Airbnb vs. Renting Out Your Home: Which One Is Better for You?

Airbnb's explosive growth has changed the rental and housing market. With 5 million hosts worldwide, you might be eyeing your long-term rental and wondering if you're leaving money on the table. The allure of short-term rentals is strong, promising higher nightly rates and flexibility. But is it really the golden ticket to real estate riches? Let's cut through the hype and get to the facts.

We'll break down the major differences between Airbnb and traditional renting, comparing income potential, pricing strategies, operational costs, and time commitment. We'll also tackle legal and tax implications, as well as the risks involved.

You'll get a clear picture of both strategies to help you decide what fits your property and goals. There's no one-size-fits-all answer, but with the right information, you can make the best choice for your situation.

Airbnb vs. renting income potential

Most real estate investors get into short-term rentals for their potential for higher income. And, yes — short-term rentals generate higher nightly income than traditional rentals. This premium comes from guests paying for the convenience of a fully furnished property that's available for whatever duration they need.

Say you have a rental property in Scottsdale, Arizona. A traditional rental property might have a monthly rate of $3,000. In a 30-day month, this breaks down to a nightly rate of $100. In comparison, an Airbnb rental in the same area has an average daily rate of $390.

But nightly rates don't tell the full story. The reality is that your short-term rental might not have guests every night. Your actual income depends on a combination of pricing, occupancy, and expenses. You also have higher property turnover costs, since you need to clean and refresh the space every time a guest checks out.

Nightly rate pricing

For a traditional rental, you set rates based on market research to make sure you turn a profit while remaining competitive. Once your tenant signs the lease agreement, that rate's locked in until renewal time, providing you predictable income.

With Airbnb rentals, setting prices works completely differently. Pricing changes constantly because your property likely sees fluctuating demand throughout the year. Take our Scottsdale example: January through March is a goldmine for real estate investors who own short-term rentals. The weather is amazing, plus you've got a major golf tournament, auto auction, and baseball spring training all crammed into those three months. Every short-term rental business in the area is raking it in during this time.

Come July, though, you'll see a different story. Tourists aren't exactly lining up to bake in 110+ degree heat. Even a swimming pool can't save you from that scorcher.

So, what do most Airbnb owners do? They use dynamic pricing tools that automatically set rates based on competition, events, and vacancies. These tools help maximize rental rates, but it's hard to know what you can expect for consistent income. The plus side is that you get to adjust your rates when things change. If you have a long-term rental and market rates suddenly increase, you can't change yours until the lease expires.

Occupancy rates

With so many people becoming short-term rental hosts, you face competition for bookings, which affects your occupancy rates. With long-term rental property, however, assuming you have a good tenant, you can experience near-100% occupancy.

For vacation rentals, occupancy rates can vary wildly depending on your location, seasonality, and local events. You might be booked solid during peak season but struggle to fill weeknights in the off-season.

A traditional rental property offers more stability. Once you've found a reliable tenant, you should have consistent occupancy for the duration of the lease, typically 6-12 months or more. This predictable rental income can be a major plus for investors seeking a steady cash flow.

However, a half-booked Airbnb at a higher nightly rate might still outperform a fully occupied long-term rental in some markets. You'll want to review the numbers for your specific situation.

Airbnb expenses

The associated costs with an Airbnb are much greater than those for traditional renting. This becomes immediately apparent from the moment you look at the initial costs of getting your property guest-ready. Here's a rundown of expenses that'll have Airbnb owners reaching for their checkbooks:

• Set up: Getting your property ready to rent means you'll have to spend money on furnishing and decorating. You can't just slap a mattress on the floor and call it a day. Guests in many areas expect an Instagram-worthy vibe that doesn't come cheap.
• Operational: Every time a guest checks out of your property, you'll have to do cleaning and maintenance, which come at a cost. In long-term rental properties, there's an expectation of normal wear and tear. In short-term rentals, however, worn carpet or faded curtains won't cut it for guests, so you'll need to spend more to keep the property guest-ready.
• Utilities: Your guests aren't exactly pinching pennies on the electric bill.
• Supplies: Toilet paper, soap, those tiny shampoo bottles — it all adds up.
• Property management: Unless you want to be on call 24/7, you might need to hire someone to take on this task.

Rental income bottom line: Airbnb vs. renting

• Airbnb: Offers higher nightly rates, but your occupancy and pricing varies with seasons and events. Short-term rentals have higher upfront and ongoing operational expenses that eat into profits.
• Traditional rental property: You'll receive consistent rates during lease terms with stable pricing set in your lease agreement. Rentals also have lower ongoing operational costs.

Airbnb operations

Short-term rentals fall under the hospitality category of rental properties, meaning you'll have to take on a much more active role than you would when managing a traditional rental. If you hire a property management company, they'll take care of daily operations, but that cost impacts your revenue potential. If you decide to self-manage, here's what that involves:

• Marketing: To keep your property front and center for vacation renters, you'll need to create and maintain attractive listings on Airbnb. This requires regular updates, fresh photos, and tweaking your description to stay competitive. Reviews are everything for your vacation rental, so you'll need to stay on your toes, encouraging happy guests to leave glowing feedback and diplomatically addressing any negative comments.
• Booking management: You'll be juggling multiple bookings and guest schedules. You need to be ready to respond quickly to guest inquiries, issues, or last-minute changes.
• Property preparation: After each guest leaves, you have to do a full reset to make the place spotless for the next arrival.
• Check-in and check-out: You're the welcoming committee and the farewell party. Whether you hand over keys in person or coordinate a lockbox system, you're responsible for making arrivals and departures smooth.

Operations bottom line: Airbnb vs. renting

• Airbnb: You must constantly manage bookings, guest communication, property readiness, and marketing.
• Traditional renting: If you do a good job screening tenants and use a solid rental agreement, all you have to do is set up rent collection and provide occasional maintenance.

The liability and risks associated with running an Airbnb

With an Airbnb rental property, you're basically running a mini-hotel, which means that you have a revolving door of strangers on your property. Sure, most guests are just looking for a place to rest their heads at night, but every now and then, you might get a bad apple. You're trusting your investment property to people you've never met based on a few online reviews and a profile photo.

• Insurance considerations: Airbnb rentals need different insurance coverage than traditional rentals, which leverage landlord insurance. You'll need short-term rental insurance, which covers the unique risks of frequently changing occupants. While Airbnb offers Host Protection Insurance, it's a good idea to have your own comprehensive short-term rental policy for full protection.
• Liability issues: With a new group of strangers every few days, your chances of someone getting hurt and suing you go up. Airbnb offers host protection insurance, but make sure you know exactly what it covers — and what it doesn't.
• Property damage: Short-term guests in vacation mode might treat your property like a party house. Airbnb's host guarantee can help protect you against damage, but it's not a blank check against damage.
• Neighborhood impact: Your neighbors signed up to live next door to a home, not a hotel. Some neighborhoods may be less welcoming to a constant stream of short-term visitors.
• Screening limitations: Unlike long-term rentals, there's limited ability to thoroughly screen short-term guests.

Risk bottom line: Airbnb vs. renting

• Airbnb: Higher overall risk due to guest turnover, specialized insurance needs, and potential community pushback.
• Traditional rental property: Lower risk profile with better screening options, standard landlord insurance coverage, and more stable community relations.

Legal and regulatory considerations

In some towns, short-term property owners are public enemy #1. Locals see you as a threat to their housing options. As a result, there's a surge in rules governing Airbnb properties. Before committing to running an Airbnb, make sure to consider some of these regulations governing short-term rentals:

• Licensing: You'll need to buy the appropriate licenses required by local authorities to legally operate a short-term rental. The rules here vary depending on your local laws.
• Zoning laws: If you want to turn your traditional rental into an Airbnb property, you'll first need to confirm that this is permitted in the jurisdiction where your property resides.
• Occupancy limits: You can't just pack in guests to increase your income. There are often strict local limits about how many guests can stay at a time.
• Parking regulations: Some areas have specific parking requirements, which might mean you need to provide a certain number of parking spaces for your vacation rental.
• Safety requirements: You'll have to meet local safety standards, which could include installing smoke detectors, fire extinguishers, and emergency exits. And, if you're providing food or other amenities, you must comply with health regulations.
• Homeowner association (HOA) rules: If your vacation rental is in a community with an HOA, you'll need to confirm that your property meets their guidelines. Some may prohibit or limit short-term rentals.
• Noise and ordinances: You'll need to make sure your guests follow the local noise and nuisance regulations to avoid fines and complaints from neighbors. You can include these details in your house rules for guests.

Regulatory bottom line: Airbnb vs. renting

• Airbnb: Subject to evolving short-term rental regulations, may require specific licenses and face stricter zoning laws, occupancy limits, and safety requirements.
• Traditional rentals: Typically governed by established landlord-tenant laws, with fewer location-specific restrictions and more standardized regulations.

The flexibility of Airbnbs

One of the best perks of owning vacation rentals is that you can use them for your own vacations. Sure, they're investment properties, but you can use the home on occasion, too. Let's say you've been visiting Siesta Key, Florida for years.

Now, with Airbnb, you can own a property there, rent it out when you're not around, and slash your costs on a place to stay during your visits. All the while, you're getting depreciation benefits, mortgage interest write-offs, passive income, and property appreciation. You're essentially creating a vacation home that pays for itself and then some.

Flexibility bottom line: Airbnb vs. renting

• Airbnb: Use the property for personal vacations, adjust rental periods as needed, and experience potential for both passive income and tax benefits.
• Traditional rentals: Limited personal use due to long-term tenant occupancy, fixed rental periods, and steady income with passive income and tax benefits.

Taxes for Airbnb properties

When it comes to taxes, Airbnb properties and long-term rentals share some common ground. For both, you'll report rental income on your tax return, deduct mortgage interest and property taxes, write off repairs and maintenance, and benefit from depreciation on the property. These are the basics of rental property taxes, whether you're hosting weekend warriors or year-long tenants.

Here's where Airbnb taxes are different:

• Short-term tax-free potential: If you use your property as a vacation rental for your own enjoyment and you rent it for 14 days or less per year, it's all tax-free income.
• Business classification: If you provide services like luggage storage, tour booking, or meal preparation, the IRS might see you as a business, not just a passive investor. This business status could mean paying self-employment taxes.

Taxes bottom line: Airbnb vs. renting

• Airbnb: More complex tax situation with potential for business classification and possible self-employment taxes.
• Traditional renting: Simpler tax treatment as passive income, fewer deductions but more straightforward reporting. Generally no self-employment tax concerns, and depreciation benefits are similar to Airbnb properties.

Which strategy is better for your rental property?

There isn't a one-size-fits-all answer to which option is best for you, because this will depend on your specific situation. It comes down to a combination of factors:

• Your personal situation: How much time can you dedicate to property management? Can you be on call for guest issues, or do you prefer a set-it-and-forget-it approach?
• Property details: Is your place social media ready for short-term guests or more suited for long-term living? Does it have features that vacationers crave, like a pool or a killer view?
• Local market: Are you in a tourist hotspot or a quiet suburban neighborhood? What's the demand for short-term rentals vs. long-term housing in your area?
• Regulations: Some cities love Airbnb, others...not so much. Check your local laws before diving in.
• Your financial goals: Are you after maximum cash flow, or do you prefer steady, predictable income?

The bottom line? There's no universally preferred strategy. You'll want to assess what works best for you, your property, and your market. Whichever path you choose, being a landlord isn't always passive; however, it's a business that helps you build wealth over time.

Tools to maximize income for both strategies

No matter what strategy you choose, you can leverage property management software from Azibo to support your business and make your life easier.

If you go the traditional rental route, Azibo helps you with:

• Rental applications: Enable long-term tenants to submit their applications online so that you can gather key information to assess the tenant's qualifications for your property.
• Tenant screening: You can use Azibo's tenant screening services to make sure you choose the best renter. Screening includes rental history, credit, and background checks.
• Lease agreements: Create state-specific contracts that follow all rules and regulations and protect both parties under this long-term commitment.
• Maintenance: Renters can submit maintenance requests that make it easy for both parties to see the status of requests.
• Insurance: Azibo helps you with landlord and renter's insurance, which provides protection and peace of mind.

For both short-term rentals and traditional long-term renting, Azibo provides:

• Rent collection: Both short-term investors and traditional landlords can use Azibo's convenient solution to collect rent online via ACH, credit, or debit card.
• Accounting and financial management: Azibo's platform benefits all real estate investors, offering centralized accounting, financial reporting, and year-end tax reporting.

Rent vs. Airbnb: Which is better?

Choosing between Airbnb and traditional renting requires more than just crunching a couple numbers – it's about aligning your investment strategy with your goals, lifestyle, and local market conditions. As the rental market evolves, staying up-to-date and adaptable can make a difference.

Success in real estate investing often comes down to understanding your property's unique potential and your personal capacity as a landlord. Each option offers distinct advantages and challenges, so consider what fits best with your situation.

As you weigh your options, consider starting small. Test the waters with one property before expanding your portfolio. Make sure to keep in mind that the real estate market is always changing — what works today might need adjustment tomorrow, so stay flexible and keep learning.

The "better" strategy is the one that helps you achieve your investment goals while fitting into your life. With the right approach and tools like Azibo, you can make the most of your rental property, regardless of the path you choose.

Airbnb vs. renting FAQs

What is the 90-day rule on Airbnb?

The 90-day rule on Airbnb limits hosts to renting out their property for a maximum of 90 days per year in some cities, like London and San Francisco, unless they obtain special permits or licenses.

Is Airbnb the same thing as renting?

No, Airbnb involves short-term rentals typically for days or weeks, while traditional renting involves long-term leases usually for months or years.

Is Airbnb more profitable than leasing?

Airbnb can be more profitable than leasing due to higher nightly rates, but it also involves more work, expenses, and risks. Profitability varies based on location, demand, and management.