Airbnb Melbourne inner city

Discussion in 'Airbnb & Short Term Letting' started by MTR, 17th Jun, 2017.

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  1. MTR

    MTR Well-Known Member

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    I have been pondering for sometime now with an idea of purchasing a 2 bedder unit/townhouse, in desirable inner city location? top on the list would be South Yarra, South Melbourne, Hawthorn, Prahran, Clifton Hills. Budget $800,000.

    this won't be my primary residence, but the idea is to use it during the year to holiday and visit my daughter in Melb.

    Long term plan is to eventually move to Melb permanently, but timing is not right at the moment.
    My daughter suggested we set it up as a Airbnb and she would manage this for us. We then get to use it while also generating income

    I know we can rent but I would prefer to buy.

    Is this a crazy idea, am I under estimating the work involved in managing an Airbnb


    MTR
     
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  2. Gockie

    Gockie Life is good ☺️ Premium Member

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    Not saying to do it or not do it, (I can't comment on whether its the best way to use your money), but if you do it, then this is what I would suggest.

    1. Look at the competition in the area and the nightly rates and how booked up their calendars are (seasonality-wise, in my opinion inner Melbourne should be in solid demand all year round, unlike many other locations that are only seasonal). Work out what your returns would be.

    2. Management. Your daughter is offering to do it so you should be covered in this regard. I'd suggest paying her a weekly management fee, a fee for all cleaning on each turnover and a fee for laundry. All amounts up for negotiation. Or you could do a % of takings. Again, up to you two to negotiate. Also it will take a few days to set up, consider that aspect. You should expect higher wear and tear so more maintenance costs and you'll have electricity and wifi to pay for.

    * As a fall back, how much would it rent for as a long term let. Are you comfortable with that?

    What to buy:
    * Its preferable if the property does not have carpet.

    * Walking up many levels is hard for tourists with heavy luggage so if you buy something up high in the sky, I'd suggest you go for a place with an elevator.

    * Ideally you'd want easy access to public transport, shops, supermarkets, restaurants - a location that's lively as opposed to a location that's completely dead. While a completely dead location can work, for your investment I think it's not ideal. Just good for guests. We stayed in one couple's airbnb in Fitzroy (it was a small studio in their backyard). We loved that location because it was hip - excellent variety of restaurants there, excellent window shopping; excellent transport.

    * A property with great views will get you better money and you'll stand out from the competition so perhaps consider that.
    Having said that, a townhouse is good too and may have better CG. Or you could buy a property with a small separate studio, then you get two sets of rent. It might cost more than you want to pay, and you would have land tax to consider.

    * Use hardwearing everything, include a washing machine that is high capacity. Anything fragile will break in no time. I've have had drinking glasses broken on a regular basis and the odd tea cup.

    * If an apartment, can you find out if its an Airbnb friendly building.

    * Ensure the property can have an easy key handover/access process

    * Having access to a car space/s is recommended

    Now, a few other questions. Does it make financial sense to do? (Is it a good time to buy a property like that in inner Melbourne? Is it at peak?) Can you do something better with your money? Do you have any constraints? Can you even borrow for it?
     
    Last edited: 17th Jun, 2017
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  3. MTR

    MTR Well-Known Member

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    Thanks, great feedback, all the items you mentioned need to be considered

    Mtr:)
     
  4. is_don_is_good

    is_don_is_good Well-Known Member

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    You need to have good cleaners and have a good supply of linen. The other systems can be worked out but it's better to have someone on call. People always seem to find a way to lock themselves out, key-safes are getting cut off by councils and building managers.

    To be honest, there's also a fairly large oversupply in the inner city areas as well. The more unique the better and being able to have a lot of people is getting increasingly important.

    The main mix of apartments in the inner city is majority 2 beds, some 1 beds and usually only a handful of 3 beds. It's mostly investor product. You 2 bedroom apartment will have lots of competition and you'll be up against cheaper 1 bedroom apartments who find a way to sleep 4 to 8 people.
     
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  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    Re: linen... Most people are quite good with towel usage. But you get the odd nightmare guests who use new three towels a day. And towels get stained quite often.

    Re 1br vs 2br... i'm not sure if one is preferable to the other. I have a 1br near Sydney's CBD and think it's fine. Its much bigger than a hotel room, and has a kitchen, laundry. My belief is that I have a studio as my main competition and they probably get a superior rental return.

    But in my Sydney metropolitan apartment, (it had 2 bedrooms), sometimes it would be occupied by couples or groups up to 4 guests. But I had an enquirer who decided to book a 3 bed apartment in a neighbouring suburb because it offered the extra bedroom.

    So what's best? Very hard to say. Possibly in terms of rental return, a studio would be best but my thought is that the capital growth and lending available for it will be harder.
     
  6. jodes

    jodes Well-Known Member

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    I WAS looking at an airbnb management company in Melbourne recently (out of interest, not to actually use one as I love managing ours) and noticed they refuse to manage one bedroom apartments which I thought was interesting. I would say at least 50% of our guests are 5-6 people meaning they couldn't use a one-bedder but definitely wouldn't rule out a one-bedroom if it was unique.

    When it comes to asking if you should run an air bnb I think the question is more "is it feasible"than "is it too much work"- the workload isn't extensive and is definitely worth the extra cash if its feasible. In terms of looking at the competition, this is useful but not the be all and end all. If you can make you airbnb the best either by having a point of differentiation or just looking really nice, you can rise to the top and have excellent occupancy year-round!
     
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  7. wylie

    wylie Moderator Staff Member

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    Regardless of the decision, as someone who booked a small fully contained apartment in Melbourne (Fitzroy) recently, I was very influenced by the photos. One very promising place was given the flick due to having two trendy designer individual chairs rather than a sofa. We had no sofa for ten nights in New York so had to watch TV from the bed, which was fine, but a sofa would have been nice for a longish stay.

    So, photos and guest reviews guided my decision. Some places had great reviews but the photos didn't help. Some places looked clean, but spartan and uninviting.
     
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  8. Bonz

    Bonz Well-Known Member

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    I know nothing of the laws in the east relating to short stay accommodation, but attached is a Supreme Court case out of WA which could adversely effect the operation of AirB&B. Apparently the issue comes down to the strata rules/constitution and the definition of resident, but apparently some strata companies could prevent appartments in complexes being used for short term rentals

    WA case law may not be applicable in the east and the statutes may not be the same, but I would suggest carefully reading the strata constitution before buying and apartment for short stay use.

    BYRNE -v- THE OWNERS OF CERESA RIVER APARTMENTS STRATA PLAN 55597 [2017] WASCA 104
     
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  9. hobo

    hobo Well-Known Member

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    I would also recommend laying out very clearly your expectations / standards of your daughter's "management". I think you have said before that she's not very responsible, is that right? So can you be confident that she'll attend to all the details? I see the possibility for friction, that's all. I think I'd rather keep family out of it.
     
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  10. melbournian

    melbournian Well-Known Member

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    My thoughts are : -
    I think you might wait as the game might be changing (with new reg kicking in 1st July) a lot of the new OTP used the same "savings from stamp duty" which they can't use anymore. I got this letter offering $500 myer gift vouchers and 3 nights accommodation. These use to be the gimmicks used in the outer suburbs land packages many years ago.

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    As for renovating the flooring in apartments in Melbourne (there are strict regs) for flooring - one 5mm acoustic underlay is required for floating floors and you will require a fire-rated floorboard to enable it to be installed.

    I would go for the 80-90sqm 2 bedroom apartments (older style) they are many of them you just need to look around.

    For apartments - (to be 100% sure, I would stick to the MICM run apartments) Well basically they are a part of bigger group central equity (the largest apartment developer in Melbourne). we talking nearly 100+ buildings from the 90s onwards (no mainland commie can take them on) and they have a shortstay division which also does leasing throughout their buildings (so that airbnb) component would not be removed. better than to go into some docklands apartment and then get taken on by the owners corp demanding that it be removed. (that is if airbnb is your strategy)

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  11. albanga

    albanga Well-Known Member

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    I would strongly discourage this!:

    1 - With exception of maybe Clifton Hills, the suburbs you mentioned are preparing themselves for a big drop in-value and I don't see recovery for a considerable amount of time.
    2 - When this happens their is going to be A LOT of stock and people will be desperate, expect short term rentals to be everywhere and prepare them to be cheap!
    3 - Whilst your daughter is happy to manage it now, it will become a burden, make no doubt about it.
    4 - You lose a lot of flexibility.

    I really just do not see the value with this? And when you finally do move to Melbourne, do you want to live in a unit/apartment?

    If you want to get into Melbourne buy somewhere decent with land in a good school catchment zone that you will want to live in down the track.
     
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  12. MTR

    MTR Well-Known Member

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    good points, I am already reconsidering.

    Also close to peak this is a concern???

    I would much prefer to buy townhouse over apartment, too many apartments everywhere in Melb
     
  13. JL1

    JL1 Well-Known Member

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    I had a friend do this, started by leasing a single room in her CBD flat. within 2 years she had purchased another 2 bedder and leased a number more (with agreements that she could sub-let). turning over $250k/year with ~$100k/year profit. She had a cleaning contractor who charged $30 to turn down an apartment between stays and also had a good setup for key collection etc. With that many Airbnb's, she then made her own guest pamphlets and charged local businesses to advertise in them.

    I have another friend who puts his city place up for $500/night (3x what its worth). Several times a year, he gets someone lease it for a full week (eg. during major events when hotels are full). Him and his wife then take a free holiday to the goldcoast or tassie or something while someone else stays at their place.

    In both cases, positive reviews are key to their success.

    The long short - it can be very lucrative if you treat it as a business and grow it. Otherwise, its a good opportunity for a quick buck but bear in mind it is an inconvenience you need to account for. Don't rely on family, odds are they will want to be away on holiday during the busiest Airbnb periods.
     
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  14. MTR

    MTR Well-Known Member

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    I get this, I don't think this will work for me.

    Good to hear that some investors can make some serious cash flow from this strategy
     
  15. melbournian

    melbournian Well-Known Member

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    I think Clifton hill will take a hit before hawthorn easily any day

    in btw i haven't bought any apartments in those areas but I think you might be wrong - unlike Brisbane where rents are going down there are actually going up. What was say $420 per week for a 2 bed (which I used to rent out 6 years ago) can be rented for $500 per week and can even go up to $600. LIke @JL1 there are ppl making serious money in cashflow. one of my friend rakes in 150K after paying rates, owners corp just with 3 apartments and gave up his day job.

    There are ppl sluming in Chinatown apartment per room with 2 per room for 1K per month. Population wise a lot of ppl are living in CBD compared to 10 years ago.

    Also the metro upgrades will easily boost values form West Melbourne and North Melbourne areas

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    Ppl also pay big money to stay close to fawkner parks and the botanical gardens (no Other place in Melbourne is even close to having an equal standing to those parks (darebin creek - no way). When I went to the showrooms in the weekend there were families shelling 1-2mil for these basic apartments which are crazy. I probably should have kept 1 apartment rather than selling out to use as AirBNB
     
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  16. is_don_is_good

    is_don_is_good Well-Known Member

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    I disagree. The banks have tightened up on lending to apartment buyers AND developers.

    The Chinese have mostly stopped buying into developments in the city.

    Financial restrictions in China have made it harder for money to come out overall.

    The new regs coming into place state that 50% of a developments buyers must be local.

    All the above has created a climate where developments are being shelved because they can't sell them, can't get finance and can't get them finished. It will curb the oversupply sooner or later.
     
  17. albanga

    albanga Well-Known Member

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    @is_don_is_good I hear what you are saying but I think you are underestimating the current supply and what is about to hit the market in the next 1-3 years.
    Melbourne innner city is in a bubble and that bubble is going to burst when all these developments hit the market and cannot be financed as you have pointed out above.

    What is going to happen then? The developers will simply need to sell them for a lower price, people buying them for lower can afford to rent them for lower.
    This is not me specualting, this is cold hard facts. Ask any commentator with half a clue and they will back this up.
     
  18. albanga

    albanga Well-Known Member

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    As per above I maintain that the effects of Southbank, Docklands and to a slightly lesser extend South Melbourne is going to ripple through and smash both prices and rental returns for inner city and fringes.
    Sure some apartments will have something more niche to offer such as parklands which will attract a slightly higher premium but even that will be questioned when someone can rent for $100 cheaper and be closer to work.

    I hold grave fears for the inner city Melbourne market. The effects of the new interest only changes have not yet been felt, their is always a delay of a few months and this is coming!
    It is getting very hard to get interest only loans above 80%, soon enough it may be non existent. It's all lining up perfectly for when 20 new towers are completed in these areas.
     
  19. is_don_is_good

    is_don_is_good Well-Known Member

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    I don't disagree with you, i just don't think all of that stock will hit the market.

    I doubt a lot of the city developments that are selling off the plan now will be able to get off the ground in this climate.

    I've heard from agents selling city sites off the plan who are struggling to do a local sale every few weeks and the developer can no longer take overseas buyers or the bank won't finance them. It'll cut a lot of the stock that's meant to be hitting the market or at least stall it for the moment.

    The new design rules will make apartments much more expensive so any new developments will have bigger apartments which will be more expensive when priced per m2. They won't be able to compete with the cheaper price point stock that will still be floating around in the city for a long time to come.
     
  20. melbournian

    melbournian Well-Known Member

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    i think it is all subjective. i never advocated about prices of apartment basically majority have been stagnant unlike Sydney which some do rise from OTP. As for 20 towers coming up it is all about location. No point having a location far out in docklands, with minimal transport. Docklands will obviously bear the worse as a lot more are coming up. however the target audience are not monthly renters in airbnb.

    As for yields and for this particular thread airbnb (it is something i have been researching over the months). Short term accommodation has nothing to do to a lesser extent to residents in melbourne. it caters more to the visitors to melbourne, ppl from overseas, interstate on holiday and some business travellers. So it comes down to location. The most sought after for short term leasing are the ones off spencer st closer to where the airport bus takes them from the airport - we're talking small dogbox apartments 1 bed 50sqm charging 170-250 per night i think i have mentioned before (ppl who purchased these apartments are not in the game for CG, they're in the game for cashflow. - we're talking anything from 35-60K net after paying costs) With melbourne outside of sydney having the most connections in Australia (airasia brings in shiploads of visitors connecting from basically all parts of asia) and 2-4 individuals (paying 250 is actually cheap per night than a hotel). They can wash their clothes enjoy their pool (and free tram zone). Places like 283 Spring St (which is next to parliament station), Spencer street which is across from the airport bus, Whiteman St Southbank - 5 min walk to south melb market and Crown casino. 80 Siddeley St, docklands 3 minutes walk and views across

    If you have a place like in preston or box hill(if you're visitor from a 8-12 hour flights ) are you going to take a longer drive there or take public transport. This is a diff strategy altogether - it is not like a large block of land zoned for redevelopment.

    Although a lot of it is unknown - before 1st July i have been observing that this trend is the and more and more flights having more connections to melbourne has created this sub-short term market that wasn't around before. Also the emergence of airbnb and short term leasing has created a new avenues of income for others. If you have say 2 apartments generating net 75K a year although nil capital growth (it maybe a way for initial investors to make inroads into the property market end of the day $$ are $$ whether cashflow or capital gain). If you compared to sydney say darling habour where docklands is modelled after no way you will be paying for it the same price to purchase is more like 100-150% more.

    if you see the map below majoirty of the airbnb strategy are in the surrounding CBD. if you see hawthorn it is nearly non-existent. So hence, why for short term leasing, these suburbs are considered. if you strategy is to buy a decent block of land in st albans or reservoir (growth zone and build 10 townhouses) that is a totally different discussion altogether


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