When deciding between renting out a property on Airbnb or opting for a traditional long-term rental, property owners face a key question: which is more profitable? Both strategies offer unique advantages and challenges. Airbnb has gained popularity for its potential to generate higher short-term income, especially in tourist-heavy or high-demand areas, while long-term rentals provide consistent, predictable cash flow with less intensive management.
Understanding the differences can help investors choose the best strategy for maximizing returns. Continue reading to find out which is better in the battle of Airbnb vs. renting.
How Does Airbnb Renting Work?
Airbnb is an online platform that facilitates short-term rental bookings, connecting hosts with accommodations available for rent with guests looking for a place to stay. With Airbnb, hosts pay a fee to the platform for the services provided in connecting potential clients with hosts. Hosts charge a flat fee and cover all property-related expenses, including maintenance, utilities and cleaning.
Hosts have control over the nightly price, cleaning fees, and cancellation policies. Based on this, Airbnb charges variable fees that usually are 3% of the total booking cost for hosts, plus a service fee charged to guests of 5-20% of the booking total.
Customers have the opportunity to rate hosts, and those with the highest reviews receive super host ratings that feature their properties more highly on the platform.
How Does Traditional Renting Work?
Renting refers to the process of occupying a property owned by someone else in exchange for payment, typically on a monthly basis. Most long-term rental contracts range from 12 to 24 months, although some hosts choose month-by-month rentals. With rentals, you may list the property online on listing sites, Facebook, or local newspapers or message boards.
With renting, usually, the tenants pay utilities, while the owner is responsible for maintenance expenses, taxes and insurance. Long-term rentals offer greater stability and less daily management than Airbnb but usually command a significantly lower nightly rate.
Is Airbnb or Renting More Profitable?
Whether Airbnb or renting is more profitable depends on the property type, location, overall market trends, market saturation and associated costs. If you have a beautiful rental property in an over-saturated vacation rental market, you might have difficulty breaking into the Airbnb market or might face additional vacancies. Likewise, a home near a rural community with low tourist traffic may not make sense as an Airbnb.
Assuming the property is well maintained and located near an area with significant tourism, Airbnb can be more profitable. However, there are additional maintenance and cleaning expenses, and you'll have to invest significantly more time managing the property. Even with that, Airbnb properties carry more risk as there's no guarantee of booking.
On the other hand, renting a property for a year at a time can create stability and will require less time managing the property or arranging cleaning. Long-term rentals command significantly lower nightly rates than Airbnbs or other short-term rentals. Both Airbnb rentals and long-term rentals can offer opportunities for tax deductions with proper recordkeeping.
Airbnb vs. Renting Example
Suppose you own an apartment in Chicago. The average monthly rate for comparable properties is $2,000 per month or $24,000 a year before expenses like taxes, maintenance and insurance.
If you rent it nightly, you can charge $300 a night. Assuming a conservative 40% occupancy rate, you could make $43,800 yearly, or nearly double. However, you'll have to deduct cleaning fees, Airbnb fees and the time it takes to manage the short-term rental from the profit. And location matters. If the property is outside the city or in an undesirable area, the nightly fees and occupancy may be lower, reducing returns.
Another advantage of Airbnb rentals is occupancy flexibility. With 40% occupancy, you can choose to use the apartment or allow family or friends to stay there during low periods, potentially improving value for your needs.
Comparing Airbnb vs Renting
Here's a detailed comparison of Airbnb vs. renting to help you decide which makes sense for your property.
Rental Income Potential
Airbnb: Investing in an Airbnb property can provide the opportunity for higher rental income, especially in areas with high tourist demand or popular travel destinations. Short-term rental rates can often exceed those of long-term rentals on a per-night basis.
Traditional renting: Traditional long-term rentals may offer more stable and consistent rental income over time. While the rental rates may be lower compared to short-term rentals, long-term tenants provide reliable occupancy and reduce the need for frequent turnovers.
Rental Demand and Occupancy
Airbnb: The demand for short-term rentals can be influenced by factors such as tourism, events or seasonal fluctuations. However, occupancy rates may vary depending on the location, property type and competition in the area.
Traditional renting: Long-term rentals tend to experience more stable and consistent occupancy rates. The demand for long-term housing is generally driven by factors such as population growth, job opportunities and housing needs. Strong population centers and those with growing markets generally offer stable long-term rental opportunities.
Property Management and Maintenance
Airbnb: Managing an Airbnb property involves more frequent turnover, cleaning, guest communication and ensuring a positive guest experience. This method may require additional time, effort and potentially hiring professional property management services, which can cut into profits.
Traditional renting: Long-term rentals typically involve less frequent turnover and may require less day-to-day management. Landlords still need to address maintenance issues, handle tenant requests and ensure the property complies with local regulations.
Flexibility and Use of Property
Airbnb: Investing in an Airbnb property provides the flexibility to use the property for personal use during periods when it's not rented out. Property owners can block off specific dates for their own use or adjust availability based on personal preferences.
Traditional renting: With long-term rentals, the property is committed to tenant occupancy for the duration of the lease. Landlords have less flexibility to use the property for personal purposes until the lease term expires unless previously agreed with the tenants.
Regulatory Considerations
Airbnb: Operating an Airbnb property may be subject to specific regulations, permits or restrictions imposed by local authorities, homeowner associations or short-term rental regulations. Understanding and complying with the applicable laws and regulations in the specific area is crucial. An increasing number of urban areas are limiting Airbnb use to avoid pricing out locals. Double-check that using the property as an Airbnb is allowed where your property is located.
Traditional renting: Traditional rental properties are typically subject to landlord-tenant laws and regulations, which vary by jurisdiction. Landlords must comply with legal requirements related to lease agreements, tenant rights and eviction procedures.
Should You Choose Airbnb or Renting?
Real estate investing has long been the bedrock of many wealth-building strategies. Whether you opt for Airbnb or renting, rental properties offer opportunities for long-term appreciation and positive cash flow from rental income. Which works best for you will depend on the time you have for management (or cash to hire a management service) and the local market for short-term rentals.
If you're ready to get started, find a guide to purchasing your first rental property here or get Benzinga's complete guide to real estate investing.
Frequently Asked Questions
Is it better to Airbnb a house or rent it out?
Do Airbnbs make more money than renting?
What is the 90-day rule on Airbnb?
The 90-day rule on Airbnb refers to the limit set by many cities and regions around the world for how many days a host can rent out their property on the platform within a calendar year. This rule is often put in place to regulate short-term rentals and prevent hosts from operating their properties as de facto hotels, which can impact the availability of long-term housing options for residents. By restricting the number of days a property can be rented out, local governments aim to strike a balance between allowing hosts to earn income through Airbnb while preserving the character of residential neighborhoods and preventing housing shortages.
About Alison Plaut
Alison Kimberly is a freelance content writer with a Sustainable MBA, uniquely qualified to help individuals and businesses achieve the triple bottom line of environmental, social, and financial profitability. She has been writing for various non-profit organizations for 15+ years. When not writing, you will find her promoting education and meditation in the developing world, or hiking and enjoying nature.