Airbnb vs Traditional Renting - Which Is Better?

More and more investors are considering going through the route of short term fully furnished rentals. So much so that many municipalities are suggesting that these sites are resulting in a shortage of quality rental units available in the market for renters.(1) 

For many owner-occupied home buyers, renting out a part of their home is a necessity for them to even afford to buy a property.

The most common way to rent out your property of course is with a long term tenancy (typically a one year lease with the option to extend). Growing in popularity are short term rentals, where the rented space is fully furnished.

#1 Landlord Fear: The 2am Clogged Toilet

Usually it’s the first option, and it can be daunting for the new investor or homeowner. They might conjure up thoughts of nightmare tenants constantly calling in the middle of night with problems, “professional tenants” finding ways to dodge rent, eviction hearings at the landlord tenant board, or even dealing with lawsuits at small claims court.

Short term fully furnished tenancies may help to alleviate some of these issues, but really there are pros and cons to both options. The mainstream short-term rental option nowadays is Airbnb. So let’s do a proper comparison of the 2 options: Traditional renting versus Airbnb.

Blecharczyk, Gebbia and Chesky - Airbnb founders who became billionaires by finding folks to crash on your couch - Photo: Forbes.com

Blecharczyk, Gebbia and Chesky - Airbnb founders who became billionaires by finding folks to crash on your couch - Photo: Forbes.com

Let’s look first at traditional renting. Typically this involves signing a lease for one or two years, with an option from the tenant to extend on a month-to-month basis after that lease period ends.

Pros Of Traditional Renting

1.       Great for consistent income every month - Ideally you get a bunch of signed post-dated checks, so no rent chasing.

2.       Minimal work if you do a good job of screening your tenant - You might not even have to visit the property for months at a time.

3.       Enforcement by Landlord/Tenant Board – You can evict the tenant if they don’t pay rent, or cause damage to the property (this one is a double edged sword and can also be used against you, the landlord).

Cons Of Traditional Renting

1.       If you need to evict your tenant for any reason, whether it’s non-payment of rent or damage, the process is not instant. You would have to go through a bit of an arduous process with your tenant and the board, and it can take months. To get any money that is owed to you, you would still need to go after your tenant through small claims court.

2.       You might be prey to “professional tenants” who are extremely familiar with the Landlord/Tenant board, using that against you to get the maximum amount of time in a property with minimal payment.

3.       Potential damage to property. Really there is no protection here other than to sue your tenant, which can be a long and stressful process, without a guarantee for any returns. Even if successful, it might be difficult getting any funds from your tenant.

Now let’s look at the pros and cons of a short-term strategy such as AirBnb.

Pros Of Airbnb

1.       First and foremost, you don’t have to chase for rent money. Airbnb, being a 3rd party arbitrator, collects this on your behalf.

2.       If you are a good business person, the potential financial upside is greater, and the price on a per night basis is much higher than traditional renting.

3.       Any problem guests are temporary. If they stay past the rental period, you simply call the police for trespassing. They have no protection.

4.       Guests are reviewed by previous hosts, so you get a good sense as to who you are renting to. Because they are reviewed, it also gives them an incentive to be nice and keep your property in good condition.

5.       Because of the size of Airbnb, they can afford financial protection from property damage.

6.       Unlike traditional renting where you would need a whole separate fully functional unit (apartment or house), with Airbnb you can rent out private rooms or even shared rooms.

Cons Of Airbnb

1.       Non consistent income – if you don’t know what you’re doing, vacancy can be a real issue. Even if you were a “superhost”, you will still likely have some vacancy periods due to seasonal cycles. With traditional renting, the vacancy typically occurs in between long term tenants.

2.       You will have to furnish the property, which of course is more money and work.

3.       Airbnb is very market dependent. It doesn’t make sense in every city. Typically works better in areas where people go to for both tourism and business travel.

4.       More work – The average stay in an Airbnb is 2 or 3 nights, so you’re essentially a hotel service, and you will be compared to a hotel service. Cleaning in between guests, whether you do it yourself, or if you hire can be a tedious task.

5.       If you own a condo, many condo boards have by-laws which don’t allow short term rentals.

6.       Similar to how you can rate your guest, your guest can rate you as well. So if you’re not a great host, your future guests will know about it, and this definitely affects how well your business is run.

Which One Is Better?

There is no right or wrong answer, but rather depends on your circumstances, the area you live in or own property, and what works best for you. I know investors who swear by Airbnb, and investors who won't come near it. In either case, the sharing economy is not going away, so you might as well familiarize yourself with the ins and outs, and what your competition is doing.

In general, traditional renting provides more stability and is less work, and hinges a lot on finding that one great long-term tenant that will not cause problems. And this depends a lot on your skills during the screening process.

Airbnb on the other hand, is not as stable, market dependent and definitely a lot more work. However, it’s also a great way to tap into providing a service where the potential financial upside can be much higher and rewarding depending on your efforts. This option allows for a greater entrepreneurship experience and is still a growing segment of the sharing economy.

In either case, it makes sense to use a part of your own house with either option as part of your plan to reduce your financial burden and increase your skill sets as a business person.

Also, know that you still need to comply with all rules with Airbnb. Make sure you have insurance coverage, and you pay taxes on your income (of course, expenses can be written off). And if your property is a condo, make sure the condo by-laws allow it.

Using Secondary Suites

Whether you are more interested in traditional long-term rentals, or being a host for short-term rental solutions such as Airbnb, using the secondary suite strategy is a great way for both options. This is because you're turning a single property into two separate properties entirely, and can expect greater revenue overall for the amount of money you're putting in.

This Can Be You!

This Can Be You!

Thanks for reading! What are your thoughts on Airbnb and the sharing economy in general? Share (pardon the pun) your comments below.

Notes:

1. Airbnb wreaks havoc on Vancouver rental scene