Does the rise of Airbnb impact your rental returns?
As you would well know, Airbnb is an online platform used to rent a house, apartment or even just a room for short term periods. Whilst there are benefits and disadvantages of the system, one question I get asked a lot from landlords is about the impact that this sort of crowdsourcing accommodation has on the rental returns of their own investment property.
The barrier to entry into this type of market is low. Hosting is free on the Airbnb platform and the only cost is a 3% service fee charged on the value of the rental. When your typical property manager charges 5-10% on the value of the rental, it is easy to see that those lured by cost alone can fall into the trap of seeking cost savings over value.However if you are time poor and need to engage a short term stays outsourcing company to handle it all for you,you're looking in the vicinity of 15-22% of your income in management fee's and other costs such as adding and maintaining furnishings.Most so called Airbnb management companies demand initial outlays of $10,000-$12,000 to fully furnish a short term stay style property.
The overriding factor here though is that Airbnb is here to stay and the increase in its popularity worldwide only attests to the fact that more and more people are turning to the platform for short term rentals. Whilst some landlords will be tempted by the short term monetary gains, your rental property will not be affected by the increased usage of Airbnb properties.
The emergence of Airbnb was primarily to fill the need for vacation accommodation. Therefore, many of the ‘tenants’ are tourists. So not only do they serve a different need, these investment properties are not located in every suburb. Properties available for long term rental primarily cater for locals who are looking for a particular lifestyle. Therefore, they are typically available in a reasonable spread across any geographical area.
In contrast, Airbnb properties are primarily concentrated around CBD, coastal and prime holiday destinations. Therefore there are pockets of suburbs that have a high proportion of short term rentals compared to long term rentals, which affects the availability of housing to local residents. As an example, Property Observer notes that Airbnb lettings in the Sydney suburb of Waverley represent 25% of total rentals available. Even though it represents a large proportion of the suburb’s rental market, the result of this is still very minimal from a rental return perspective on your long term investment rental.
Small percentage of total market
Airbnb properties account for approximately 3.5% of the total rental market. So, whilst it may feel like every second person is an Airbnb host, the reality is that any fluctuations or growth in its market share is going to have very little impact on the overall health of the rental market.
Introduction of strict laws in NSW
As a result of some Airbnb horror stories the NSW State Government will be introducing new laws which include the ability for owners in apartments to ban short stay holiday letting. It also means that properties in the greater Sydney area can only be let for a maximum of 180 days per year if the owner is not living in the property. This means that properties will be left vacant for approximately six months resulting in the need to charge higher rents and therefore risking higher vacancy rates.
Benefits of long term strategy
Like any investment strategy, higher returns go hand in hand with higher risk. So, whilst you may be able to command a higher weekly rate in your Airbnb property, it also means that there is the potential for a higher vacancy rate plus more wear and tear on your property.
In addition, many banks won’t take Airbnb income into consideration when calculating loan affordability. This is due to its short term and sporadic nature.
So, as you can see whilst Airbnb may be a globally popular alternative for short term holiday letting, due to the small market share and geographical location it doesn’t have a real impact on your rental returns. You are better off ensuring your property is managed by a professional who understands the local market, can provide a personalised service and knows how to ensure you make the most from your investment property.
If you would like to talk to someone regarding unlocking the potential in your investment property, call me on 0418 600 806 or use our contact form.