Airbnb Secrets Part 2

If you’re looking for part two of our Airbnb Secrets series, we can help you out. Take a look at everything you need to know to buy an Airbnb.

Welcome to Step Two on "How to Buy Your First Airbnb Property". In Part One, we went over the most important part of this process: securing your financing and making sure you have the available capital necessary to buy that home. If you haven't read that yet, I recommend starting there.

Now, if you're ready to make passive income with a real estate investment, or if you could use a vacation home a couple of days out of the year, you need to buy an Airbnb property for yourself. This investment property could make big bucks while you do absolutely nothing.

Let's get into Step Two: how to find your market. There are five main market considerations that you need to look at when you’re looking to buy an Airbnb.

True Vacation Market

First and foremost, you want to make sure that you’re looking for an Airbnb property in a place that has a lot of tourism. I will not buy a property in a market unless one of that area’s major supporting economic factors is tourism.

The reason being is, because, without local tourism, you’re going to run into several issues.

First, you’re not going to make as much money without tourism bringing in potential renters.
Second, you may run into rent regulation issues down the line. If housing associations figure out that there are renters, they could take over with rules and regulations that you’d then have to follow.

Third, you could come across a lack of local support from the people who already live in the area. They aren’t likely to support Airbnb entrepreneurs that could bring in more tourists.

If you buy an investment property in an area that’s used to (and/or depends on) local tourism, the locals are likely going to know someone in the Airbnb business already. They’ll understand how the income supports families in the area.
Plus, the renters touring in that area will already understand the policies and regulations surrounding the properties. So, they’ll be more likely to go to that area again looking for Airbnb to rent. These include big cities like Austin, Orlando, and Nashville. Hawaii and state and national parks are also big Airbnb markets.

Regulations

Many people think that having no regulations is best. However, I think the best scenario is having clear regulations.

I want to have a clear idea of what the city and the county plans are for Airbnb's. I always research to know if there’s a clear and outlined plan for Airbnb owners and short-term rentals.
For example, are you able to transfer the Airbnb from owner to owner, or do you have to put the property into an LLC to sell the LLC to someone else?

Overall, you want to understand what you are and are not allowed to do in the area. Don’t think about buying property until you know exactly what the regulations are.

Seasonality

If you’re looking to buy an Airbnb, you need to know whether or not the tourism in your potential buying area has a season for tourism. When I say seasonality, I mean-does all the tourism happen in a very tight window?
For example, if you're looking at a mountain area and it might likely cater to tourists during ski and snow season, which is 4-5 months out of the year.

This sounds great during peak season. However, you may lose a large amount of your expected revenue during the off-season. In those cases, you would have to be able to cover your bills regardless of the business you’re getting during the season.

During off-months, you could be seeing drops in revenue by 70% to 80%.
I recommend that you opt for an Airbnb property that’s located in an area with minimal differences in seasonality. Look for areas that offer activities for the winter and summer seasons. This will increase the likelihood that tourism will boom in that area year-round.
If you do decide to buy an Airbnb in an area with a big difference in seasonality, you need to plan financially for the off-season. You have to be able to support yourself financially during the slow months.

Investibility

Next, you need to know the investibility of the market.
You may have a great location for your Airbnb. But, if you can’t afford to purchase a home in that area, you’re dealing with a market that has a low investibility.

The average person won’t be able to invest and make money in a market with low investibility.
Plus, people in high-end and wealthy areas are less likely to appreciate Airbnb renters. They won’t want someone renting the property next to their million-dollar home.
So, you have to look for markets that are more likely to be friendly to your wallet and friendly to locals in the area. Make sure there are properties in the market you're exploring that have homes you can purchase within your pre-approved amount. That middle ground is the best place to land your Airbnb property.

Revenue Growth

Lastly, you want to make sure that you’re buying into a market that’s growing. If you buy into a stale or oversaturated market, you aren’t going to have much or any revenue growth over time.

When you look at the market, notice whether or not the location is getting more Airbnb income each year. The more growth there is in Airbnb income, the more likely you are to make a substantial amount of money on that property.

If the market is going down over time, it may not be the best choice for an Airbnb property.

Also, consider the number of units over time. The market numbers may be going up, but they could be decreasing in revenue per unit. Or, the number could be stable, but have an increasing unit number, meaning that the revenue per unit is declining.

I like to use AirDNA.co to do this research.

Overall, you need to look at the growth potential of the location to make sure that you’ll be able to make more = money over time.

Buy an Airbnb Like a Pro

Now that you know the five key metrics to look for, you’re a pro at knowing how to buy an Airbnb. Just like our team at Modern Lending, you know the secrets behind buying an Airbnb property that’s meant to provide a substantial amount of passive income.

If you’re ready to buy your Airbnb investment property, you can start right here with a loan from our team of real estate investing experts. Apply for a loan today to get started.