In the past few years, some real estate investors have picked up property with the idea of making a tidy profit on Airbnb. But is becoming a professional vacation rental investor really all it’s cracked up to be?
The answer is mostly “yes.”
New research from Nested, a London-based online estate agent, breaks down the length of time it takes to recover property investment via traditional rental vs. Airbnb, and the results show that using Airbnb can cut down the amount of time it takes to make back your investment (depending on local regulations, of course).
Nested looked at all closed property sales in 75 cities over the past six months and current market listings for all locations researched, calculating exactly how long it would take you, in months, to recoup the property value of an average three-bedroom property based on average rental and Airbnb costs.
The complete ROI (return on investment) index from Nested can be accessed here.
How the U.S. measures up
Six American cities appear in the index, with the research showing that a three-bedroom property in Washington, D.C., would take 219 months to recoup value via traditional rental methods, and 64 months via Airbnb.
This was the fastest ROI via Airbnb in the U.S., followed by:
- Los Angeles (122 months via Airbnb versus 278 traditional)
- Chicago (126 months versus 173 traditional)
- Miami (137 months versus 312 months traditional)
- New York City (181 months versus 317 traditional)
- San Francisco (204 months, without regulations)
San Francisco calculates to have the longest ROI term, and the time span would be even longer when taking the city’s regulations into account.
Current San Francisco regulations limit rentals where the host is not present in the unit to a maximum of 90 days per year.
When these terms are applied, property in the city would take 816 months to recoup value via Airbnb, 554 months longer than a traditional rental.
Internationally the picture is even brighter for vacation rentals, especially where prices are low.
Properties in Durban, South Africa take just 18 months on average using an Airbnb rental (the average cost to buy there is $94,343).
Athens, Greece is the fastest European city without regulations to recuperate property value via Airbnb at 42 months.
On the opposite end of the spectrum, properties in Beijing, China take 670 months via rental and 714 months via Airbnb (the average cost is $1,344,934).
Lagos, Nigeria is the fastest city worldwide to recover property prices via traditional renting at 132 months (instead of 22 months for Airbnb).
The price of the property makes a big difference, as does the average rental price.
Cairo, Egypt, has the most affordable average cost of a three-bedroom property at $60,293, while Hong Kong has the most expensive average cost at $2,404,789.
Of all cities surveyed, the rent for a three-bedroom property is also the most affordable in Cairo, Egypt, at a monthly average of $387. The rent for a three-bedroom property is the most expensive in San Francisco, at a monthly average of $5,437.
The ROI index doesn’t seem take into account the added time or money that might be involved in making a home Airbnb-ready, including furnishings, photography, cleaning and increased maintenance.
Bad news for renters, good news for owners?
While this news is great for investors who want to Airbnb, it does shed light on why cities may need to enact regulations in order to make sure that long-term renters are protected.
Matt Robinson, CEO of Nested, said: “The rise of Airbnb is making it harder for renters to find properties as more landlords are preferring to rent to short-term renters who pay a premium, but this is a great opportunity for those who have managed to fight their way onto the property ladder to make the most out of their property.”
Nested is a London startup that aims to assist house sellers by selling their property within 90 days guaranteed, based on their valuation of the home. It charges a standard fee on all transactions of 1.8 percent (1.5 percent + value-added tax, or VAT) plus 20 percent of any amount above the guaranteed price (including VAT). They also can advance money to the seller ahead of the 90-day guaranteed sale at a rate of 1.5 percent.
Is Airbnb contributing to the West Coast inventory crunch?
In a similar project, Estately recently crunched the numbers on whether or not a high number of Airbnb units might account for some of the lack of inventory in West Coast cities.
In San Francisco, the ratio of units on Airbnb to units for sale is 17.3 to 1. The data also show that a buyer may make a lot more from a homestay in a tight real estate market than in a less competitive one, causing more people to trying buy homes in these competitive markets with the intent of turning them into Airbnb units.
Aiding this, Estately even offers a potential monthly Airbnb income estimate on listings.
For both buyers and renters in cities with a large influx of tourists and people seeking temporary housing, Airbnb continues to be a disrupting influence, adding strain to markets already struggling with affordability.
Deidre Woollard is the co-founder of Lion & Orb, a real estate public relations company. Follow her on Twitter @Deidre.