By Kendal Keyes
Alex and I launched our first Airbnb short-term rental property in July 2022. It’s a 4 bed, 2 bath home on Whidbey Island, just a quick 1.5 hour drive from Seattle. Having recently completed our first full year in the short-term rental market, we have few thoughts to share that might help you if you are considering this asset class yourself.
consider your “why”
Airbnbs are one of the most “active” types of real estate investing. In other words: it takes work. If your goal is primarily passive income, I would recommend looking elsewhere. However, if your goal is to make the most profit, short-term-rentals might be a good option for you as there is potentially more money to be made. With short-term rentals, you benefit not only from long-term appreciation, but also a monthly income that is potentially higher than a long-term rental (though not always!)
Another appeal of Airbnb is the idea of being able to use your own property. This was one of the leading factors in our own purchase. We work in an industry where it’s hard to take vacations, and our free time is often on weekdays. We wanted a place we could visit ourselves for a quick, last-minute getaway. And while we have taken advantage of downtime on Whidbey, I would urge you to consider how much you will actually use your property.
It’s also worth mentioning that to be considered in “investment property” in the eyes of lenders and the IRS, homeowners can only visit their property for personal use 14 days/year maximum. So if vacationing is your primary goal, consider a “vacation home” if you can afford it, rather than a cash-flowing short-term rental. (This is not tax advice, but here’s an article to check out as a place to start your research.)
Financial Realities: does it pencil?
The purchase price isn’t the only financial consideration with regards to Airbnbs. It's the ongoing costs that can take you by surprise. From maintenance issues to lawn care, the expenses pile up. We had two factors working in our favor that allowed us to make this purchase in 2022:
- We had a good chunk of savings to deploy on a down payment. This is a big hurdle to overcome with investment properties, because investment mortgages require 20% down.
- Interest rates were VERY LOW in 2022. We locked in a 4.25% rate for our Airbnb, which resulted in a monthly payment we knew we could cover with Airbnb income. To put this in perspective, we were quoted 8% for an investment loan in 2024.
In our first full year operating our Airbnb, we made $14,000 in (taxable) profit. While this might sound pretty good, we know it will not go far towards all the capital improvements coming down the pike. We will soon need to replace the heating system ($30,000+) as well as the deck ($10,000+). $14,000 is suddenly looking like chump change.
supply and demand
We have recently seen an uptick in new Airbnb hosts thanks to Covid changing the way people travel, and interest rates dropping super-low during the pandemic years. Even in our own Airbnb neighborhood, there are more options for travelers today than there were 2 years ago. It’s important to consider whether or not there is actually a market for your product.
There was great demand for our Airbnb in 2023, but as we move through 2024 the market is telling a different story. There seems to be less demand for our home, likely becuase of the increased supply, coupled with the public’s willingness to once again frequent airplanes and hotels.
would we do it again?
The real estate market has shifted since our purchase. With higher interest rates and a cooling market, making a similar investment today would be significantly more challenging. The numbers simply wouldn't work out favorably, considering the higher monthly payments and potential for decreased property value.
So, while we do not regret our Airbnb purchase, the reality is that we would not - and could not - buy the same home again today.
As always, if you’d like to start the conversation about making home (or investment) in Seattle, send me a message!
