Opening the doors of your investment property to holiday makers is a great way to raise some cash to help pay the mortgage or fund improvement works, and Airbnb makes it easy.
Essentially an online marketplace, Airbnb helps an estimated 350,000 Australian property owners connect with the ever-growing number of savvy travellers wanting an alternative to the big-chain hotels.
How does it work?
Hosts sign up to Airbnb, which then lists their accommodation option – anything from homes and townhouses to mountain cottages and tiny homes by the sea – on its online booking platform.
Guests book accommodation online and pay Airbnb, which then passes the income (minus its fee) on to the property owner. Guests also pay a fee to Airbnb.
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So how much can I earn?
The beauty of Airbnb is you’re in complete control of your earnings, as you set the price and how many days a year your investment property is available for rent.
While it’s free to list your property, Airbnb hosts pay the platform a fee of 3% (up to 5% if you have a strict cancellation policy) of the total booking amount. Hosts are normally paid within 24 hours of check-in.
According to Airbnb country manager for Australia and New Zealand Sam McDonagh, Australian hosts are bringing in an average $3000 a month.
But that’s not all profit of course. Running an Airbnb comes with expenses – think insurance, cleaning, maintenance and replacing damaged items, electricity and internet charges, council rates and water bills – with estimates ranging from 25% of your total booking income to a whopping 75% if you outsource services such as pool maintenance and laundry.
And, of course, you need to be realistic about how many days your home will actually be rented. Occupancy rates in 2019 (pre-Covid) were as low as 23.3% in Sydney, slightly higher in Surfers Paradise at 29.5% and a high of 32.7% in Brisbane.
Taking all these factors into account, the average annual income in Australia comes down to a more modest $5600.
And then there’s tax
In Australia your Airbnb income is taxable, so be prepared to hand some of your earnings to the tax man. You may also be liable for capital gains tax when you decide to sell.
If you do head down the Airbnb route, it’s a good idea to get some professional tax advice as there are a wide range of items and improvements you can depreciate to bring down your tax burden.
What can I charge?
Working out how much to charge is one of the biggest challenges of renting your investment property though Airbnb. Ask too much and your property will sit empty, charge too little and your profit will be eaten up by expenses.
The obvious starting place is researching other Airbnb listings in your area. But make sure you compare like for like.
Keeping in mind the vast majority of guests are on holidays, distance to key attractions, public transport options, variety of local eateries, a swimming pool or spa, and whether you’re on the beach or nestled among lush rainforest, will be just as important as the number of rooms and kitchen appliances on offer.
Once you’ve checked out the competition, you’ll need to think about a pricing strategy. For instance, will you charge more during peak times, such as school holidays or local festivals, or do you offer a discount for extended stays or mid-week bookings?
Some hosts charge extra fees on top of the price per night for cleaning, additional guests or pets.
One of the best ways to increase your return on investment is to achieve Superhost status, which comes with much higher visibility on the site, including featuring higher in search results.
Becoming a Superhost however is not easy. You need a consistent guest rating of 4.8%, representing an exception property, great service, and timely responses to enquiries.
The pros and cons of becoming an Airbnb host
There are of course pros and cons of becoming an Airbnb host to weigh up.
One of the key attractions of becoming an Airbnb host is the flexibility – you decide when and for how long the property is rented. This is a big bonus if you’re hoping to use the property yourself as a weekend getaway or holiday home.
Setting a nightly fee can also generate more income than a fixed-rate, long-term rental, and you won’t need to deal with unruly tenants who don’t pay the rent or need to be evicted.
It’s also free! You only pay Airbnb when your guests check in.
Unless you’re outsourcing services like cleaning and key pick up, you’re pretty much tied to your property whenever it’s booked so you can welcome and care for your guests.
There’s also a fair bit of admin involved in answering questions and keeping your listing up-to-date, as failing to do either can see your Airbnb rating fall.
Providing high-quality furnishing and appliances, and keeping the fridge stocked with welcome snacks and body scrub in the bathroom, can also add up over time.
While Airbnb Host Protection Insurance provides liability coverage of $1 million per occurrence for damage or personal injury, it doesn’t cover loss of earnings or property damage due to mould or pollution.
There’s also a strong possibility your Airbnb property will be vacant off and on throughout the year, earning you nothing.
How does Airbnb stake up against long-term rental?
Leasing your property as a long-term rental also comes with pros and cons.
You have a guaranteed income for an extended period of time, providing steady, reliable cashflow.
Managing the property can be handed over entirely to an agent, and you don’t need to be at the beck and call of guests. Instead, you can simply go about your life and collect rent.
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Tips for your situation
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Tips for your situation
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The purpose of this calculator is to assist you in estimating whether you will need to pay lenders mortgage insurance (LMI) based upon the information you put into the calculator.
The results of this calculator are estimates only. They are based on the information you have provided. If you change any of the information, you will obtain a different result. Other fees, charges and costs may apply.
The actual amount you can borrow, and the applicable loan repayments, can only be determined once you submit a full application to us and we assess your application using our credit criteria applicable at that time.
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The rent you can charge is not only lower than an Airbnb fee, but you also can’t capitalise on peak times and adjust your rental income based on demand.
You’ll also be paying out 7% to 10% of your rent to your agent and there’s the advertising costs for attracting new tenants.
Tips for Airbnb hosts
If you’re starting out as an Airbnb host, there’s a few key ingredients to get right.
Clear house rules
Guests need to accept the rules as part of the booking process, so make sure to set expectations on everything from check-in and out times, pool rules and if the rubbish needs to be taken out, to noise restrictions and whether pets and visitors are allowed. Make sure to check in with your local council if they have any specific rules that also need to be followed.
Allow enough time for guest changeover
To maximise your income you may be saying farewell to a guest in the morning and welcoming a new one in the afternoon. But replacing bed linen, vacuuming and scrubbing the shower all take time, so factor this in to your check out and check in times.
Wow your guests
Whether or not you’re aiming for Superhost status, you still need to maintain a good guest rating to be successful. Small touches like fresh flowers, snacks or sweets in the fridge, and a handwritten welcome note go a long way.
Spend time on setting up your listing
Your listing, from the name you give you property, to the description of the home and nearby attractions, and the quality of your photos, is your one and only opportunity to wow a guest.
You don’t need to leave the house to get an eChoice consultation. We will discuss your options over the phone, as we are here to make your home loan journey easier.