is buying a property for airbnb a good idea?

Discussion in 'Investment Strategy' started by RogerP, 30th Oct, 2017.

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  1. RogerP

    RogerP Member

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    So i'm looking at investment properties – and one option I'm considering is buying a place near Canberra city (in Turner or Braddon for those who live there) and renting out airBnb styles. Wondering if anyone can share their experiences.

    I'm thinking I can probably buy a 1 beddy for 400k and from having a look, rent it out for $120-$150 per night. So that's $800-$1050 per week gross at maximum capacity. For christmas and other special events, I'd probably be able to rent it out for maybe double that.

    So best case, I can see I can probably get about double the rent as if I just rented it out the traditional way. Obviously, there's stuff like cleaning fees, airBnb service fees, vacant nights etc.

    Just wondering, if you've done it before, whether it's worth it? How much extra work is it? How much extra income is it?
     
  2. Cimbom

    Cimbom Well-Known Member

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    Many/most people leave Canberra during Xmas/NYE so I'm not sure there'd be much demand during that period - certainly not so much that people would pay a premium for it but I haven't really looked into it.

    Units in ACT are also subject to land tax if you rent it out so allow about $1500/year for that.
     
  3. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    I would be wary of buying an investment that solely relies on short term rentals to make it work.

    A few years ago we had no Air bnb and in a few years time it might be gone again. So you need to manage that risk and have a back up plan.

    It's unlikely that it would be full permanently and at $150 pn you are stretching into hotel price range so you have strong competition from professionals.

    How do the sums work out if you have 3 nights booked a week?
     
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  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    AirBnB can be quite restrictive from a lending perpsective. A few lenders will generally want at least 1 years tax returns to demonstrate the income, most will require 2 years tax returns. Even then they only take about 60% of the income (lenders are still working out their policies on this).

    It may be possible to get a regular rental estimate and have lenders recongise this, but not all lenders will do this. This means that an AirBnB property could heavily affect your ability to further borrow money and build your portfolio.

    There's also regulation risk. It's becoming very popular over the last few years, but it's also attracting a lot of complaints. It's possible that there'll be some regulation on short term rentals which could affect your returns.


    The good news is that there's quite a few small businesses starting up that specialise in property management of AirBnB. They handle bookings, cleaning, virtually everything. They do charge upwards of 15%-20% but it means it can be a hands off investment.
     
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  5. Cimbom

    Cimbom Well-Known Member

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    Many public servants can't stay in AirBNB for work and need to go through their department's approved travel provider if travelling for work so that is something else to consider
     
  6. D.T.

    D.T. Specialist Property Manager Business Member

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    I'm not sure many people do the numbers on these very well.

    They look at the $120 a night figure and get dollar signs in their eyes.
    What vacancy / occupancy rate are you multiplying it by?
    How much does it cost to stock the fridge/pantry with a couple of basics?
    How much does cleaning of the property cost, plus laundry of sheets and towels?
    How much does the website charge to list it on there?
    Do you have time to review bookings, meet/greet people, check property after?
    Do you have to pay for electricity / gas to be on as opposed to tenant paying it?

    By time you do all of that, you may as well have rented it for $400 per week on a 12 month lease, got a property manager in and given them full control and sit back and focus on your own career / family.

    Stuff like land tax, council rates, etc probably remain the same regardless of whether its a normal rental or airbnb. Property management is likely higher (double?) for airbnb as more work involved.
     
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  7. RogerP

    RogerP Member

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    I didn't even really think about the implications of lending. Thanks for that. I'll have to do some research on that front.

    I think what others have said is right - you get a lot more money up front from airbnb, but there's so much more costs and uncertainty and after everything, it might just be easier to rent it out long term.

    Still, lots of people do it - so there must be a way to make money on it - I just need to factor all these things to ensure that it is a good opportunity. Above all, I think I would buy the investment property because it is a good investment property (eg. right location, right price etc) - so I could always revert back to an investment property if it didn't go well.

    I think my biggest worry is the regulation risk like you say. Things like mandatory insurance, extra taxes, they might really eat into the costs. Even if say the body corporate just made a rule to say you would not be able to rent out for airbnb purposes...
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I haven't had a lot of exposure to Air BnB itself, I can't make any comment on the profitability of it. I know a few clients do it and are happy, but I haven't spoken to anyone recently.

    I have had a few clients buy serviced apartments, often managed by a hotel or Qwest, etc. Almost all of these have not done well. Upfront they've always got figures that seem to work. A few years later they're often selling because the reality didn't stack up to the advertised figures. They rarely make a gain on the sale either.

    Another risk to consider. Are damages covered by insurance? Many landlord insurance policies don't cover short term letting (some do but not all). Will the strata corporations policy cover damage to the unit and the common area? What about public liability?
     
  9. Gockie

    Gockie Unicycle everywhere... except after ankle surgery Premium Member

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    I'd probably look for something that ticks all the boxes and works even if it's not airbnb'ed.

    There's extra income but there's lots of washing and appliances will break down more often (tip: buy new appliances, not second hand!) and there will be more general maintenance than if you had long term tenants.

    If you accept that there will be more work involved with it, then by all means go for it.
     
  10. Ouchmyknees

    Ouchmyknees Well-Known Member

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    We have one existing Airbnb listing close to our home which works reasonably well. We have another 1 bedder which we contemplated to do an Airbnb but the numbers do not stack up, so we decided against it.
    The numbers do not stack up in that we estimated to get 100-120 per night, and we need to get 70-80% occupancy to cover for key exchange (no key solution)/linen/cleaning and make the same amount as the regular rental, we are really not that confident to get that much occupancy during winter.
    And it is additional work for us.
    I think the numbers will stack up if it is a bigger apartment in a nicer area whereas you get higher per night rate (say 200) whereas the fees I just mentioned stays the same.
     
  11. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    I'd be doing the same.

    Look for all the fundamentals of a good investment - and then try your luck at airbnb. If it doesn't work out - and if you've purchased a decent property then you should be able to pop it back into the normal rental pool.

    On another note - I'm still skeptical about apartments in Canberra. If you're a first home buyer and can save thousands on concessions - then it might be ok. As an investment - I can't see there being much growth in the near future. If you could extend that budget a little further you could possibly buy a house out in Belconnen or Tuggeranong.

    Cheers

    Jamie
     
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  12. S1mon

    S1mon Well-Known Member

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    terrible idea...but something with better CG will far outstrip any benefit (ok, aside from instant cashflow) from air bnb $..

    DT have you had any experience with air bnb management? I would certainly disagree with your comments, after doing it for a year (not that I am saying its easy, can be a pain but i wouldnt say it has much of an impact to ones family or career blah blah)
     
  13. jodes

    jodes Well-Known Member

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    If you have a good property in a good area, Airbnb can be an excellent option but like others have said, don't base your decision to purchase on it being a good airbnb.

    Apart from the initial set-up, I would estimate ongoing it takes us probably 2-3 hours to manage- if that. There are some stresses associated with annoying guests or when something goes wrong (eg internet goes down), but for the most part its quite fun.

    One drawback as was mentioned is it can impact future financing. I started a separate thread about it but we were hoping to release some equity after a recent reval on a couple of our properties- we met all the criteria but unfortunately they wouldn't accept rental on our airbnb's and wouldn't accept a property manager opinion of rental valuation either- and we didn't have the borrowing power- so it has somewhat halted our property journey at least for the moment.

    Our two airbnb properties are in Melbourne (which has shocking yields). At the beginning of this year we put $2000 in an account and since then and had all incomings and outgoings related to airbnb come and go from that account. We haven't had to touch it and for the most part the balance continues to grow.

    Make sure you have good help and pay more if needed- a good cleaner is priceless!
     
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  14. Matt87

    Matt87 Well-Known Member

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    Great advice guys. Thanks