- Originally, Airbnb was a cheap backpackers solutions
- The cash flow for an Airbnb property has been enticing for investors
- However, there are many cons to having an Airbnb property
By Lloyd Edge, author of Buy Now: The Ultimate Guide to Owning and Investing in Property.
We have all seen the rise in popularity of holiday rentals on the ever-popular Airbnb platform.
Originally Airbnb was set up as a cheap back packers solution to rent someone’s couch, spare bed, or house sit whilst someone was away. These days, it has grown to be an empire for a lot more!
It’s the new method of leasing out holiday rentals, also referred to as Short Term Rental Accommodation (STRA).
If you are a property investor and interested in mixing up your property portfolio then considering a STRA property could reap some benefits for you.
The cash flow on owning an Airbnb property will surely look very enticing, with a much higher nightly rate compared to traditional rentals, however you will need to weigh this up with having longer periods of vacancy compared to when you are able to lock in a tenant under contract.
To run a successful Airbnb property you will need to manage bookings, have the property clean and well maintained constantly, and have the property fully furnished with basic amenities available.
There are pros and cons of being a landlord for a STRA, so here we delve into the details for you.
Pros of holding an Airbnb investment property:
- The biggest draw card for investors is the higher yields compared to a rental contract. If you rented your property in a traditional manner, you would be aiming for around 5% rental yield, and may get less depending on where the property is. But as an Airbnb property, you would be hoping to get around 10% (or more) rental yield. In prime locations, some properties can even earn up to 25% rental yields.
- There is also an advantage that you will be able to use your property during vacant periods for a holiday, to do maintenance, or to upgrade the property with renovations because these short term rental platforms (like Airbnb) allow you to block out periods that you want to use or that you need to access the property.
- Your property will always be well maintained as each guest booking will include a cleaning fee.
- You will get a diversified group of tenants and you will not be locked in with a bad tenant. You will also be receiving your rent on time, as bookings are paid in advance.
Cons of holding an Airbnb investment property:
- The higher rental yields come with some risk! There is a higher risk that your property will sit vacant and you will not be receiving any income, such as during winter if your property is beach side, or during summer if your property is located at the snow fields. Your month to month earnings will be irregular and you will need to be able to afford this. There are many things also out of your control such as if there are local bush fires, floods, or a pandemic lock down period- your property is likely to not be rented during these periods so you will need to cover the mortgage repayments. When assessing the yield of the property, it is advised to take into consideration a 30% vacancy period.
- You will need to be patient as it may take a while for your property to start renting frequently as bookings come largely from the reputation of the manager and the reviews of the property.
- Higher maintenance costs. If you have an Airbnb property your guests will expect the property to be sparkling clean, with the lawns mowed and not in need of basic repairs and maintenance (they want the dishwasher to work and light bulbs not blown) and this comes with additional costs for property maintenance.
- Property Management costs. Your property manager will be charging a lot more for a STRA than a traditional rental. You would expect to pay around 18% – 20% management fee which is because there is a lot more work involved in managing STRAs. Keep in mind this higher fee is due to a higher level of service than a traditional rental. Your property manager will need to be on call, and come out to the property should there be any issues for the guests such as TV not working, internet issues, or problems accessing the property. This all comes at a cost for the landlord. If you choose to self-manage your property, to save on high property management fees, it is quite a lot of work to take on.
- The property will need to be fully furnished with internet and usually Netflix subscription. This typically will include all the linens, towels, shampoo, washing liquid, etc. You will even be expected to provide smaller conveniences such as coffee, sugar, salt, pepper, and cooking oil.
- An additional cost is if you choose to hire a linen service to provide linens and towels which is highly advisable.
- Insurance will be more costly for STRA because there is more movement of people going in and out of the property and higher risk of damages.
- The landlord is responsible for the utilities bills which is often overlooked when considering the cash flow of a STRA.
- One of the biggest turn-offs for an investor for holding an Airbnb rental is the high regulation that Airbnb hold alongside the regulations outlined by the Australian Government that need to be followed. There is a small cost involved with being on the STRA register, and more costs may be involved to ensure you are compliant with the rules and regulations. Keep in mind that the rules will also change state to state and country to country, as well as local governments may have their own planning rules.
- If your property has been listed on the exclusion register by Airbnb or the Government, you will not be able to earn income from your property for a period of time.
Regulations that need to be complied with:
You will need to ensure your Short-Term Rental Accommodation complies with:
- Fire Safety Regulations
- Registration on Government STRA Register
- Code of Conduct for Short Term Rental Accommodation (minimum standards of behaviour and requirements for booking platforms, hosts, and guests).
- Local Government STRA planning rules
- Strata by-laws that restrict certain short-term rentals
- STRA Planning framework. Including a day-limit of 180 days per calendar year.
- Airbnb data reporting
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About Lloyd Edge:
Lloyd Edge, Director and Founder of Aus Property Professionals, is a buyer’s agent, property strategist, and author of best-selling book Positively Geared. His new book, Buy Now, is the ultimate guide to owning and investing in property. Lloyd was a finalist in the 2021 Real Estate Business Awards for Buyer’s Agent of the Year and Aus Property Professionals was awarded Property Strategist of the Year for 2022 by APAC, Australian Enterprise Awards.
