Why Airbnb Isn’t Always A Good Idea For Your Investment Property
Airbnb has well and truly taken the world by storm – just ask the property owners in over 65000 cities around the world that have signed-up their properties. It sounds simple really – anyone with a spare room can make a little extra money by listing their home on this site, and anyone wanting to pay half the price of a hotel room can stay.
But the reality for many Airbnb hosts is much more complicated. For many investment property owners, it proves to be much more of a headache than it might first appear. Here’s why:
YOU NEED TO KNOW THE LAWS & REGULATIONS
When it comes to the rules and regulations around Airbnb – every city is different. You can’t simply sign up and hope for the best or you could be getting yourself into some hot water. Before you many any decisions, find out:
• How long can you rent the property out?
• Is there a set amount of time you can rent it out without actually being present?
• How long will it be taxed for?
• What are the Property Owners Association of Australia’s rules?
• Does your mortgage company allow you to sublet the property?
• What’s the impact on your homeowner’s insurance and property taxes?
• Does your Airbnb breach any rules and that you’re complying with any applicable zoning laws?
• Do you have to obtain permits and licenses?
It’s worth noting that as with all rental property, you need to be paying your taxes. You can however offset this a little through your deductions which can include things like Airbnb fees, mortgage interest and furniture and appliances. HOWEVER, you can only claim a full deduction for items if you’ve rented out your property for an entire year. If you Airbnb has only run for 6 months, you’ll only be able to claim for that period.
NOT ALL PROPERTIES ARE SUITABLE & PROFITABLE
If you’re unsure if your property is suitable for Airbnb, you need to ask yourself whether or not it appeals to the Airbnb client base of corporate travelers and tourists.
If your investment property is located in a CBD or inner-city suburb with great tourist attractions, bars and cafes, it’s likely that it will be great fit for an Airbnb property.
But that’s not the only criteria it needs to fill. If your property is run down and extremely outdated, you need to re-evaluate whether or not it’s really going to be profitable for you. Airbnbers like properties that are modern and well-maintained, so they may be extremely reluctant to pick your home over a new one, especially if it’s only priced a few dollars less expensive than a nicer home (but we’ll get to that later).
While people typically use Airbnb as a cheaper alternative to hotel rooms, they also want that local experience and ‘home-away-from-home’ feel (minus the constant reminder that they’re in someone else’s bed).
IT’S EXPENSIVE TO GET STARTED
The expenses associated with running an Airbnb are more akin to running a hotel than running an investment property. Things like cleaning services, heightened utility bills, landscaping and garden care and general maintenance are the basics. Then comes the costs associated with vacancies. When you have a constant tenant – life’s easy. When the vacancies are becoming more frequent in quieter periods, money still goes out without going back in.
It’s also important to consider costs associated with insurance for things such as theft and accidental injury on your property. This, in addition to the costs for furnishing your property, could leave you out of pocket by thousands before you even get started.
Sure, you can ask for a far higher rent through an Airbnb property than a normal rental – but is it going to make sense when you factor in all of these additional costs? Not to mention the 3% cut Airbnb takes from each transaction.
YOU NEED TO BE SAVVY WITH YOUR PRICING
The general rule of thumb says you need to work out the sweet spot between rent per night and occupancy rate. The more you charge, the lower your occupancy rate will be and vice versa. The problem with this is that you really don’t know what your occupancy rate is going to be until you get started. Another factor to be considered is the suitability of your investment property (location, size, property age, room type etc.). When deciding your pricing you need to figure out about what the highest and lowest pricing you will achieve through Airbnb is, and then consider what that yield would be compared to listing your investment property as a rental.
PROPERTY MANAGEMENT IS A TOUGH GIG
When you list your investment property on Airbnb you immediately become your own property manager and unlike an investment property where you can essentially let and forget, Airbnb requires you to become more of a hospitality provider. With advertising, email correspondence, bookings and payments, cleaning and maintenance, you quickly find this job becomes almost a full-time one. When turnovers are every couple of days, it’s difficult to find the time to self-manage. And what makes it more difficult is that you’d struggle to find a property management service that would take on such a demanding role. When it comes down to it, you either cop the brunt of the workload or hire someone to specifically run it for you, which can take a huge chunk of your profit.