For many years, investing in real estate has been of the best choices to generate a solid return and diversify a portfolio.  Recently Airbnb, a company which allows individuals to rent out floors in their homes, rooms, or their entire house/apartment, to guests, just like a hotel. In this way, property owners are able to use Airbnb to serve as a passive income.  The question remains, how viable is owning an Airbnb?  Is owning an Airbnb truly a smart investment?

When looking at an Airbnb or another vacation rental, the most important factor to consider is location. While some areas may be great for an Airbnb, they certainly may not be as productive in offseasons.  For instance, in the outer banks of North Carolina, the market is great for year-round renting due to the climate, but same may not be true of the northern states.

Beyond location, there are a large number of factors that must be considered when determining if a property is right for you to buy and turn into an Airbnb.  First, the local ordinance and rules must be considered. In many of the major cities, there are strict regulations regarding short-term rentals which make it difficult for these landlords to rent out their properties.  In some of these cities and states, short-term renters must obtain a special license and have strict regulations about the number of people that can stay in their residence.  Foreign countries bring a whole new complex twist to the equation.

Another factor to consider, which was previously mentioned to a degree, is the long-term outlook of the property.  It is important to invest in a property which has the potential for year-round cash flows year over year.  While the vacation model is certainly possible, another option that exists is student housing or long-term relocation housing.  These options offer a consistent renter and ensure long-term use.

Tax rules have a significant effect on rental properties as well.  According to Morris Armstrong, an investment advisor and rental property owner with Armstrong Financial Strategies in Connecticut, the IRS tax code details that rentals at less than fair market value disqualify the owner from taking into account expenses.  Thus, the rental cannot be kept for personal use while still getting the tax right-offs. In addition, if the rental is a house and rented less than 15 days a year than it is exempt from income tax.

The final thing to consider when renting is the short-term implications of a rental.  While the long-term outlook may positive, rental properties can be very costly to operate initially due to the cost of furniture, decorating, and potential repairs.  These fees pile on top of the gas, water, and internet bills and can cause a problem right off the bat.

For those of you considering owning your own vacation rental, it is worthy to note that according to, 19% of respondents in a recent survey indicated that a pool is the most desired amenity.  In addition, 18% indicated pet friendliness as most desired and 13% indicated air conditioning.

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