How To Invest In Airbnb Rental Property As A Beginner

Airbnb investing? 

It’s a gold rush. Everyone’s talking about it.

If you’re new to this game, you might be thinking; “How do I start investing in Airbnb?” or “Is Airbnb a good investment option?” or “What is a good ROI for Airbnb?” “Is this too risky for a newbie like me?“

Hold up. Take a deeeeeeep breath.

Investing in Airbnb properties isn’t hard (thank goodness) — except for the part where you have to pay for the properties. But if you can afford it, the next step is the right know-how, some solid strategies, and a salt bae sprinkle of courage.

Don’t sweat it, though.

In this guide, we’re breaking down everything on how to invest in Airbnb rental property as a beginner. 

TL;DR

• Conduct thorough market research to find profitable locations.
• Understand and comply with local regulations.
• Choose the right property with attractive features.
• Plan your finances and manage costs effectively.
• Decide between self-management and professional management.
• Optimize your listing with high-quality photos and descriptions.
• Provide excellent service to enhance guest experience.
• Mitigate risks with proper insurance and security measures.

How Can You Invest In A Short Term Rental Property?

Follow the steps below, and you’ll be on your way to investing like a pro.

Step 1: Do Market Research

Market research is your best friend when it comes to Airbnb investment.

It’s like checking the weather before a picnic – you wouldn’t want to get caught in a downpour, right? Tools like AirDNA and Mashvisor can be useful. They’ll give you the lowdown on occupancy rates, average daily rates, and seasonal trends. 

Photo by: Mikael Blomkvist

When doing market research for short term rentals, focus on doing these three things.

1. Identify Profitable Short Term Rental Markets: Tourist spots and places where people actually want to visit – makes a market good for Airbnb rentals. Look out for places with a steady stream of short-term visitors. For example, Dubai’s been crushing it in the vacation rental market. With its world-class attractions, it’s a hack for Airbnb investors. But don’t sleep on emerging markets like Vietnam, Indonesia, Mexico, Brazil, South Africa, Morocco and Thailand.

2. Look Out For Guest Demand: Think about it – the Eiffel Tower in Paris, the beaches of Bali, or the skyscrapers of New York. These places practically sell themselves.

Photo by: Volker Meyer

In Dubai, you’ve got the Burj Khalifa, Palm Jumeirah, and Dubai Mall drawing in crowds. Plus, with events like Expo 2020 (now extended), the city’s been buzzing with visitors. Don’t forget local events either. Music festivals, sports tournaments, or big conventions can bring more demand to your Airbnb. 

Now that we’re clear on the very first step, let’s move on to the next.

Step 2: Consider Legal Considerations

Things can get tricky here. 

Every city has its rules for short-term rentals. Some roll out the welcome mat, while others… not so much. And while this part may not be the most exciting part of your Airbnb journey, it’s necessary. Take note of the following: 

1. Short Term Licensing and Permits: First things first: you need a license to run a short term rental. It’s like getting a driver’s license, but for your property. Using Dubai as an example, you’ll need a holiday home license (and follow certain rental regulations) before setting up any Airbnb property.

2. Zoning Laws: These laws decide if you can run a short-term rental in your area or not. To check your zoning regulations: visit your local government website or consult with a property management company (hey, that’s us at Homevy).

3. Tax Implications: Running an Airbnb rental property means your Airbnb income is taxable. But the good news? You can deduct expenses like cleaning fees, supplies, and even part of your mortgage interest.

A popular tax is the Transient Occupancy Tax (TOT). It’s a tax on short-term stays, and in many places, you need to collect it from your guests and pass it on to the local government. In Dubai, this is known as the Tourism Tax.

Calculating TOT can be tricky. 

It’s usually a percentage of your nightly rate, but the exact amount varies by location. This is where a good property management service (ahem, like the one Homevy offers) can be a lifesaver. We handle all this tax stuff for our property owners, so they can focus on the fun parts making money.

Step 3: Plan Your Finances

Financial planning is a solid part of your Holiday Homes investment. It helps you know where you’re going and how you’ll get there.

Photo by: Karolina Kaboompics 

1. Financing Options: Unless you’re sitting on a pile of cash, you’ll need financing. Here are popular ways to finance your Airbnb rental property. 

• Mortgage Loans: This is your traditional financing route. Banks lend you money, you buy the property. To qualify, you’ll need a good credit score, steady income, and usually a down payment of 20-30%. The upside? You get lower interest rates and longer repayment terms.

• Hard Money Loans: These are faster to get but come with higher interest rates. They’re great if you need quick cash for a hot property, but be careful – those interest rates can bite if you’re not prepared.

Homevy Tip: Choosing the right Airbnb property with the right financing is the foundation of your Airbnb investment. Take your time, do your homework, and don’t be afraid to walk away if a deal doesn’t feel right.

2. Budgeting and Cost Management: Now, let’s break down the budget for a short term rental  investment. You’ll need an initial investment that includes the property’s down payment, closing costs, renovation expenses, and furnishings. It’s advisable you add a 10-15% buffer for unexpected costs as well. 

Afterwards, you’ll need to factor in operating expenses: like maintenance, repairs, cleaning fees, insurance, taxes, marketing costs, and utilities.

Step 4: Set Investment Goals

Setting investment goals for your vacation rental property gives you direction and keeps you motivated through it all.

Photo by Markus Winkler

1. Set Short Term Goals: First, let’s focus on the near future. How much cash do you want to rake in from your vacation rental  investment? It’s important to set realistic monthly and annual revenue targets. However, these goals shouldn’t always be set in stone. Keep an eye on your performance and adjust your targets as needed.

Pro Tip: Don’t forget to account for peak seasons and slow periods. Your revenue in July will look different from your revenue in November.

2. Set Long Term Goals: Looking ahead, what’s your big picture? Maybe you’re dreaming of a whole portfolio of Airbnb properties. Or perhaps you’re banking on that sweet property appreciation. Put measures in place to achieve what you want in the long term. 

Here are some tips for smart Airbnb portfolio growth:

1. Diversify locations – don’t put all your eggs in one neighborhood basket
2. Mix up property types – apartments, houses, or villas
3. Start small and reinvest your profits

However, managing multiple properties is a different ballgame. As your portfolio grows, you should consider partnering with a property management company to help handle the increased workload.

Step 4: Get the Property

Picking the right property for your Airbnb investment is like choosing a spouse – it needs to be right.

Photo by: Gustavo Fring

1. Apartment Type: When you’re on the hunt for your vacation rental property, keep these factors like: apartment type, size, amenities, and  property condition.

2. Location: The best neighborhood is everything. Look out for:

• Tourist hotspots: Near famous attractions
• Transportation: Easy access to public transit
• Safety: A secure neighborhood means peace of mind

Step 5: Prepare the Property

A well-prepped vacation rental property isn’t just pretty – it’s your ticket to five-star reviews and repeat bookings. Follow the substeps below so you can get it right.

1. Set up Interior and Furnishing: Maybe your place needs a fresh coat of paint, or perhaps it’s screaming for a full makeover. Whatever the case, plan it out:

• Assess what needs work
• Get quotes from contractors
• Set a realistic budget (and add a 20% buffer – unless you’re quoted by Homevy’s internal KHDA certified interior designers)

Photo by: Ben Mack

For decor and furnishings, think cozy and Instagram-worthy. A stylish rug, some art on the walls, few plants, and a good bedroom linen can transform a space from “meh” to “wow!” Also, stick to a color scheme so your place looks put-together and professional.

2. Provide Essential Amenities: Let’s talk about those little extras that can take your Airbnb rental property from good to great heck-yeah.

Must-haves for your Airbnb shopping list:

• Cleaning supplies 
• Iron and ironing board
• A well-equipped kitchen 
• Smart TV (Netflix and chill, anyone?)
• Hair dryer (a must-have for any bathroom)
• Fast, reliable Wi-Fi (this is non-negotiable)
• Comfy beds (your guests’ backs will thank you)
• High-quality towels, linens, pillows, and blankets (the fluffier, the better)

Want to go the extra mile? Consider these bonus amenities to make your Airbnb stand out:

• Welcome basket with local treats
• Board games or books for entertainment
• Local guidebooks or custom recommendations
• Bike rentals (if your area is bike-friendly)
• Beach gear (if you’re near the coast)

The goal is to make your guests feel at home – or even better than home. Investing time and money in property preparation might seem like a lot upfront, but it pays off — always. Happy guests lead to great reviews, which lead to more bookings and higher rates.

Step 6: Set A Pricing Strategy

Setting the right price for your Airbnb rental property is like finding the perfect temperature for your shower – too hot and guests will run, too cold and you’ll be left out in the… well, cold.

1. Conduct Competitive Analysis: Stalk the competition like a secret agent, but for Airbnb prices. Find similar properties in your area, check their prices and availability. Read their reviews as well, and take note of what guests are loving (or hating). Note any special offers or discounts they’re running too. This gives you intel to make informed decisions. Maybe you can charge a bit more for your killer location, or maybe you need to undercut the competition to stand out.

2. Use Seasonal Pricing: Just like 6lack said in that song — seasons change, and so should your prices. Regularly review and adjust your rates based on local events, holidays, and changing trends. Let’s look at how this plays out in different cities:

• Dubai: Summer here is hot (and we mean HOT). Many tourists avoid June to August, which is the low season in Dubai — so you might need to lower your rates. But come winter? That’s Dubai’s peak season, baby. Jack it up.
• New York City: The Big Apple sees prices soar during the holiday season. Think Thanksgiving parades and New Year’s in Times Square. But January and February? Hmmn. You might need to offer some discounts to seduce guests.
• Bali: Dry season (April to October) is prime time for beach-goers. Prices can skyrocket. But come rainy season, you might need to offer some sweet deals to fill your calendar.
  

3. Use Dynamic Pricing Tools: These tools will automatically adjust your prices based on demand, events, competitor pricing, and your rental’s unique features. Some popular options include: Beyond Pricing, PriceLabs and Wheelhouse. With these tools, you’ll have guests thinking, “Wow, what a deal!” while you’re maximizing occupancy and smiling to the bank.

Step 7: Ongoing Property Management

Alright, you’ve got your vacation rental property up and running. Now what? You guessed right.

Property management. 

Photo by: Jep Gambardella

Managing an Airbnb rental property is more than just providing a place to sleep. It’s about creating experiences, solving problems, and making people feel at home. Whether you’re doing it yourself or hiring pros like Homevy, the goal is the same: happy guests, great reviews, and a profitable Airbnb business.

Let’s explore your options.

1. Self-Management: DIY property management may be your jam if you wanna handle everything from bookings to cleaning to the 3 AM “I can’t find xyz” calls. If you’re organized and patient, self-management can be rewarding. Just remember, it’s a full-time job.

Pros of Self-Management:

• You save on management fees
• You have full control over your property
• You build direct relationships with guests

Cons to Consider: It’s time-consuming and you’re responsible for every little detail.

2. Professional Management: Don’t have the time to be an Airbnb host? Then you should 100% consider a vacation rental management company (ahem, like Homevy).

When choosing a management company, look for:

• Transparent pricing
• Clear communication
• Experience in your local market
• Positive reviews from other hosts

Good news is – Homevy has all of that, and even more. 

FAQs

1. Is Buying An Airbnb Investment Property Profitable?

Mostly, yes. However, it depends on factors like location, market demand, and management. Research the local short-term rental market thoroughly. Consider expenses like cleaning fees, maintenance, and property management. With the right strategy and location, vacation rentals can be profitable.

2. How Can I Calculate Airbnb Investment Income?

To calculate your short-term rental income, multiply your nightly rate by expected occupancy rate. Factor in seasonal variations for annual projections. Then subtract expenses from your gross income to get your net profit. 

3. What Are The Best Cities For Buying An Airbnb Investment Property?

Top cities for Airbnb investments include Dubai, New York City, Los Angeles, and Orlando. Also, consider cities with growing economies like Austin or Portland. Look for areas with high visitor demand, favorable regulations, and potential for property appreciation.

4. What Are The Best Property Types For Short Term Rentals?

1-Bedrooms are best for short term rentals and most target audiences. Yet, 2-beds, 3-beds and villas can also make great Airbnb investments. Look for properties with unique features like stunning views, pools, or stylish decor.

Outro Thoughts

By now, you should know how to invest in – and start a short-term rental business. 

Yet, remember that investing in Airbnb properties isn’t just about buying a place and watching the cash roll in. 

It’s a journey.

Sure, there’ll be bumps along the way. Maybe a guest loses the keys at 2 AM, or your coffee maker decides to quit on a bright morning. But hey, that’s all part of the adventure. The key is to be flexible and always put your guests first. 

However, you don’t have to do it alone. Let Homevy help you. We’ve seen it all in Dubai’s Airbnb market. Come experience what it feels like to have your property managed by the best.

Xoxo.