Investor question: should I list my property with an AirBnB agency?

Investor question: should I list my property with an AirBnB agency?

AirBnB is a trend that’s really taken off in Australia and around the world – in fact, in some areas there are probably more houses listed on AirBnB at the moment than there are in the private rental market.

But it’s not just private landlords, homeowners or tenants getting in on the profits of short-term holiday stays. Lately there have been a heap of AirBnB agencies cropping up, ready to manage an investment property as a short term rental, and promising landlords big profits in return.

Choosing short-term rentals over a long-term tenant is a big call, so before listing an investment property on AirBnB through an agency, make sure you take a look at this need to know information.

How does it work?

Basically, rather than rent to a private tenant through a real estate agent, you’ll hand the management of your property over to an agency, which then lists it on AirBnB and runs it as a short-term rental spot.

Is it a lucrative strategy?

It can be, but as with any other investment, you’ve got to think carefully about if AirBnB is right for you. There are pros and cons to this kind of setup, including:

Pros

Cons

You can earn much higher rent with an AirBnB agency. For example, a 2 bedroom apartment in Pyrmont might attract $850 a week in the private rental market. On AirBnB, that same property might be worth $1,600 each week.

The service fee from AirBnB agencies generally seems to be around 20% of the income from your bookings – much steeper than your average real estate agent which is usually more like 8-12% of the monthly rental value.

All the work is done for you – if you’re working with a decent agency, they should manage everything from listing the property, to changing the linens.

There’s no guarantee your property will be rented out all the time. While you won’t be paying a service fee while it’s vacant, you won’t be making any money either, and you’ll more than likely still have to meet monthly mortgage repayments.

Agencies will generally offer you an estimate on the occupancy rates and rent prices your property could fetch, and that will depend largely on where it is.

Properties close to city centres, public transport or other desirable entertainment hubs will obviously attract higher rent and more tenants. A home in the suburbs, an hour from the closest shopping centre, probably won’t have such a good turnaround.

So, although the rewards are big with AirBnB, it’s far from a sure bet and may not suit more cautious investors or those who need a set income to repay a mortgage.

AirBnB and home loans

One thing you may not have considered but definitely should, is that some lenders may not take income from AirBnB listings into account when you apply for a home loan or try to refinance an existing loan, since it isn’t guaranteed to be consistent month to month. If this income isn’t counted, it could damage your future borrowing power, or even result in your application being denied.

So if you’re thinking of buying another property or refinancing an existing loan soon, think carefully before signing on with an AirBnB agency.

Similarly, you should be careful about what home insurance cover you take out if you’re going the AirBnB route with a rental property. Check that you’re covered for short-stay tenants and keep in mind that this may push your premiums up.

Tips for working with AirBnB management companies

  • Check the notice period. Before you sign onto a scheme like this, it’s a good idea to know your exit strategy. And that means taking a close look at the contract and noting things like exit fees or notice periods for cancellation. That way, if it turns out not to be as lucrative as you expected, you’ll be able to get out without too much trouble.
  • Know what’s included. Since the 20% service fee which seems to be more or less standard (thought you might be able to negotiate that down to around 18%) is pretty steep, you should know exactly what that “service” includes before agreeing to pay it. Managing listings, getting renters in and out safely and cleaning the property between stays are all things I’d expect to be covered at a minimum.
  • Claim your furniture. Generally, you’ll foot the bill for furnishing your property before it goes up on AirBnB. This could present a significant upfront cost, but also keep in mind that because you’re renting the property out, you can claim depreciation tax benefits on the furniture.
  • Keep an eye on occupancy. You may not be handling the day to day management of your property when signed on with an AirBnB agency, but this is not a set and forget strategy. It’s smart to keep one eye on the occupancy rate at all times. This will rise and fall seasonally, but if it’s consistently lower than you would like and you could be getting a better return from a long term rental tenant, you might then make the call to return to the private rental market.
  • Review the offer regularly. Like anything to do with your finances, you should review the deal you’re getting with an AirBnB agency regularly. This not only includes occupancy rates, as outlined above, but also the fees you’re paying, the state of your property and the rental profits you’re receiving. Shop around and see what’s on offer from different agencies and switch to a better deal if need be.
Investor question: should I list my property with an AirBnB agency? was last modified: July 20, 2017 by Steve Jovcevski

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