When considering a property marketed as a potential Airbnb or short-term rental, it’s crucial to approach this opportunity with caution. You might see a property for sale that has been previously Airbnb’d, and the seller is asking for a premium price, claiming it as a profitable venture. However, it’s essential to remember that the new purchase price and mortgage will significantly impact your expenses. Even if the property was profitable under the previous owner, the increased costs associated with a higher purchase price can quickly erode your margins.
Be wary of the hype you often see on social media; many of these posts do not provide the full picture. By the time you examine the property’s actual numbers, you may find that the projected income doesn’t match reality.
Why You Should Be Cautious – Due Diligence is Critical
The research required before purchasing a property for short-term rental is extensive. You should aim for a minimum of 20% gross profit on the purchase price. Be wary of inflated projections designed to encourage higher sale prices—these can lead you to believe you’re making a savvy investment when, in reality, the numbers may not add up.
Transferability of Listings
If the previous host is looking to sell, they must have a comprehensive plan for transferring their existing listings. This goes beyond merely changing the property name on a platform. Reviews and past performance play a significant role in attracting potential guests. On Airbnb specifically, any new host will lose previous reviews, which can severely impact initial bookings and reduce trust with potential guests. If the previous host was only using Airbnb, this could limit your options for generating income.
Key Things the Previous Host Must Have in Place
To ensure a smooth transition, the previous host should have the following established systems in place:
- Multi-Platform Exposure: A listing solely on Airbnb is a red flag. Relying on one platform exposes you to risks, such as sudden policy changes or account suspensions. Look for a diversified presence across multiple platforms (e.g., Booking.com, Vrbo) to maximize booking potential and mitigate these risks. For a deeper perspective, you can read more on the power of a multi-platform approach for your short-term rental.
- Channel Manager Transfer: A robust channel manager is essential for managing bookings across different platforms without the risk of double bookings or missed opportunities.
- Pricing Automation Transfer: Software that adjusts rental rates based on demand, occupancy, and market trends should already be implemented. This is crucial for ensuring competitive pricing and maximizing revenue.
- Professional Cleaning Services: The previous host should have a reliable and scalable cleaning service that can transition with the sale. Be cautious if they’ve been doing the cleaning themselves; this may artificially lower costs and complicate your ability to maintain the same profit margins.
- Proven Profitability: Request at least two years of financial records showing consistent profitability. If they can’t provide this data, you’re essentially buying a gamble rather than a business.
- Positive Reviews and Transferable Accounts: Ensure that reviews can transfer to your ownership on platforms like Airbnb. Starting from scratch can severely impact initial bookings and reduce trust with potential guests.
- Existing Service Providers: Reliable local contractors for property maintenance, restocking, and other ongoing services should already be in place. If these were personally managed by the host, disruptions could significantly hurt your bottom line.
- Legal Compliance: Confirm that the property meets all local regulations and licensing requirements for short-term rentals, including permits and zoning laws that could affect your ability to operate legally.
- Operational Framework: The previous host should have a clearly defined operational framework, including guest communication, check-ins, and emergency protocols to ensure a smooth transition.
- -Financial Transparency: The former host should be willing to share all income and expense reports in detail to help you accurately assess the profitability and sustainability of the business model.
The Reality of Airbnb Profits
Despite the rosy outlook that many property managers portray, the reality is that Airbnb takes approximately 16.5% in platform fees, while property managers or hosts typically take an additional 20%. On top of that, you’ll incur cleaning fees, maintenance costs, restocking, linen services, and more. After accounting for all these expenses, many owners end up with far less than they initially anticipated.
In fact, a number of hosts only turn a profit by doing the cleaning themselves, effectively transforming what should be a passive income stream into an active job. This reality is far from the financial freedom that many short-term rental investors seek.
The Sales Agent Perspective
Keep in mind that to a sales agent, every property can be marketed as having Airbnb potential. Their primary goal is to sell the property, so they may not highlight the pitfalls or challenges associated with short-term rentals. This can lead to an inflated perception of what the property can generate in terms of income. It’s essential to conduct your own research and not rely solely on the agent’s claims. They might showcase the property as a lucrative opportunity without adequately addressing the complexities and risks involved.
Consult Your Accountant
Before making any commitments, it’s wise to consult your accountant. If the previous host can produce financial statements and evidence of profitability, this data can be invaluable in assessing the potential return on your investment. Your accountant can help you interpret these figures and understand the financial viability of the property as a short-term rental, ensuring you make a fully informed decision.
