33.37 Is Converting Real Estate into a Business (e.g., Airbnb) a Smart Move?

This is a very popular question that I keep being asked.
And my answer is absolutely.

While buying real estate, my philosophy is straight:

I typically buy commercial properties because they generate a higher rental yield.

Commercial Properties could be anything:

The idea is simple:

Most people simply buy a house. And that's it.

The only mode of making money: Either they rent or they live in it. Most of such houses are kept locked away and, they generate 0 cash flow.

So far I have purchased multiple commercial properties across Delhi and Gwalior for this reason. In Goa, I bought my first AirBnB property in 2022. 
Over the last 2 years, I have bought 5.
AirBnB is a good income source, provided you know WHAT you are doing.

Here are my quick lessons:-

[1] You are likely to lose money on AirBnB properties if you buy super expensive units.

I have seen people buying 10-10Cr Villas, 
Hoping to make a generous rental income.

This in most cases is unlikely to work out.

[2] Apartments give the best rental yields.

Villas give the best overall returns (generally speaking).

[3] If you can't lower your management cost of running the AirBnB, you should NOT enter this game.

Pooling resources with your neighbors goes a long way.
If more people in your vicinity are already doing AirBnB, it is much easier to build a system.

Sharing check-in managers, cleaners, etc lowers your cost dramatically.

[4] Buying near Airports is probably the worst decision you would make.

Anything around an Airport would have a massive supply.

If you are yet another 2BHK near an Airport, you are likely to have very low occupancy.

[5] Don't compete with hotels.

When you buy a Villa, You are NOT competing with a standard hotel.

An average standard hotel (in Goa) would sell a room for 2.5K.
A standard 3BHK Villa would cost 7.5K.

If you are buying a Villa, You are NOT really competing with a hotel.

Most people keep on cribbing that their rental yields are low. 
And, AirBnB is a horrible business.

Because they pay 1.5Cr for something that is worth 1 Cr.

But in reality:

**If you purchase at good rates and set up businesses on your properties,
**Your rental yield will be high!


Thoughts 🤔 by Soumendra Kumar Sahoo is licensed under CC BY 4.0