In another post, we’ve taken a look at tourism growth worldwide in 2019 and 2020. In that post, we saw that tourism is growing quite rapidly. We also took a look at how a potential market slump might affect Airbnb in 2020. Both these posts showcased how tourism is doing incredibly well and that, even in a market slump, Airbnb might continue to be reasonably stable.
However, neither of these posts answered the question of if Airbnb properties are excellent investments right now. Given the stock market’s returns, a possible slump in the market or housing, and the seemingly unending growth for tourism, do these sometimes conflicting signals mean that you should jump into the Airbnb business or sit on the sidelines for a while?
Airbnb Rentals Are Excellent Investments
Even with a red-hot housing market and prices soaring, Airbnb properties still make excellent investments.
Tourism is going strong, not only in the United States but all around the world. People are looking for new places to visit and new sights to see. If the market stays positive, then people will be looking at top Airbnb experiences that provide memorable experiences. If the market enters into a slump, then people will be looking at Airbnb homes to find less costly accommodations than a hotel. Either way, Airbnb wins.
So you’ll have more people looking for Airbnbs in which to stay when they travel. The question then becomes, is the capital expenditure still worth it, given how high house prices have become?
Much of that depends on the area. Realtor.com compiled a list of the top 10 most profitable cities for Airbnb. Consider the case of Orlando, FL, where a home with a list price of $300,000 will get you an average of $193 per night with an occupancy rate of 86%. In this city, Airbnb owners are grossing an average of $60,000 per year (86% occupancy rate x 365 days in a year x $193 per night average). After expenses, owners of Orlando rentals can expect to recuperate their initial investment within a few years.
While housing prices have soared in previous years, the gains in nightly rates offset the increases in housing prices. Since the entire market has seen boosts in tourism, and since people have more disposable income, the Airbnb market has been able to keep pace with these increased prices.
It’s hard to beat those returns in other markets, including equities and bonds.