Airbnb has become something of a phenomenon in recent years and if you’ve not yet considered jumping on the bandwagon yourself, chances are you’ll know someone who is an Airbnb host.
Generating easy income from your spare rooms or additional property is tempting, but like many secondary income streams, it may very well prove too good to be true.
Type your local area into the Airbnb search engine, and you’ll find a slew of properties. I was gobsmacked to see how many are available in my remote local area. More availability drives down prices and increases expected standards.
To compete effectively, you need to go above and beyond the expected bed for the night; with spotless surroundings, breakfast, refreshments, cosmetics and even pillow treats or packed lunches!
Whether you do the cleaning, DIY repairs and admin yourself, or employ someone to do it, will greatly affect what you charge. However, with increased competition in your area, there is likely a ballpark figure you’ll have to stick to and it’s unlikely to allow for a large profit margin. The work involved can be seriously time-consuming for very little monetary reward.
In many cities, you must register, get a permit, or obtain a license before you list your property or accept guests. Further regulation is expected soon and the room for big profits is set to be squeezed even tighter.
By contrast, investing in shares is a tried and tested way to build your net worth and accumulate wealth in an exciting but strategic way. It doesn’t require endless admin, customer service skills, power cleaning or emergency DIY skills. You can invest at your leisure and watch your portfolio grow. You can diversify by investing in companies that interest you or appeal to your ethical and political stance.
Long-term cash building, at a slow and steady pace, can still bring significant financial gains when handled properly.
Purchasing individual shares or investing in funds can deliver steady returns that are not to be scoffed at. ISA millionaires are real, you may well know one, but I’m yet to hear of an Airbnb millionaire.
Individual shares and funds have been producing market-beating returns for many decades. They’ve been proven to beat all other asset classes such as cash, commodities, bonds and property.
Don’t think share investment brings just a small percentage annual return. If you compound your returns by reinvesting your dividends, the sky’s the limit and you could very well become the next ISA millionaire you know.
ISAs offer a range of fantastic benefits including tax-efficiency, flexibility and simplicity. The annual ISA allowance offers the chance to create a substantial stock portfolio protected from the taxman, and less tax equates to higher returns.
A diversified portfolio containing a high-quality selection of FTSE 350 dividend growth stocks and well-respected global equity funds can give me a good chance of generating returns of around 8% to 10% per year.
Alternatively, a possibly lower-risk FTSE 100 tracker fund could generate an income return of 4.5% (or 8% including dividends).
Of course, it goes without saying, past performance is not a guide to future performance. However overall, the stock market makes gains with time and fluctuation is a normal part of investing. If you are patient and invest strategically, the process is relatively easy and the rewards potentially bountiful.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.