Have you considered the pros and cons of renting your investment property on Airbnb? In this piece Zippy Finance principal broker, Louisa Sanghera shares some key considerations regarding investment property rentals.
If you have an investment property, you probably have it rented out to tenants on a minimum 12-month lease. But did you realise that in certain circumstances Airbnb can actually give you a better return than a long-term tenancy?
Airbnb has grown rapidly since 2014, with Sydney listings shooting up from around 6000 to a staggering 22,000. If you are thinking of embracing the short-term holiday-let model, you need to be aware that there are specific cost and time considerations of short-term letting and not every property is going to attract the same interest.
Location and Amenities
Your property does not need to be located in the usual downtown hotel districts to be suitable for holiday letting – in fact, around three-quarters of the properties listed on Airbnb are not. Most people will accept location may be a compromise for the comfort of staying in a home as opposed to a hotel. If your property is out in the ’burbs, you will need to highlight the property’s benefits along with communicating the ease of getting around, and you will be likely to attract fewer bookings the further from the action it is. Of course, if your place happens to be by the beach or close to transport links and entertainment hubs, you’ll have no problem attracting guests.
Airbnb guests will expect a hotel-comparable experience: clean, comfortable accommodation with all the mod cons and fresh linen, as well as special touches, such as guest soaps, a welcome pack, and perhaps a bottle of wine and nibbles. Airbnb’s mantra is “Experience a city like a local”, so anything you can do to support that ethos will really help to build your reputation as a top Airbnb host. This, of course, means a greater outlay than if you had long-term tenants, but the more memorable you make the experience, the more positive reviews and word-of-mouth referrals you will get, making it worth your while.
All of this means you will have to spend more money on the upkeep and furnishing of your property, and will incur additional expenses for cleaning and turnaround between tenants, which may involve employing a property management service. Your insurance needs will also change, requiring more appropriate, and more expensive cover.
So, what can you expect to earn from renting your property this way? In Australia, the average Airbnb host earns between $160 and $180 dollars per night of accommodation, and has four weeks of guest nights per year. This means that if your property isn’t a chic apartment in Bondi or Surry Hills that you can be sure of renting out 24-7/356, you’ll probably be better off with a traditional long-term tenancy arrangement.
Rules and Regulations
Some cities around the world are clamping down on people renting out their properties on Airbnb; however, for the time being, at least, Sydney seems to be embracing the service and the NSW government is currently positive in regard to this style of letting. That said, it is still in the process of setting out legislation, and has yet to address concerns about clarifying the difference between short-term letting of private property and the more familiar option of serviced apartments.
The main issue appears to be letting time periods and that extended stays of between four and 12 weeks could mean properties fall foul of building codes. Furthermore, if your property is part of a strata, it’s important to do your homework about what is permitted and what could cause you problems with the neighbours.
In Sydney, at the moment, renting out a property purely through Airbnb is lawful, though this is subject to change. So if you decide to go the short-term route, keep an eye on government legislation to pick up any changes and give yourself time to return to long-term letting, before the whole of Sydney is trying to do the same.
Whether you have long-term tenants or a series of short-term guests through Airbnb in your property, the same tax rules will apply. All assessable income must be declared in your tax return, and you will be able to claim your running costs or losses.
The only hidden danger is for people renting out rooms or granny flats that are part of a family home as this activity opens up the Pandora’s box of capital gains tax (CGT). While CGT isn’t payable on the sale of a family home, if you’ve been renting out a part of it as an ongoing business concern, when you come to sell that home, a comparable percentage of any capital gains you earn will be liable for tax. This is complicated territory that requires careful consideration and the guidance of a tax professional to ensure short-term guests don’t leave you with a long-term tax headache.
Before you make any decisions about your property, do your homework. Check out comparable properties on Airbnb to see what others are offering – and what rental rates they attract. Consider the desirability of your property, its location, transport links and accessibility, etc. Run the numbers and see how it looks.
Whatever you choose to do, good luck!