Airbnb has single-handedly changed the game for short-term rentals. While they certainly didn’t invent the idea of renting out private homes and second residences to people on a short-term basis, they did make it more accessible and realistic than ever before.
As someone who owns an Austin rental property that targets long-term renters, you may be wondering if a transition to short-term renters is worth a shot. The answer is…it depends!
Read on and we’ll dig into some of the different factors that must be considered.
The Benefits of Short-Term Airbnb Rentals
While the landscape is constantly changing due to evolving legislation, shifts in the economy, and new Airbnb-specific rules and requirements, there are plenty of benefits associated with short-term rentals. They include:
- Profitability. The average rent for a one-bedroom rental in Austin, Texas is $1,826 per month. That means you could generate approximately $21,912 in rental income on a 12-month lease. The average daily rate for an Airbnb property in Austin is $235 per night with a 67 percent occupancy rate. That means you could generate approximately $57,469 in short-term rental income. These are obviously round numbers, and they don’t account for expenses, taxes, fees, cleaning services, etc. Having said that, short-term rentals in attractive areas of Austin tend to enjoy greater profitability over the long run.
- Built-in lead funnel. With Airbnb, you don’t have to go out and find your own tenants. Your listing is published directly on the Airbnb website/app, which millions of people browse every single month. This gives you a built-in lead source, which means you don’t have to do any of your own advertising or lead generation.
- Flexibility. With a short-term rental, you aren’t getting involved with anyone long-term. This gives you more flexibility than if you were to sign a 12-month lease agreement that locks you in with a tenant for the next year. When you own an Airbnb, you can rent it out for certain periods, block out other dates, and even use it as your own personal getaway on certain weekends or weeks throughout the year.
In addition to the benefits of having short-term Airbnb rentals, there are also several potential cons and/or disadvantages. This includes higher operating costs, less “guaranteed” cash flow, and strict stipulations and requirements from Airbnb.
Factors You’ll Need to Consider
Just because short-term Airbnb rentals yield benefits like the ones outlined above, doesn’t mean every Austin landlord should immediately pivot from long-term rentals to short-term rentals. You’ll have to consider several critical factors, including:
1. Local Laws and Regulations
You can’t make a rash decision to rent your property on Airbnb and create a listing. (Well, you could…but it might be illegal.) In order to do it properly and stay within the law, you’ll have to research short-term rental laws and regulations within Austin, Texas.
While we’d highly encourage you to do your own research and due diligence before making a decision to move forward with short-term renting, the Airbnb website does have some helpful information on current laws and codes.
“Owners of Short-Term Rentals (STRs) in Austin are required to obtain an operating license. The City of Austin defines an STR as the rental of a residential unit or accessory building for less than 30 consecutive days. The City’s STR flyer and checklist are available here. The City’s information page is available here.”
In addition to having an operating license, you’re also expected to pay hotel occupancy taxes where applicable. According to AustinTexas.gov, any person owning, operating, or managing a hotel and collecting payment in exchange for occupancy is required to collect and pay the Hotel Occupancy Tax. (And, yes, they consider a short-term rental a “hotel.”) This rate is currently 11 percent, which is comprised of a 9 percent occupancy tax and 2 percent venue project tax. (The city of Austin’s Hotel Occupancy Tax is in addition to the state’s 6 percent hotel tax.)
Furthermore, you’ll have to abide by any neighborhood-specific rules, including HOA rules, condo board rules, etc. Some condos and apartment buildings have strict rules regarding what percentage of the properties may be considered rentals at any one time.
2. Net Operating Income
Once you’ve deemed that you’re legally permitted to turn your property into a short-term rental via Airbnb, you’ll want to project the net operating income to determine if it even makes sense from a cash flow and profitability perspective.
In almost every situation, a short-term rental is going to make more top-line revenue than a long-term rental. However, it’s net operating income that you really care about. And in order to get to that number, you must think about operating expenses like:
- Cleaning services
- Management fees
When compared to a long-term rental, the big expenses you have to pay attention to are taxes (highlighted in the previous section) and cleaning services. You’ll have to clean in between every renter, which could mean once to twice per week. While you can tack on some extra fees to your listing and get the renter to help offset some of this cost, it’s still a major expense.
3. Expectations and Risk Tolerance
It’s important to have the proper expectations and risk tolerance when going into a short-term rental situation – particularly with Airbnb. If you’re looking for a totally hands-off, stress-free landlording experience, this probably isn’t the best option for you.
More tenants and turnover usually means more opportunity for things to go wrong. Plus, without a long-term renter in place, you’ll need a little more risk tolerance. Yes, you’ll probably come out ahead (financially), but there are no income assurances.
Finally, consider the management aspect of owning a short-term Airbnb rental in Austin, Texas. Unless you have the flexibility in your schedule to manage your properties on a daily basis (including weekends and holidays), you’ll need some assistance. This is why it’s important to have a reliable Austin property management company on your side.
Let Green Residential Help
At Green Residential, it’s our mission to help Austin-area landlords maximize their revenue and profitability by managing and protecting their properties. Whether you choose to go the short-term or long-term route, we can help you maximize your ROI and peace of mind. For a free analysis of your Austin rental property, please contact us today!