and average nightly rates in the area to understand the demand and pricing dynamics, so you can make an informed decision when it comes to the location of your investment. You can always add value to your AirBnB with thematic or design tastes, but the location will most always be the determining factor in attracting renters.
Consider the type of property suitable for your target guests, too. If you’re near kid-friendly attractions (think amusement parks or museums), a single-family home might be the best choice. If you’re aiming to snag the Millennial bleisure crowd, a condo or townhouse within an urban market could be a worthy investment, as they tend to prefer stays within highly walkable (or Uber-able) areas with easy access to bars, restaurants, and shopping.
In the age of social media, many travelers are looking for Insta-worthy stays, so cabins, cottages, treehouses, tiny homes, and other one-of-a-kind spaces could help you stand out, depending on the local market demand. Previously, Airbnb Experiences was another option for hosts, offering tours and activities to travelers. However the company has since paused adding any new experiences to the platform, so revenue-earning opportunities remain exclusive to the rental property itself.
Intrigued? Learn more about how the Moreira Team can help you better understand the requirements to buy a house to use as an Airbnb or short-term rental and set you up for success. Contact our team today to get a quote, and get started.