{"id":70885,"date":"2015-03-07T09:30:34","date_gmt":"2015-03-07T16:30:34","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=70885"},"modified":"2021-03-16T10:29:14","modified_gmt":"2021-03-16T16:29:14","slug":"2015-03-07-airbnb-vstraditional-rental-income-creative-investors-cashflow-expensive-cities","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/2015-03-07-airbnb-vstraditional-rental-income-creative-investors-cashflow-expensive-cities","title":{"rendered":"AirBnB vs. Traditional Rental Income: A Creative Way for Investors to Cash Flow in Expensive Cities"},"content":{"rendered":"<p>We have quite a few friends here on BiggerPockets from expensive West Coast\u00a0cities like\u00a0Los Angeles, San Francisco, and San Diego, and we frequently see these would-be investors look for out-of-state investment opportunities because of the relatively high price to rent ratios seen in their local markets. There\u00a0just don\u2019t seem to be any properties that even come close to matching the mythical 2% rule\u00a0in these pricey\u00a0cities, and investors often complain about the relatively low cash-flow these properties generate compared to similarly sized investments in other areas.<\/p>\n<p>In this article, I want to challenge the assumption that folks in expensive cities need to look for out-of-area properties. I\u2019m going to challenge that with some data provided by our friends at <a href=\"http:\/\/www.mashvisor.com\/\" target=\"_blank\" rel=\"noopener\">Mashvisor<\/a>\u00a0and look at how AirBnB can\u00a0make an impressive difference in rental cash-flow in certain cities. In some cases, the data suggests that investors in certain markets may be able to cash-flow at double, triple, or even four times the rate of their traditional landlord competitors by swapping traditional tenants for AirBnB guests.<\/p>\n<p><em><strong>Related:<\/strong> <a title=\"How To Use Vacation Rental Sites To Make Money Off Residential Income Properties\" href=\"https:\/\/www.biggerpockets.com\/blog\/2014\/09\/02\/renting-flipkey-airbnb-vrbo-can-pay-mortgage\/\" target=\"_blank\">How To Use Vacation Rental Sites To Make Money Off Residential Income Properties<\/a><\/em><\/p>\n<h2>The Data<\/h2>\n<p>You can check out the full dataset in <a href=\"https:\/\/www.biggerpockets.com\/files\/user\/ScottTrench\/file\/airbnb-revenue-vs-traditional-rental-income---sample-data\" target=\"_blank\">this file<\/a>, found at the <a href=\"https:\/\/www.biggerpockets.com\/files\" target=\"_blank\">BiggerPockets Fileplace<\/a>. It\u2019s got neighborhood data from each of ten major cities and is a great case study on the usefulness of AirBnB as an alternate form of cash-flow\u00a0generation\u00a0from rental properties.<\/p>\n<p>This study looks at four pieces of data for various neighborhoods in ten U.S. cities:<\/p>\n<ul>\n<li>\u00a0Median Rents<\/li>\n<li>\u00a0Median Single Family Home Prices<\/li>\n<li>\u00a0Median AirBnB nightly rates<\/li>\n<li>\u00a0Occupancy Rates for AirBnB Properties<\/li>\n<\/ul>\n<p>Those may not be the most useful data points for some investors, and this study should be treated as just a start in your own market research.\u00a0 I\u2019m using the aggregate data simply to challenge the assumption that cash-flow properties don\u2019t exist in expensive cities.<\/p>\n<p>I went ahead and adjusted nightly AirBnB rates by\u00a0average occupancy rates\u00a0to compare annual\u00a0price to rent ratios of fully traditional rentals to potential AirBnB income. It turns out that in certain cities, the cash-flow potential of properties appears to increase dramatically with AirBnB.<\/p>\n<p>Check out the chart below\u00a0to see the\u00a0comparison:<\/p>\n<p><a href=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/03\/TopCities_AirBnB_xlsx.png\" target=\"_blank\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-70972 \" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/03\/TopCities_AirBnB_xlsx.png\" alt=\"TopCities_AirBnB_xlsx\" width=\"739\" height=\"420\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/03\/TopCities_AirBnB_xlsx.png 785w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2015\/03\/TopCities_AirBnB_xlsx-300x171.png 300w\" sizes=\"auto, (max-width: 739px) 100vw, 739px\" \/><\/a><\/p>\n<p>All of the sudden, San Francisco and Los Angeles\u00a0seem a little less forbidding. In fact, from a revenue perspective, AirBnB makes properties in these cities more attractive by a factor of 3-4! While property in these cities still may not cash-flow at the same rate as properties in Milwaukee, WI or Memphis, TN,\u00a0this data may\u00a0at least give resolved investors a glimmer of hope that the extra work that comes with AirBnB\u00a0tenants may actually mean that properties in their city can cash-flow at reasonable rates.<\/p>\n<h2>A Case Study<\/h2>\n<p>This data gets even more useful\u00a0when you delve into specific neighborhoods. A great example of this is Westchester, Los Angeles, where median rents are about $2,118 vs. AirBnB nightly rates of $319 per night.\u00a0 Assuming that this beach neighborhood is only rented out for 110 days per year (30% occupancy), then landlords can expect to bring in $35,090 per year through AirBnB vs. $25,416 per year from traditional rental income.<\/p>\n<p>While AirBnB tenants are likely to\u00a0require far more work and are likely to increase the operating costs of your rental property\u00a0over time, that extra $10,000 in\u00a0cash-flow might be great recompense for the added effort. That\u2019s a decision that will have to be left to you as an individual to weigh. Just remember that in order to run your business using AirBnB, you may have to clean, make repairs, and contact guests more frequently than you would with a traditional tenant &#8212; or you&#8217;ll have to pay a property management company to do those things for you.<\/p>\n<p><em><strong>Related:<\/strong> <a title=\"The 10 Best Real Estate Investments for Smart Real Estate Investors\" href=\"https:\/\/www.biggerpockets.com\/blog\/2014\/08\/23\/best-real-estate-investments\/\" target=\"_blank\">The 10 Best Real Estate Investments for Smart Real Estate Investors<\/a><\/em><\/p>\n<h2>Conclusion<\/h2>\n<p>Personally, I think that this data could be most useful to house hackers\u00a0living in expensive cities and looking to get started in real estate investing. House hackers benefit from appreciation more than the average investor (assuming that they are heavily leveraged using FHA financing) and may therefore be willing to take on the burden of managing ever-changing AirBnB guests\u00a0in exchange for the opportunity to experience appreciation in a popular neighborhood they know well and would enjoy living in. Further, because they live in the property, managing tenants might be\u00a0less of a burden for a motivated house hacker than for remote landlords looking for more passive returns.<\/p>\n<p>The other folks that might benefit most from this data are vacation\u00a0rental owners. That said, these folks are likely already aware of the benefits of AirBnB or have other means of finding guests.<\/p>\n<p>Finally, I wanted to thank our friends at Mashvisor once more for providing the data used in this study.<\/p>\n<ul>\n<li><i>What do you think?\u00a0 <\/i><\/li>\n<li><i>Would you be willing to take on the added management costs of using AirBnB regularly in exchange for increased cash-flow potential? \u00a0<\/i><\/li>\n<li><i>Do you think that this data changes your opinion of certain markets? \u00a0<\/i><i>\u00a0<\/i><\/li>\n<\/ul>\n<p><strong>Voice your opinion in the comments below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>We have quite a few friends here on BiggerPockets from expensive West Coast\u00a0cities like\u00a0Los Angeles, San Francisco, and San Diego, and we frequently see these would-be investors look for out-of-state [&hellip;]<\/p>\n","protected":false},"author":1676,"featured_media":70970,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5528],"tags":[],"class_list":["post-70885","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-real-estate-news"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/70885","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/1676"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=70885"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/70885\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/70970"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=70885"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=70885"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=70885"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}