Written by: Jorge Contreras, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
When we compare Airbnbs versus long-term rentals, we’ll see that each of them has its pros and cons. However, if we’re talking about factors that can affect their profitability, there is a clear winner between the two. But which one has a bigger edge over the other? Read on to discover the difference between long-term and short-term rentals through Airbnb.
Long-term vs. short-term rentals
By definition, long-term rentals are types of rental property businesses where tenants can rent a space, whether residential or commercial, for a fixed amount of time. The most common long-term agreement period can last up to 12 months.
On the other hand, short-term rentals are spaces that guests can book for just a few days, weeks, or months at most. Short-term rental owners usually find their guests by listing their properties on online platforms like Airbnb.
Airbnb is an online marketplace that connects travelers, staycationers, and guests from all over the world to landlords and owners willing to lend their spaces for a short period in exchange for profit.
Now both of these business models - long-term rentals and Airbnb - are great if you’re looking to make money using your real estate. However, there are also clear differences between the two. Let’s explore how they fare when it comes to profitability, management, and start-up costs.
Profitability
Long-term rental
The average cash flow that an investor hopes to make for a single long-term rental is $200 a month. This is according to my personal experience as a landlord and it’s what other investors I know implement as their monthly income goal too.
But let's say that you're planning to replace your nine-to-five income with passive income from your long-term rentals. Well, if you’re making $200 a month per unit and you want to replace a job that gives you $5,000 per month, then you’re going to need at least 25 units to reach your goal.
And while there are investors who can make this happen using multiple rentals, it’s a fairly difficult scenario especially if you’re a newbie owner with limited resources.
Airbnb
Did you know that the average rent for Airbnb in the US in 2021 is around $200 a night? And in September 2022, Airbnb rental rates in some cities even peaked at $316 a night! Subsequent data shows that these rates will increase yearly. But let’s backtrack for a bit and use a conservative number for our example.
Let’s say you want to replace your $5,000/month earnings through Airbnb passive income. This means you can start a short-term rental business, price it at $200 a night, and earn your goal within 25 days.
Now multiple factors can affect your profits, and not all types of properties can be priced at $200 a night. But Airbnb does have the potential to multiply your income.
Differences in pricing
One of the downsides of operating long-term rentals is that you can only increase your rent by 3% to 5% a year. And while the ordinances can differ from city to city, as a landlord it means that you are not free to price your space however you want because you have to abide by certain regulations.
With Airbnb however, you can determine how your pricing goes. Of course, you still have to consider your competitors' rates, your property's amenities, and a lot of other factors before you can price your space well. But the gist is that you have 100% control as to what your nightly price is going to be.
You can also change it on an ongoing basis based on the law of supply and demand in your area.
Management
Long-term rental
With long-term rentals, you can expect your area to be cleaned sparingly. Some tenants will not deep clean your property because they know they will only be there temporarily. Some maintenance issues can also be overlooked which might cause your property damage in the long run.
Airbnb
Airbnbs on the other hand requires more of your attention. If you want to continue getting profit month in and month out, you have to give your guests a great experience and that includes coming into a clean place. This means that you really have to clean when a visitor leaves and before a new one arrives and it can be a lot of work.
However, there are several systems you can put in place to make your work more automated. You can always hire people to look over the cleaning and maintenance for you. You just need to learn how to build a team and a system for your business to run on autopilot.
Start-up costs
Long-term rental
Starting a long-term rental business can be costly. This is because if you want to get your rental going, you have to either purchase or own a property first. Most owners buy real estate to use for their businesses. Some buy them with their extra money while others take loans just to get started.
Airbnb
On the other hand, if you want to operate an Airbnb business but don’t have the money to buy your own real estate yet, there is a specific strategy you can use to get launched.
Have you heard of Subleasing? Also called Rental Arbitrage, subleasing is a business strategy where you start a rental property business without having to buy a property. This is a cost-effective way of starting especially if you don’t have enough money to purchase your real estate. You can read a more detailed explanation of subleasing here.
Airbnb entrepreneurs use this strategy to start and build their businesses because it doesn’t require huge capital out of pocket. You only need to find a great property to rent, ask the landlord for permission if you can use it as an Airbnb rental, and if you receive a “yes” then you’re good to go.
The final verdict
From the comparison above, it’s pretty clear that Airbnb wins over long-term rentals if you want a business that can be easily automated, that you can get started without having to buy properties, and that can make you money fast.
Personally, these are also the same reasons why I transitioned my rental properties from the long-term rental model to Airbnb short-term rentals in 2017. I and my students now make anywhere around $2,000 to $7,000 of cash flow a month on average. And I’m pretty sure you can do this with Airbnb, too.
If you want to know how to launch an Airbnb business from scratch without buying or owning properties, you can download and check out our free ebook here.
Follow me on Instagram, YouTube, Podcast, and visit my website for more info!
Jorge Contreras, Executive Contributor Brainz Magazine
From poverty to a million-dollar business, Jorge Contreras is a real estate investor and coach. He started his real estate journey over 10 years ago, and he launched his Airbnb business 5 years ago. Before that, Jorge was overworked and underpaid. He barely had time to spend with his family, and his business wasn't exactly thriving. Once he got into real estate, he realized the potential, especially with Airbnb and short-term rentals. When he became a millionaire before the age of 30, he decided to share his knowledge with all the people who have the need to spend more time with their families and less time working. Jorge has already helped over 3000+ people reach their goals with Airbnb.
