Chasing Higher Yields Via Airbnb - August 2022
August 29, 2022 / Written by Rich Harvey
ByGuest Bloger Adam Nobel, Property Management Expert, Hugo Alexander
Renting out your property via Airbnb has been a popular way to try and achieve a higher rental return but is it all it's cracked up to be? And what are the pros and cons of leasing via Airbnb vs long term tenancies?
What is the process of listing your property on the Airbnb sites and does it in fact deliver a higher yield?
The process of listing your property on Airbnb is quite simple. Jump online and visit their website and create your profile. Once this is done and you have completed some verification questions, you have an active account with Airbnb. The system will then take you through a series of multiple choice options that best describe your property and the manner in which you wish to host it. It then asks you to list the photos that people will see online of the property. You have the option to write up your own description, highlighting extra details that are or are not included in the listing. Lastly you go through the options of taking out Airbnb’s optional cover and enter in your banking information to finish and make your listing live.
While you have your listing live and online, Airbnb only acts as an intermediary or facilitator. They do not look after your property or have any direct contact with you or the people looking to use your property. All of this contact and communication is the responsibility of you and the potential customers. Some people might see this as a good thing as it creates a level of transparency throughout the transaction, however others that are time poor or want a “set and forget” model might not like the idea of having to deal directly with customers. Others may also prefer anonymity throughout the process. This is where one of the major differences between Airbnb and normal leasing presents itself.
In terms of yield, which way is the winner? Well, let’s say your property would rent for $1200 a week on a 12 month lease. And let’s assume you have an appetite for risk and decide to advertise your property with Airbnb at an advertised night rate of $300. If you had 100% occupancy for a week you would achieve $2,100. On the surface this is where the temptation to rent your property with Airbnb is understandable. The reality however is that very few properties would even be filled 80% of the time. In fact, most would struggle to get 50% occupancy. During Covid many Airbnb properties were vacant for months leading to many investors not being able to pay their mortgages.
With Airbnb when you also add the cost of regular cleaning fees, extra maintenance and repairs from increased wear and tear and damage to the property, and much higher management fees, the yield is very often lower than the weekly rent you would have achieved with a steady and reliable source of income that you would achieve with a long-term tenant.
What are the negatives of listing your property through Airbnb? Should you be worried about wild parties and damage?
This is a concern for every investor whether they have their property leased with a real estate agency on a traditional long term basis or via a short term platform. Quite simply, having more people through your property increases the chances of damage to a property. There are also less repercussions for someone on a short term basis for a number of reasons. When you lease your property out via a real estate agency there is a lengthy and detailed application process. This process
includes, 100 points of ID, affordability verification (most commonly done via payslips, bank statements or employment contracts), tenancy database checks along with the requirement that the application has seen the property in some manner. Compare this with platforms like Airbnb where you can book a property for any length of time with just a few clicks and some basic information that can easily be falsified.
If you are to rent your property in QLD the tenant will pay four weeks rent as a bond. If the property has a weekly rent of over $700 you as the landlord can demand a higher bond and a tenant must pay this if they want to live in your property. Further, if a tenant does damage they will have to head to the Queensland Civil and Administrative Tribunal (QCAT) whereby they could be blacklisted from renting again as their name would be listed on the Tenancy Information Center of Australia (TICA). This database covers all of Australia.
With an Airbnb there is a cleaning bond and a guest's credit card details are held but there is no stopping the visitor cancelling the card.
Cost of cleaning/ insurance etc?
In between each booking your property will need to be checked and cleaned. Is this something you do yourself or contract out? If you contract it out there is an additional cost of typically $35 to $50 an hour per cleaner.
It is also worth having a good look at your insurance policy and checking whether your policy covers short term leasing. Also check your excess to see how much more it increases.
What about the restrictions on unit blocks or locations where you may not be able to lease via Airbnb?
Many unit blocks do not allow short term leasing or AirBnb. Others have restrictions or caveats on this form of leasing. Before purchasing make sure you read the Body Corporate By-Laws and speak to the onsite manager if there is one in place. The surge in popularity of these online services and the correlating rise in noise complaints and damages has led to many buildings drafting and executing additional bylaws to prevent these platforms from operating in the Community Titled Schemes.
How should you decide whether to lease your property through traditional methods using a local property manager and long term say 12 month tenancies versus short term leasing with Airbnb?
This question hinges on many factors. What is the viability of having your property listed as a holiday or short term rental? Do you ever want to stay in the property? Can you afford to have the property sitting vacant and non income producing for an extended period? Or is a consistent and known income more financially sound for you?
Having your property leased out to a long term tenant provides you with consistent, recurring, and known income. It provides peace of mind that you may not get with the alternative. It also allows someone else to take care of your property for you.
How do you pick a good property manager to work with?
Purchasing the right investment property to achieve your goals is step one on the journey to being a profitable investor. Step two is partnering with a property management expert that is a specialist in increasing rental income and capital value at every opportunity.
Most property managers are known for finding a tenant, collecting rent, and attending to maintenance. They don't have a plan, let alone a long term plan, for the future profitability of an investor's property.
At Hugo Alexander Property Group in Brisbane we have been awarded Australia’s best property management team (2022) and Queensland’s best small agency (2021) because we treat our clients' properties as business.
When interviewing for a property manager make sure you ask: what is your vacancy rate? How many vacant properties do you currently have?, What is your plan to increase capital value and rental income of my property? What added services do you offer free of charge? What is the property manager to property ratio in your office? Is the Principal involved and what happens if my property manager is away?
At Hugo Alexander Property Group we offer value-added services at no charge. Our Maintenance and Growth Plan (M&G Plan) is unique, our clients love it and it makes a difference in our 100% client retention, positive client feedback and 5 star google reviews. Our plan is a 180 degree turn from industry standards, as it’s strategic and proactive rather than reactive. The M&G Plan protects property values, increases rental incomes and capital gains, and puts money back into our clients’ pockets through tax depreciation. Any time there are changes to our clients’ situation or their property, we update the M&G Plan.
In the M&G Plan, we create current to 1 year, 1 to 2 year, 2 to 5 year, and 5 to 10 year goals and plans based on the property owner’s plan for the property, property’s condition, and evolving market trends. Achieving these goals means we have to implement everyday activities consistently, facilitated by our streamlined system and processes.
Since implementing the M&G Plan, we’ve saved our clients over $1.175M. For new clients, whose properties we identified as eligible for depreciation schedules without one in place, we engaged our tax depreciation referral partner, saving our last five new clients $44,388 in the first year.
Our clients’ properties are always meticulously maintained with the modern features tenants are looking for, and high end online marketing materials of the floor plan, property description and photography, our client’s properties receive more tenant applicants who are willing to pay above the market price.
Our attention to detail sees 0 days market vacancy (148 of last 150 properties) for a steady income stream, 10-20% higher average weekly rents, and a rental increase of $25 to $150 on every single re-lease. This equates to tens of thousands of dollars of extra income and savings for our clients every year. Of all properties we manage, 90% achieved a price increase over the 2020/22 period and we had an average of 35 applications per property over this period.
When choosing an agency make sure you ask for answers to these vital statistics. These numbers will make all the difference to your profitability.
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