What comes to mind when you think about Airbnb? Images of happy vacations, beautiful condos, life on the road, or maybe even your very own Airbnb experience?
For those keen to protect and grow their wealth, investing in an Airbnb property might not spring to mind. It could, however, be time for a rethink, because it is big business.
Airbnb revenue for the twelve months to June 2023 was US$9.088 billion. While nights and experiences booked grew 11% in the second quarter of 2023 compared to a year ago.
In this article, we look at the options to dip your toes into the vacation rental market. Whether you want to rent out an existing property for some passive income, or you plan to explore diverse real estate opportunities, Airbnb can bring great returns.
Interested in becoming a global citizen? We create holistic strategies to legally reduce your taxes, protect your assets, and maximize your freedom. Find out more here.
The Airbnb Effect
Since its launch in 2008, Airbnb has enjoyed huge success, with listings in over 220 countries and regions. With such a vast presence, Airbnb can be at odds with the markets it enters.
The local housing market and hospitality industry have always felt threatened by Airbnb and rightfully so. Due to Airbnb, the hotel industry loses approximately $450 million worth of direct revenues annually.
Not only that – but what is termed the “Airbnb Effect“ can drive up its real estate prices and compel owners of traditional rental properties to switch to short-term vacation rentals.
But is Airbnb really to blame for the impact it has on a certain market? We don’t think so.
Like any innovative entrepreneurial idea, Airbnb started small. It saw a gap in the bed and breakfast industry and it aimed to fill that gap with its affordable services – and the people loved it.
Times change, technology improves, and people naturally side with whoever puts the effort into providing the best experience.
Is Airbnb Investment a Good Idea in 2023?
Renting an Airbnb may be a piece of cake, but can the same be said about investing in Airbnb?
Is Airbnb investment really a good idea? And if it is, which one is better, renting out a property you already own or buying popular real estate to get the best yield on your Airbnb listing?
And what about offshore real estate opportunities? Is that even worth the effort?
Here, at Nomad Capitalist, we look into all these questions so you don’t have to. So, first, let’s answer some of the most common questions a potential Airbnb host usually has.
Home Owners’ Sentiment
If you find the idea of renting out your home on Airbnb profitable, you’re not alone – 82% of homeowners think the same.
54% of homeowners have even shown their interest in renting out their homes with a vacation rental app like Airbnb.
With stats like these, the number of Airbnb hosts will only increase, so if you are really serious about investing in Airbnb, now would be a great time.
Travelers’ Sentiment
Airbnb is popular – far more popular than any other vacation rental app, all thanks to its completely online interface, review/rating system, and gorgeous listings.
In fact, while going on a vacation, 60% of travelers who have stayed in both Airbnb and traditional hotels, prefer Airbnb rentals. That alone says a lot about consumer interest in Airbnb.
Renting Out vs Buying New Property
Both have their pros and cons, especially when we add the option of purchasing foreign real estate.
An existing property will require spending far less money. It will also save the time and legwork involved in finding a property that works for you.
On the other hand, your existing property might need a lot of work to compete with nearby Airbnb rentals, driving up your costs.
But this doesn’t matter as much as you might think. The primary factor that makes an Airbnb property attractive isn’t necessarily related to its “old or new” status.
The make-or-break factor for Airbnb rental property is its location. If you nail that, your investment will be consistently booked and you’ll make good money.
But how do you select the best location?
The Best Places for an Airbnb Investment
All the hottest Airbnb markets have a few similarities. Keeping those in mind, here are the most important factors you should consider.
Focus on the City, not the Country
It’s best to look at cities and their individual housing market trends rather than countries.
Why? Because a country’s pace of economic growth or lack thereof isn’t a clear indicator of the real estate situation in its individual cities.
Real estate trends depend upon a city’s housing supply, employment rates, and standard of living, rather than the country’s economic data like GDP. Simply put, property returns and rental yields are location-specific.
Two cities in the same country can, and usually have completely different property markets.
Does it mean that selecting a good country isn’t important at all? No. It’s still important.
Why? Because housing regulations and property laws are still set by the government of a country.
So, for your Airbnb investment, choose the best cities, and then make sure that those cities are part of an Airbnb-friendly country.
Don’t just select a city because you think it’s beautiful, or you think it has potential.
Make data-driven decisions – that way you will ensure a greater chance of profitability.
Check the history of vacation rental properties in the area. Assess the demand – is it high, bare minimum, or non-existent.
If you can, meet with the real estate investors on the ground. They’ll be able to give you a far more practical assessment of the market trends.
Rental History or Demand
Don’t just select a city because you think it’s beautiful, or you think it has potential.
Make data-driven decisions – that way you will ensure a greater chance of profitability.
Check the history of vacation rental properties in the area. Assess the demand – is it high, bare minimum, or non-existent?
If you can, meet with the real estate investors on the ground. They’ll be able to give you a far more practical assessment of the market trends.
Rental Yield
This metric is important. You get your rental yield if you divide the annual rental income generated from your investment property by the total amount you have invested in it. The higher the percentage, the more successful your investment property is.
Now, let’s look at some of the best and worst markets for Airbnb investment.
Best Markets for Airbnb Investment
Maui, Hawaii
Even without looking at the data, Maui, the second-largest Hawaiian island, seems like the perfect vacation destination for any traveler looking to escape. Also known as “The Valley Isle” it is famous for its beautiful beaches and breathtaking sunsets.
If you are an Airbnb investor looking to buy foreign real estate, Maui does not disappoint.
Hawaii has the lowest property tax rates among the US states at only 0.28% (average), although Hawaii’s median home value is almost $669,200.
How is that possible? Because the state of Hawaii offers generous exceptions to homeowners. But what about Maui? If Hawaii has the lowest tax rate in the US, Maui has the lowest tax in Hawaii – only 0.19%.
That along with the fact that an average rental property in Maui earns $102K per year at an average daily rate of $375 makes the beautiful island a must in the books of any Airbnb investor looking to buy a foreign Airbnb investment property.
San Cristobal, Mexico
Although the US has the highest number of Airbnb listings, Latin America has become one of the fastest-growing markets for Airbnb, with over 250,000 listings and growing.
Airbnb or not, Latin America has always been a popular destination for American retirees, expats, and tourists.
In fact, Mexico has the highest number of American expats in the world, making it one of the easiest countries to move to from the USA. That along with its vibrant culture, exotic beaches, and delicious food makes it one of the best markets for short-term rentals.
It’s no surprise that Airbnb has had a hard time in many regions due to the property regulations there, but it is not letting that get in its way.
In Mexico City, Airbnb has adopted a friendly approach with the local administration, agreeing to provide 3% of its total revenue from the hosts’ booking to the city government. The hotels in the area provide the same amount of lodging tax to the government.
Now that you know the dynamics of real estate in Mexico in terms of Airbnb, let’s talk about San Cristobal.
Never heard of it? This might also be a plus point – since the pandemic, Airbnb has seen a spike in the bookings in areas that are generally deemed less popular or less touristy.
But when we look at the data, San Cristobal, a beautiful high-altitude lush green city, tops many other popular Mexican states. With an average daily rate of $755 and average monthly revenue of $8100, San Cristobal has over 95% channel presence on Airbnb, making it one of the best Mexican cities for your Airbnb business.
Mexico also has a wonderful Residence Through Real Estate program that should be checked by Airbnb investors looking to buy Mexican land, either for a primary residence or Airbnb investments.
Singapore
A robust economy, personal safety, and low crime rates make Singapore one of the best and safest countries in the world to live and invest in.
Singaporeans love Airbnb. In fact, they love it so much that they have booked more Airbnb stays than the rest of Southeast Asia combined.
Singapore is one of the Asian countries where foreigners can buy land. Although it’s far from tax-free, or cheap, the returns are promising, making it a lucrative hub for investors.
With a low unemployment rate and high purchasing power, Singaporeans are always on the lookout for a weekend getaway in a luxurious rental.
Airbnb rentals are especially popular among Singaporean millennials who prefer to spend some time away from their family homes, at a vacation rental nearby.
Vantaa, Finland
When it comes to Europe, you will find a thriving Airbnb rental business in several regions.
Countries like Italy, Spain, and France may seem like the obvious options to invest in, considering their hyper-tourism.
However a huge number of tourists flowing to a certain region does not guarantee short-term rental business. In Europe, it may be wise to go off the beaten path and provide a quality vacation rental at an underrated place.
That brings us to Vantaa, the 4th biggest city in Finland. Although not the ultimate tourist destination, Finland is the happiest country in the world.
Finland is also one of the most peaceful countries in the world, making it a haven for remote workers looking to escape their stressful office routine.
With an average daily rate of $98, and average monthly revenue of $1044, Vantaa is a wonderful location for an Airbnb investment.
Worst Markets for Airbnb Investment
New York
The Big Apple is not a fan of Airbnb.
Finding a house or apartment in New York City is getting harder, and costlier, by the minute. With more and more property investors buying properties to rent them out on Airbnb, the housing market has become impossible to navigate for an individual or potential homeowner.
All of this resulted in the state of New York passing a law in 2017, that prohibits listing an entire unoccupied property for less than 30 days.
Moreover, hosts with short-term rental properties in New York City will be required to register with the city and obtain a short-term rental registration number, starting from 2022.
Thailand
You may be surprised to see Thailand on this list, since it’s brimming with tourists. But Airbnb is complicated in Thailand, to say the least.
While Airbnb operates in Thailand, hosts can be prosecuted if they rent their properties on a nightly or weekly basis.
Some hosts in places such as Bangkok, Pattaya, and Phuket, however, remain undeterred and still advertise properties on the short-let platform. Technically this is illegal, and hosts run the risk of imprisonment, fines and potential criminal records.
Conclusion
Whether you run a property management business, or you’re just starting out in the short-term rental market, Airbnb has the potential to be a lucrative choice.
There can be some work involved, and you’ll need to stay in contact with guests and service providers as your empire grows. That said, Airbnb could be an excellent source of income, if you want to diversify your revenue sources.
The platform has over 150 million users and continues to shape how the world explores and shares spaces.
If you’re looking to grow your wealth offshore, we create holistic strategies for successful investors and entrepreneurs to diversify and protect their assets, become global citizens, and maximize their freedom. Find out more here.
