Airbnb versus Traditional rental
As an owner of an investment property you have probably looked at the costs of an Airbnb with awe. Those owners seem to make a lot of money, some make a month’s rent in one week! It can seem like it has a much higher return on investment than renting your property out long term to a tenant. However, like any investment, the more money you make from it in the short term, often the more risks associated with it.
To help you determine what path you should take, we will outline the pros and cons of renting your property on Airbnb.
A major benefit, aside from the short term income, of an Airbnb is the flexibility. With no long term tenants, you can very easily use the space as you wish. Should you ever want to use the home for a holiday, use it as a guest house for visiting family, provide a temporary home for a friend, or make repairs or renovations to the space. You have control as to what dates someone can book your property for. You simply block out the dates you want the property for in the Airbnb calendar.
This is a major benefit which you don’t receive from a traditional rental where you need to provide notice and reason to evict a tenant, or work around them for repairs and renovations. Flexibility as a benefit works extremely well if you mainly want to use the property as a second home or holiday home.
A major downside to Airbnb is that several of the largest insurance companies will not offer landlord insurance for properties being used for Airbnb. This can be an inconvenience for property owners who are considering switching from rental tenancy to short term Airbnb. While there are some insurers who specialise in Airbnb properties, it is important to note that this often comes with higher premiums charged for home and contents insurance on these types of properties.
Strata management conflicts
Be aware, if you have an apartment you may not be allowed to rent your property out on Airbnb platforms. There is a constant stream of noise which short term guests can bring to properties they stay in. Because of this, strata managers of apartment complexes have set strict guidelines for property owners. You should always be aware of strata guidelines before purchasing an investment property.
Lulls in income
As with many seasonal industries, tourism, and by extension Airbnb, can suffer from lull periods. If you have regular mortgage payments this can be a problem. While you may make a lot of money in one week, it is possible that you may struggle to find someone to stay in your home another week. So, it is vital that you keep this in mind, especially if your property is in a very seasonal location.
There are some regional areas who have experienced serious disruption due to Airbnb. These range from, significant noise increases due to parties, destruction of property, disruption, and massive rental price increases. Because of this, residents have called for councils to put their foot down. Now there are specific holiday codes of conduct in many councils across Australia. These include party bans, limitations on visitor vehicles per property, a 10pm – 8am curfew on outdoor spaces and visitors, a limit on the number of days you property can be listed on Airbnb for, and more.
These council restrictions could have a major impact in your potential revenue. Often they are designed to encourage property owners in tourism towns to rent their property to long term tenants over placing them on Airbnb.
Cleaning maintenance and repair costs
In a long-term residential tenancy lease, your property manager will take care of your tenants. Repairs and maintenance requests will be managed on your behalf, rather than suddenly due to problems arisen by a guest. The property is also being used as a long term home, so there are expectations that your tenant will do their own cleaning and washing of linen.
An Airbnb on the other hand, is more akin to a hotel. This means that you will be in charge of changing sheets, towels and any other amenities you provide for your guests. There could also be more wear and tear on the property due to a higher volume of people moving in and out of the property over a short period of time.
When you post your property on Airbnb you are essentially running a small hotel. With this comes certain responsibilities. These include, the aforementioned linen cleaning, attending to the requirements of your guests, and replacing stolen or damaged items. If you want to run your property from far away, like a different state or country, you may find it difficult or expensive to deal with this.
There are also taxation changes which must be considered. When switching your property to an Airbnb your income will change, as will the way the tax office views your property. It is vital that you speak to your accountant if you wish to run an Airbnb as there may be tax changes you are unaware about.
As well as this, you should note that an Airbnb will require a higher time investment. There is significantly more maintenance and management required which you may have to do yourself.
There are some very specific scenarios where Airbnb may be right for you. If you own a second home in a popular tourist destination, where flexibility on when you can use the home is important to you, then Airbnb may be right for you. At the same time, if you are looking to list part of your home, like a granny flat, you may also find Airbnb is right for you, however speak to your accountant about the tax implications of this.
For the majority of people, renting your property to long term tenants is the right choice, offering a recurring income, with less work. If you are looking to maximise your return on investment for your property, come have a chat with Link Living and see what we can do for you.