Over the last few years, Airbnb has become an increasingly popular way for property owners to rent out their homes.
Running your home or investment property as a short-term rental through Airbnb is a great way to make extra money, but it does come with some downsides that most newcomers often overlook.
If you rent your home out traditionally, most properties would generate somewhere between 2 and 5% in rental yield. To find Australia’s highest-yielding suburbs, please click here to download our latest report pack.
While this is more than acceptable for many, for those prepared to put in some more work, it’s possible to double or even triple those figures by renting out your property as short-term accommodation on Airbnb.
This potential for higher income is the main reason most people consider renting their homes on a short-term basis.
Access to Your Property
An often-overlooked advantage of Airbnb is that you can still maintain access to your property should you need it for periods of the year.
Short-term rental platforms allow you to choose when your property is available and enable you to use the property as desired without having to remove a tenant or arrange furniture on short notice.
This flexibility is a great way to either make the most of a vacant property for a certain period of the year or even make some money on a property that you are still living in.
Maintaining Your Property
While we sometimes see stories of houses being wrecked after an Airbnb party, it’s fair to say that they are the exception, not the norm. While there are some risks to renting out your property, the flip side is that they also exist with long-term tenants as well.
Given that the cost to renters includes a cleaning fee, you actually can keep your property neat and tidy all year round, given the short-term nature of the renters.
You’re also able to keep an eye on the property and manage things like gardens and ongoing maintenance more closely than a formal rental agreement. Learn more about the costs of maintaining an investment property here.
While you can make more money renting out your property on a short-term basis, there are some cons to the process, such as time spent organizing the process.
To run a successful Airbnb property, you will have to manage bookings, clean the property, and deal with any problems that may arise. It’s also worth remembering that on top of cleaning the house, you will also need someone to wash bedding and towels as well.
As a result, this type of income is far from passive compared to having long-term tenants and a property manager.
While you can hire third parties to manage all elements of your short-term rental, they also charge higher property management fees, given the increased workload. This is typically around 20% of rental income, which is far higher than the cost of traditional property management.
The other big difference with longer-term renting is that there can be higher costs involved. As mentioned, you can hire a property manager to take care of many elements of the day-to-day running of the property, but you also have to factor in the platform fees that Airbnb and others charge.
You will also have to factor in the cost to properly set up a property, including furniture and items such as appliances, TVs, and even things like tea and coffee.
Another cost that is often overlooked is that when you’re running a short-term rental, you are responsible for paying all of the utility bills, which would normally be paid by the tenant.
The hardest thing to predict with a short-term rental is just how much demand your property will have and how many vacancies you’ll encounter.
Vacancies will change between seasons as well with summer being far more popular than winter. That also means your income is not consistent over the course of the year.
In addition, when you start renting out a property there will be a lot more vacancies than an established short-term rental with a track record of good reviews.
It’s important to understand that not all properties are going to be viable as short-term accommodation. If you own a property in a beachside holiday location then the odds are you will be able to rent it out.
But if you own a rental property somewhere that doesn’t get many tourists or people travelling to for work, then it might not be a good fit as a short-term rental.
Airbnb and Regulation
The final factor to consider is that by renting out your property as a short-term rental, there are a number of regulations as outlined by Airbnb and the Australian Government which need to be followed.
If Government regulation impacts your ability to rent your property, or if Airbnb takes down your listing, then you lose all your income.
Overall, Airbnb has been a game-changer for many property investors on the hunt for higher yields. However, it is not suitable for everyone or every property.
Before taking the plunge, do a detailed breakdown of costs involved, with a conservative estimate of rental income with a vacancy rate of around 20-30%.
That should give you a good idea of whether a short-term retinal will be more profitable than a traditional long-term rental.