Is Airbnb An Option for Generating a Return from Your Investment Property?

Tuesday, April 18, 2017 / Property Management

What is Airbnb? Can it Help Your Investment Strategy?

“A community built on trust”​ - Airbnb​

Founded in 2008, Airbnb claims to be, “​a trusted community marketplace for people to list, discover, and book unique accommodations around the world…”​

Working as an online marketplace and hospitality service, it enables people to lease or rent short-term lodging.

This includes single rooms, apartments, houses, villas, and even castles.

Working as a middleman/broker, Airbnb connects guests to hosts, whilst taking a fee from both parties every time a booking is made.

Service fees for Guests:
Guest service fees are typically in the range of 6-12%, however, this can be higher or lower depending on the specifics of the reservation.

Service fees for Hosts:
Hosts are charged a 3% fee which is taken out of the reservation subtotal (before fees and taxes). Depending on the listing’s location, VAT may be charged on top of the service fee.

In this circumstance, the extra charges would be included in the service fee. When you create your free listing, you’re able to choose how much you would like to charge per night, per week, or per month, as well as a deposit and cleaning fee.

Guests are then able to search for your property using Airbnb’s database by entering details, such as:

  • Location & dates
  • Room type 
  • Price 
  • Size (number of bedrooms, bathrooms, and beds etc.) 
  • Facilities (Wifi, Tv, kitchen, pool, pets, etc.) 
  • Property type 
  • Host language 
  • Keywords

With over 150,000,000 users, Airbnb claims to be the easiest way for you to monetize your extra space.

Here’s where Australia fits in:

According to Sam McDonagh (Airbnb’s Australian country manager), Australia is a key market.

“There are now more than 83,000 listings in Australia and nearly 70% of Australians are aware of Airbnb.”

"The thing we continue to hear from our hosts and guests is that people want to live like a local.”

"When Airbnb guests stay in Australia with hosts they stay 2.1 times longer and spend 1.8 times more than the average tourist."

Airbnb and Australian Rental Law

Websites like Airbnb have revolutionised the way in which we sell goods and services. Rather than a direct transaction, they introduce a person wanting to sell with a person ready to buy. These people then conduct the transaction between themselves.

This has resulted in Airbnb testing the limits of Australia’s existing legal and regulatory framework.

​The short-term leasing rules change from council to council, and in the past, they’ve struggled to understand how to regulate the growing online economy. Resulting in some Australians being threatened with fines of up to ​$1,000,000​.

The confusion prompted The NSW Parliament Inquiry to release a report on 19th October 2016, into the ​Adequacy of the regulation of short-term holiday letting in NSW. (The NSW Government's response is due to be announced on the 19th April 2017).

In the report, there are four main areas of the law that an Airbnb host needs to pay attention to:

One: Town Planning Approvals
As an Airbnb host, you offer residential rentals (you offer a guest a place to stay). You need Town Planning approval if this changes from a residential rental to commercial use. This happens when the property provides temporary short-term tourist or visitor accommodations on a commercial basis.

Liability Insurance
Airbnb hosts need to obtain additional public Liability Insurance Cover for short-stay lettings. If they’re treated as a B&B, then you’ll need business insurance. With regards to an investment property, Landlord Insurance policies will more than likely cover you for short-stay lettings if your guests are injured on your property.

Damage Insurance
You will not be covered for malicious damage by standard insurance policies, for example, damage resulting from a party.

However, this is why Airbnb offers ​‘The Airbnb Host Guarantee’​ which automatically applies to every booking. In Australia, this covers damage up to $1,000,000 AUD.

Airbnb has the same tax treatment as property investments.

Extracts from the ​ATO website​:
When you rent out all or part of your residential house or unit through a sharing economy website or app you:
● Need to keep records of all income earned and declare it in your income tax return
● Need to keep records of expenses you can claim as deductions
● Don't need to pay GST on amounts of residential rent you earn.

If you are carrying on an enterprise in which you rent out commercial residential premises you will have different income tax and GST obligations.

Airbnb tracks your income, letting you know how much you’ve made each year.

Service fees, cleaning expenses, repairs, food, and photography for your listing are all deductible.

The cost of furnishing is depreciable.

The normal deductions for investment properties are still available when you host using Airbnb. Including loan interest, water and council rates, strata levies, building and contents insurance, electricity and gas, building, fixtures, and fitting deprecation.

For more information on Australia’s rental law check out this article ​here

​Pros of Using Airbnb for an Investment Property

● Higher Rental Returns​ - You’re able to achieve higher rental yields and greater returns, compared to charging standard rent for 6 - 12 months. On average, the rental yield from traditional property investment is around 4.5 - 5%. An Airbnb investment could see that go well into the 10% mark.
● Low Service Fee ​- You’ll only have to pay a 3% service fee each time a booking is made. Making it cheaper than the marketing fees you’d be expected to pay for displaying your property.
● No Shortage of Customers ​- If your property is located in the inner-city or near a popular holiday spot, you could see a strong demand throughout the year. ● Easier Labor ​- As long as your property is not damaged, then your turnover of tenants is much easier and less expensive.
● Flexibility ​- Short-term leases give you the opportunity to have more access to your property, when you want it.​

Cons of Using Airbnb for an Investment Property​

● Vacancy Could Fluctuate ​- You’ll need to keep in mind that your property may be unoccupied for some period of time. If you’re unable to get enough tenants, you’ll be left covering the costs of mortgage repayments.
● High Initial Costs ​- You’ll have high initial costs to furnish the property.
● Administration ​- Unless you bring in a professional Property Manager, Managing your Airbnb yourself can be time-consuming. You’ll have to manage bookings, enquiries, complaints, phone calls, cleaners, and attend to any maintenance issues.
● Australian Rental Law ​- Rules can change council to council.
● Wear and Tear ​- More people going in and out of your property increases the chances of seeing more wear and tear. However, you can claim this through depreciation.

Matching Airbnb to Your Existing Investment Property Strategy

There are a few things you need to keep in mind to ensure your property investment is successful. This can include the location, resident amenities, your local council rules, and how you’ll manage the service. Utilizing Airbnb can be a lucrative and rewarding experience, but you need to be aware that you can’t simply sign up and expect bookings to come flooding in.

Not every strategy is right for everyone. In order for you to make a smart decision, you need to set aside some time to discuss your overarching strategy and then decide if Airbnb aligns with your existing goals.

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