Since its arrival to Australia in late 2012, Airbnb has stayed in the spotlight. The platform allowing people to host guests in their home for a short stay has not only changed local laws, but also the Australian rental market. As investors look to increase profits with higher short term rates, we assess whether it’s all worth it.
Is Airbnb better than a long term tenant or is it too good to be true?
Airbnb brings in more money: myth or fact?
Many believe shortterm rental via Airbnb makes it a more lucrative business compared to traditional rental.
We can see why people might get the impression with a higher fee charged per night, but shortterm rental accommodation is only as good as its occupancy. Occupancy is the cornerstone of success in the Airbnb hustle.
A global study by Nested in 2017, claimed investors in Sydney, Melbourne and Perth were making bigger profits by renting via Airbnb, opposed to conventional renting.
It also suggested investors could recoup the cost of their property at an exponentially faster rate.
But, one of the major flaws in the study was its assumption of 80% occupancy in that year.
Recent data from Inside Airbnb tells us that occupancy is far less than the assumed 80% and that changes things. Instead, Sydney Airbnb occupancy currently sits at 15.1%. Melbourne sits a little higher at 22.4%, but still falls short of the occupancy required for this competitive turnover.
An oversupply of units in metro Melbourne has left three quarters of one bedroom or two bedroom apartments vacant, Yan Davies, a real estate agent at LongView told the Australian Financial Review.
For bigger properties with three or four bedrooms it’s worse; they have a 50% chance of being empty, according to Davies.
While inner city tourist hotspots in Sydney like Darlinghurst, Potts Point or Surry Hills, could achieve 80% occupancy, other suburbs cannot expect the same demand. Additionally, new laws in greater Sydney impose a six month cap on the length of time you could host via Airbnb in a year. This should be taken into account when deliberating whether to list your property up via Airbnb.
Long term rentals, with a minimum rental period of six months is far more dependable for a steady stream of income.
According to Airbnb, Australian hosts earn an average of $5,600 per year, which definitely
is not as competitive as the numbers crunched by Nested.
Ultimately, the decision to rent or list your property on Airbnb is yours, but all these factors considered, a long term tenant may actually be better for long term profit.
It is undeniable, a short term stay via Airbnb would give you greater flexibility with how you use your property. You could potentially host guests for up to six months a year and still, live within the property when you wish.
Late or missed payments with long term rentals
Tenants can sometimes come into financial trouble, leading to a late payment or no payment at all. This can become problematic if this rental income is accounted for in your own payments. If the late or missed payments persist, this could lead to eviction or court action which again can become costly and lengthy. The beauty of Airbnb is an upfront payment.
Recent changes to state law in Greater Sydney impose a 180 cap on the number of days properties could be rented through Airbnb, each year. This significantly reduces occupancy to six months a year, presuming that sixmonth run is a strong one.
You are also expected to know your relevant state laws. If you’re listing an apartment block, things become trickier as some body corporate’s will have restrictions on practices, including where keys are left or whether you can list your property at all.
Also, if you’re still paying off the mortgage on your property, some lenders may prohibit hosting altogether so check your agreement.
For this reason, traditional renting appears a little less complex from a legal standpoint compared to a short term rental.
There are a number of costs that you need to consider when listing via Airbnb.
Unlike long term rentals which are looked after by a property manager, most Airbnb rentals are overseen by the landlord themselves. Although the process of listing is free and reasonably fast, there are some practical obstacles you must consider such as cleaning the property after guests and preparing it for the next. This could be hours of work each week between communication, cleaning and check ins is that time you have?
The upside to a traditional rental agreement is the lack of hospitality you must provide and a reduction in this change over time. For the most part, traditional renting is pretty hands off which is an attractive feature.
You’re only as good as your review
While a bonus for hosts is the ability to screen guests before their stay, the reverse is also true. A bad review on Airbnb could see your occupancy significantly drop. Forgetting an appliance or towel you promised something that isn’t required in long term rental could be enough to reduce your profit.
Reporting to the ATO
Hosts are expected to declare the money they’ve made as part of their income. Additionally, the property will also be liable for capital gains tax when it is sold.
There are countless factors which can make or break your profitably on Airbnb. If you’re in a hotspot and looking for flexibility this could be the route for you. Of course, this is subject to your own maintenance, how well you sell your place and high occupancy. If you’re after a more stable, hands off gig, stick to a long term rental.
Words by Michelle Elias
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