Have you considered branching out and exploring other avenues of revenue income from your property portfolio?
The benefits and pitfalls of owning or investing in a holiday house have been well covered by the property investment community. Typically, investors are lured by the promise of high rental yields, not to mention the novelty of owning a little piece of paradise. With all that excitement it can be easy to overlook the risks of seasonal variances in occupancy, high maintenance costs and changes to property management contracts. However, there are ways to mitigate these risks.
In this post we examine an emerging trend that offers an attractive opportunity to investors and property owners. It also highlights a growing sector that rental owners and property managers should be aware of.
Airbnb is a recent entrant to the Australian market that caters to a new type of traveller.
Traditionally holiday houses and apartments have been rented through regional real estate agents or online players such as Stayz and HomeAway. Airbnb offers a potentially lucrative alternative to this arrangement.
The service targets travellers that are comfortable living side by side with owners or other renters, in order to stay in larger or nicer accommodation for a more attractive price than is available at conventional hotels.
What does this mean to property owners?
Effectively, it means you have the opportunity to monetise unused rooms to qualified Airbnb travellers – the service rates and profiles guests so that owners are able to pick and choose who they will allow to stay. Although the idea of having complete strangers in the guest room doesn’t appeal to everyone, there are some circumstances where it is an attractive proposition, for example:
- Do you have a granny flat that is only used by relatives for certain parts of the year?
- Are you a live-in DIY renovator that knows their property won’t be under construction during certain periods however is still habitable by travellers?
- Are you planning on going on holiday and want to find ways to supplement your travel expenses?
- Is there an event coming to your location that will raise accommodation yields that you are happy to get out of town for e.g. sporting finals, Commonwealth games, music festivals?
Using a service such as Airbnb means that your rental yields can be higher per night than under traditional terms. Additional benefits are the flexibility you have around how long and often your property is on the market, as well as guaranteed on-time payment and the reduction in rental fees (Airbnb charges owners 3% with payment made 24 hours post the traveller arriving).
The flip side is that there can be some additional property management overheads, such as cleaning or handing over and retrieving keys. However, for investors who are on the passive income bandwagon full time, this shouldn’t pose too great a hurdle.
One of the main concerns when using a service such as Airbnb is the potential for property damage by travellers. Airbnb have addressed this by providing a Host Guarantee that provides protection for up to $900,000 in damages to a covered property. It is important to note that this is not an insurance product and and shouldn’t be considered a replacement for home or landlord insurance i.e. it does not cover personal liability, cash and securities, jewellery, pets etc.
Other things to look out for before embarking down the path of using Airbnb
Check your mortgage – particularly if the property purchase wasn’t initially intended to be for a holiday rental. Lenders may stipulate terms that rule out your ability to sublet the property.
Check your insurance – this is a tricky area as always and you will want to check with your insurer to confirm whether you are covered and what for. Given that you are dealing with a relatively new and unknown service, make sure that you explain the circumstances as clearly as possible.
Are you a leaseholder/renter – you will need to check your rental agreement, to see if you have permission to sublet the property short term.
Check your financials – you will have to declare and pay tax.
Be careful of your legal position – obviously you don’t want to risk creating a situation where legal tenancy can be considered, so make sure that you are providing services such as towels or cleaning. It also helps to have shared living quarters. Holiday rentals here in Australia (Dobrohotoff v Bennic  NSWLEC 61) as well as some rentals on Airbnb overseas (The New York Times) have come under renewed scrutiny.
Safety first – this will most likely be covered in your insurance, though for liability reasons safety checks are paramount. Check that fire alarms, appliances and gas are certified.
What should I be on the look out for as a property investor or property manager?
The main concern is a growing trend whereby renters are subletting properties through services like Airbnb without consulting their property manager or landlord. There are examples of some renters actually subletting multiple properties through Airbnb in order to cash in on the popularity of the service and earn a full time income. Whilst this may be fine with owners and property managers alike, it is important to be abreast of such situations to avoid breaching legal agreements.
There are numerous investor success stories (typically inner city apartments with a high level of tourist traffic) where owners have secured higher rental yields than they otherwise would. However, as discussed in this article, there are many things to consider before deciding to take the plunge with this emerging model of revenue. It will be interesting to see if Airbnb makes the transition from trend to permanent fixture when it comes to property investing.
Do you have experience using Airbnb in property investing or as a home owner? We would love to hear your thoughts and experiences.
Want to discuss potential investing strategies? Find a buyer’s agent near you.