Are you thinking about embracing the short-term holiday-let model?
Airbnb has shaken up the hotel industry, but it also has the potential to power up your property investment strategy. In the past, short-term or holiday leases were seen as a very niche part of the rental property market, but Airbnb is changing that. Leveraging the evolving share economy through Airbnb could be a game-changer for many property investors, but it’s certainly not for everyone.
As with any big decisions involving your investment strategy, there are a number of risks and other considerations to take into account before jumping on the Airbnb bandwagon. It always pays to do your due diligence, so let’s weigh up the benefits and risks of listing your investment property on Airbnb!
Benefits of listing your investment property on Airbnb.
Free listings
Hosts don’t have to pay to list their properties. Listings can include written descriptions, photographs with captions, and a user profile where potential guests can get to know a bit about you. Airbnb only takes a fee when you receive a booking, which is usually a low flat rate of 3% of the reservation.
You’re in control of the price
It’s up to you to decide how much to charge per night, per week or per month. Airbnb provides travellers with a more affordable option than hotel rooms while staying well above the long-term market rental rates. You can also raise the rent during peak seasons to make up for your lower income during the off seasons.
Fewer restrictions on property type
When it comes to property type, the possibilities are endless! You’ll find such a wide and colourful variety of properties on Airbnb, from single rooms, suites of rooms, apartments, moored yachts, houseboats, tree houses and even the occasional castle! Long-term renters desire very particular types of properties, but this restriction doesn’t apply to an Airbnb investment strategy.
A new target market:
Compared with the cost of a hotel room, booking an Airbnb is a more cost-effective and attractive option for travellers. Perhaps your property is struggling to attract local long-term renters, but is more appealing to people on holiday or travelling for work?
Potential for a much higher return
In exchange for the lower risk and higher reliability of traditional rentals, typical Airbnb yields can be double or triple that of the traditional rental model, provided you find ways to mitigate the risks below.
Risks of listing your
investment property
on Airbnb
Your existing property might not get attention
Not every property is going to attract the same interest from travellers. Is your existing property unique enough? There’s a lot of competition these days, and short-term tenants are looking for a unique and interesting experience. Stylish design and decor are a must if you want to make your listing stand out!
Location is important
When it comes to Airbnb locations, there are two extremes that attract the most guests. Your property either needs to be walking distance to the beach, public transport and entertainment precincts, or hidden away in the mountains or the forest. Famous suburbs and regions that non-residents are familiar with are ideal!
Your role will change
This is probably the most important consideration of all. Property investment is so attractive because it allows for a more hands-off approach to generating rental income and capital growth, but Airbnb requires investors to become hosts in the hospitality and tourism industry.
You guests will expect a similar experience to staying in a hotel, right down to the fresh linen, cleaning service, refreshments and welcome packs. Airbnb involves more work than a regular investment property, and you must be prepared to answer inquiries, process bookings, and act as a concierge if necessary, because hosts with great reviews have the most success on Airbnb.
Inconsistent income
With regular tenants, you have guaranteed income for the duration of their lease, and they could rent your property for many years. Although there is a higher income potential with an Airbnb investment strategy, we have to take into account that the travel industry has peak seasons and slow seasons.
Does your strategy include a buffer for your property being empty for weeks or months at a time? Keep in mind that you will also have higher maintenance costs, on top of Airbnb taking their cut.
Despite the risks, listing your investment property on Airbnb is a powerful strategy in theory. However, your decision must come down to a careful consideration of your own personal values and goals for the immediate future, as well as the long term. Are you prepared to take on a higher risk investment strategy?
What’s more important to you?
Stability and passive income, or an active investment and higher returns? A more passive, standard lease arrangement may be less profitable, but it will also be less work!
Do you require a strategy with a lower time commitment, or are you willing and able to spend more time on your investment? This is a very important consideration if you already work full-time!
Tax considerations
Whether you have long-term tenants or a series of short-term guests through Airbnb, the same property investor tax rules will apply. You must declare all assessable income in your tax return, so that you can claim deductions for your operating costs and losses.
TaxTank enables investors to seamlessly manage income from Airbnb along with the rest of your property portfolio, which means your short-term tenants will no longer leave you with a long-term tax headache!
By answering a few simple questions Taxtank will calculate the correct percentage of claim which makes tax time simple and accurate to keep the ATO away.. If your situation changes simply update your answers to update your percentage of claim for that year.
You’ll have a clear view of your debt, equity and cash position, and our real-time smart tax tools will ensure you never miss an opportunity. Are you ready to start maximising your tax position and feel tax confident? You can try TaxTank for free for 14 days!