airbnb retirement income Short-term rental investing for the second half of life

Short-Term Rental Investing in Retirement

Investing in Airbnb Rentals for Retirement Income: How a Retirement Nest Egg Became a Lifelong Asset

Short-term rentals (STRs) quickly ascended as one of the most lucrative post-COVID asset classes available to market observers. Pandemic-spurred innovation made owning and operating STRs one of the most viable paths to long-term wealth and financial flexibility. But beyond its low-risk, high-reward formula, the STR asset class has another valuable offering: low barrier to entry. In a ballooning housing market, a re-imagined travel sector, and a work-from-home future, anyone with an address has an incredibly valuable investment vehicle with which to tackle recovery—or in some cases, retirement. With low barriers to entry and a workforce that has shifted due to the pandemic, Airbnb investing is positioned to provide reliable income in retirement.

In 2019, the average age of a US homebuyer was 34. Months before the pandemic, mortgage rates had dropped to all-time lows. Young professionals and early-stage investors were transitioning their vacation homes into STR getaways. Though most hosts had to be heavily involved, second home rentals represented reliable revenue streams intended to cover their monthly mortgage payments while the asset appreciated. Homeowners might have enough left over each month to cover the upkeep and/or their living expenses. Younger, first-time buyers were finding that STRs could pay for their homes.

Soon after the first COVID-19 shockwave, the STR industry started to flourish. Americans re-engaged with local trips and getaways while working from home. Second and third-tier markets transitioned into premier destinations for travelers and ‘Zoomers’ who sought a change of scenery, an escape from cramped home offices and insular apartments. With remote working protocols, office employees were free to explore new locales—assuming a viable WiFi connection.

Fast forward two years and the Southeast US region has emerged as an STR hotspot on both sides of the coin. When searching “homes for rent” on Google Trends, the top states are Tennessee, Georgia, North Carolina, South Carolina, and Alabama. It’s not surprising as the states are home to some of the most popular second and third-tier short-term rental destinations nationwide. And a look at demographics in the space proves it’s not just mid-career professionals or major investors taking advantage of the boom.

Case Study: Georgia

During the pandemic, a retired married couple in Georgia discovered the advantages of STR investing. They turned their two-story, single-family residence, located in a second-tier city’s historical district, into a duplex rental for short-term travelers. The couple determined the duplex would generate enough monthly income to cover the home’s $5,200 monthly mortgage payments.

At the beginning of Q4, 2021, Georgia had 31,386 active Airbnb listings. The average daily rental rate hovered around $226, and rentals saw a 49% occupancy rate. Naturally, that occupancy rate is not distributed equally, and more traveler interest is awarded based on the engagement of hosts, the home’s location, and the amenities offered. For this retired couple, the duplex quickly generated a monthly revenue average of roughly $6,900; producing a margin of $1,700 monthly, or a $20,400 annual profit.

Naturally, homeowners would be well-advised to reserve funds for repairs, maintenance, taxes, insurance, and property management as needed. Most owners practice the one percent rule, planning to spend 0.01x of the value of the property each year. Even with those costs reserved, the potential for sustained returns in a low-risk market—one in which payments are frequent, demand is constant, and average rental rates continue to rise—is firm ground upon which to build a comfortable future. 

savannah georgia airbnb retirement income

Protocol Investing: Securing a Sound Future

Nationwide, the average rate per night for a short-term rental between September and October was $236. The average occupancy rate was 57%, though there was substantial variation from city to city. Rentals in secondary or tertiary markets have even higher-than-average revenues with the new traveler demand flocking to homes with still-low purchase values. More and more small market homeowners are using property management platforms to list their primary residence or vacation homes on the STR market. For retired homeowners with paid-off mortgages, the monthly revenue can be life-changing.

Even homeowners with mortgages are positioned for unforeseen benefits. Consider the case of a married couple with dual income and no kids (DINK) who earn a combined $100,000 per year. If they secured a $1 million mortgage for a home and generated $4,000 a month—the baseline profit from a $236 price average with a 57% occupancy average—would earn a near $50,000 in profit in a year, the equivalent of a third salary. With small changes, many properties can be optimized to earn as much as 50% more; free Airbnb revenue generators can help accurately forecast a property’s earning potential based on real-time data on comparable rentals in the area. 

A Continued Rise

The trend heading into Summer ’22 has already shown a remarkable increase in guest bookings for larger homes as more STRs have entered the market. Homeowners in almost all markets have warmed to STR opportunities since the pandemic. Families who were laid off or reduced their workload understand STRs to be a new source of income; some are earning more annual revenue from the STR industry than they were with their previous jobs. Operating an STR is no longer a seasonal side-gig. For many, it’s a full-time career. 

STR earning is now a pandemic-era parachute, offering the long-term financial safety net that was once associated with homeownership. Meanwhile, the STR industry continues to reinvigorate the real estate industry and redefine the travel experience. Travelers are trading hotel efficiency for real-home comfort and local experiences. 

Still, due diligence is necessary. Vetting properties first is an important first step. Ensuring that the property management workflow will be manageable, that the guest needs will be satisfied, and that the property can run without the hosts on-site are other important considerations. In aggregate, it’s an incredibly exciting time for the STR market. The industry continues to surprise long-term observers in its opportunity and in its development. Rarely is an asset class this adaptable, resilient, and dependable. And a look at the numbers will give anyone the sense that this is only the beginning. 

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