Michael Arnold is a Los Angeles real estate professional and entrepreneur. In the following article, Michael Arnold discusses the striking potential of Airbnb rentals, profitability and investment value.
Michael Arnold of Los Angeles explains that real estate is a deceptively diverse market, often summarized as little more than buying and selling homes. Yet, for investors with a sense of creativity, certain aspects of the real estate market can become an untapped goldmine at the right time. As Central America embraces summer vacation for the first time in two years, Airbnb owners could earn a small fortune, says Michael Arnold.
By purchasing small rental homes in regional hotspots, real estate investors are able to generate a steady stream of income by offering homes listed on Airbnb to middle-class tourists. LA’s Michael Arnold explores this lesser-known side of the real estate market and finds out how Airbnb is quickly becoming the next big gold rush.
How renting an Airbnb becomes profitable
The first question most people ask is, how do investors make money by renting an Airbnb property? The answer to this question is twofold. The first part of the equation comes down to location, and the second part has to do with economies of scale according to Michael Arnold.
Any real estate investor will tell you that one of the keys to success in any market is finding properties in high traffic areas. This rule applies whether you’re looking for traditional rentals or Airbnb, says Michael Arnold of Los Angeles.
By definition, tourists are always on the move, which means that they will not spend long periods in one place. That being said, some areas still become tourist traps due to their popularity (think Niagara Falls or Disney World).
Michael Arnold of Los Angeles says these strikingly beautiful places tend to have higher demand for short-term rental options like Airbnb properties because hotels book up quickly and can be expensive. As a result, investors who buy homes near these attractions can charge higher rates for their rentals while still offering value compared to hotel alternatives.
The second part of the equation concerns economies of scale. Michael Arnold explains that when operating a traditional rental property, there are many associated costs that accompany each tenant (advertising, cleaning, maintenance, etc.). With Airbnb, however, investors only incur these costs when someone books their listing. Each night costs more than a single night’s standard rent, which helps offset costs and generate profit according to Michael Arnold of Los Angeles.
This means that if investors have multiple Airbnb rentals in different locations, they can spread these fixed costs across all properties, resulting in a higher overall profit margin. In other words, it becomes more profitable to own multiple Airbnb listings than to own just one traditional rental property, says Michael Arnold.
Why is it time to invest in Airbnb rentals?
Michael Arnold of Los Angeles says investing in any type of real estate is all about timing. Investors need to find properties when they are undervalued so they can sell or rent them for a higher price. The same goes for renting Airbnb properties; now is the time to buy while prices are still low and demand is high.
It’s no secret that COVID-19 has decimated the travel industry over the past two years. As the number of cases continued to rise across America, people became increasingly hesitant to take vacations outside of their home state or country. However, as the pandemic winds down, more and more middle-class Americans are hoping to return to their favorite vacation spots says Michael Arnold.
Regional tourist attractions, such as Disneyland, Dollywood, Graceland, Las Vegas and Washington DC, are all expecting a massive increase in the number of tourists visiting their localities. This sudden increase in tourism is causing many investors to quickly buy and repair low-cost homes for the sole purpose of renting them to Airbnb members, according to Michael Arnold of Los Angeles.
The Risks of Profiting from the Airbnb Gold Rush
Of course, as with any investment opportunity, there are always risks to consider. Nationally, housing prices have soared over the past two years due to a shortage of new construction. This, coupled with steadily rising interest rates, creates a hostile investment environment, especially for anyone looking to buy a home, says Michael Arnold of Los Angeles.
On the other hand, however, families with rental accommodations or spare vacation homes stand to benefit enormously from the expected return of US tourism. Until there is another widespread outbreak of COVID-19, the summer of 2022 should see herds of vacationers arriving in droves across the country.
The best advice is to invest wisely and follow interest rates for the time being. As stated earlier, timing is everything, and investing in the real estate market requires watching closely and taking the pulse of the economy.
Final Thoughts
The Airbnb Gold Rush is a real opportunity for those who can afford to invest in regional rental property. By taking advantage of economies of scale and the desire of tourists to return to their favorite vacation spots, investors can make a splash in the years to come.
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