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Aussie landlords test the Airbnb water

Aussie landlords test the Airbnb water

By Caroline James

According to industry sources, a growing number of property investors prefer to use the global online accommodation giant Airbnb to sublet homes in inner-city or holiday locations, rather than commit to traditional long-term leasing arrangements.

There aren’t official numbers as Airbnb doesn’t yet capture its data but there’s no denying short-stay accommodation is a growing trend of new revenue for Aussie landlords.

However, while it can return more than double the profit of a conventional six-month lease, short-term letting does come with downsides if your property is ill suited or you want a passive investment.

Empty Airbnb rentals can quickly hurt unprepared landlords who find themselves with heavily negatively-geared assets, and without the safety net of landlord’s insurance policies or property managers.

The future of rentals

According to Airbnb, it currently has 70,000-plus Australian property “hosts”.

If findings by a recent US study into affordable housing in New York City are anything to go by, Australia’s established rental rolls are under threat from the digital disruptor.

More than 8000 NYC apartments have been taken off the rental market and placed into the Airbnb letting pool.

According to the Housing Conservation Coordinators MFY Legal Services study, the 8058 apartments, listed for three- or six-month Airbnb rental, equate to 10 per cent of the city’s vacant long-term apartment market.

“There is certainly evidence [in Australia] of some landlords looking to offer their properties for short-term stays as a means to increase rental returns on their properties,” reports Ben Kingsley of the Property Investment Professionals of Australia.

“It’s starting from a very low base, but these share accommodation technology platforms make it easier for landlords to test the water and get a gauge as to whether there’s a market for them.

“It’s not a decision to take lightly as they’ll need to fit out the property with the furniture required and so on, but in some inner-city locations the numbers could work,” he says.

If findings by a recent US study into affordable housing in New York City are anything to go by, Australia’s established rental rolls are under threat from the digital disruptor.

ACT real estate agent Mick Harris, director of Elders Belconnen, owns an investment property in Jervis Bay, New South Wales. The four-bedroom two-bathroom house on 1000 square metres is 100 metres from the beach. When not using it as his family’s holiday house, he lists it on Airbnb and charges $400 a night.

Harris says he’d be hard-pressed to get $420 per week via a traditional long-term lease arrangement.

“It works out really well for us because it’s a popular holiday destination. In locations that are more owner-occupied and suburban, I cannot see how you would make a comparable amount of rent from Airbnb, whereas the places with a strong short-term visitor market, like Jervis Bay, do work because we only need to let it two nights a week each year to earn more [than we’d earn with a long-term lease], even allowing for $1200 annual cleaning costs, which are passed on to our guests anyway,” he says.

“It can definitely work to your advantage.”

Look before you leap

Cate Bakos of Cate Bakos Property owns a large portfolio. She says she has never used Airbnb to let her rental assets but can see why landlords with inner-city apartments and/or inner suburbs properties near rail links and cafes, or properties in coastal or mountain destinations popular as weekend getaways, are the most likely to achieve stronger rental yields from the share platform behemoth than via conventional offline leasing.

“Any owners who own properties near a lifestyle centre or places you visit for RnR will benefit more from Airbnb,” Bakos says.

“Most importantly, those investors/owners who have the ability to either service the property [themselves] or have a paid cleaner… service the properties on their behalf are most likely to benefit rather than passive investors.”

Bakos’s colleague and fellow buyers’ agent Amy Mylius says investors who have bought properties but haven’t seen strong growth due to a compromised feature such as no parking, high-density block, undesirable zoning or a compact floor plan, may find their property is perfectly suited for Airbnb.

She adds, however: “It can sometimes be a challenge finding a property which is both suited to a strong Airbnb cash flow and which also has good capital growth prospects – there’s typically a trade-off here.”

Landlords who own properties in hostile Airbnb strata complexes, that have limited appeal to travellers or that must compete with rival apartments in tower blocks, stand to lose the most if solely reliant on Airbnb rental income, Bakos says.

Property lecturer Peter Koulizos identifies self-contained properties, granny flats, units or small houses as those property types best suited to Airbnb.

“I don’t think you want to be putting a five- or six-bedroom house on as Airbnb accommodation as it could turn into a ‘party house’ for young partygoers on holidays,” he says.

Kingsley warns, however, of the possibility the tax office may soon take a closer look at investors trying to negatively gear “to the umpteenth degree” using only Airbnb.

“So far as income is concerned, you have the potential to make much more money than a long-term rental and it also has its tax benefits as all the furniture, fixtures and fittings can be depreciated and, providing you make the property available for rent all year round at a market rate, you can claim a full year’s worth of tax deductions.”

Kingsley warns, however, of the possibility the tax office may soon take a closer look at investors trying to negatively gear “to the umpteenth degree” using only Airbnb.

“I would think the ATO would take umbrage with it if they can see solid evidence an investor is relying too heavily on one [letting] platform only and the property is often vacant,” he says.

Mylius cautions investors who haven’t done their research and calculations.

“If the property is empty, there’s a significant lump sum cost at the beginning to furnish the property, which means not only beds, couches and TVs but also all of the cutlery, linen, cookware, basic food items and so forth, and this cost might not be recouped for some time,” she says.

“Conservative vacancy rates need to be factored into cash flow calculations and will be dependent on the demand for that type of property.

“Research also needs to be done into the right price for the property per night, factoring in weekends/peak periods and ensuring it’s competitive based on what else is available in the area.

“It’s an ongoing, dynamic process rather than just setting one rental price for the year for a standard lease.”

What works best?

Australia’s best suited Airbnb properties will generally be modern, well located, well presented online and off, and close to transport and amenities.

It’s common to find Airbnb nightly rates in the inner suburbs of Sydney and Melbourne more than 50 per cent higher (pro rata) than the comparative weekly rent achieved via a six-month lease.

Bakos agrees the biggest potential landlord perks are the high income rates when the Airbnb take-up is greater than, typically, two nights per week.

“A property can languish [on Airbnb] if it’s not ideally located but provided one can consistently be rented out for a combined weekly rental of at least 40 per cent more than a full week of residential market rental, the landlord should find themselves in an enviable position,” she says.

“[Issues] include insurance issues, owners’ corporation management blocking the activity, damage without recourse and subletting issues if a tenant secretly tries to profit from Airbnb.”

It’s common to find Airbnb nightly rates in the inner suburbs of Sydney and Melbourne more than 50 per cent higher (pro rata) than the comparative weekly rent achieved via a six-month lease.

“For investors who are motivated and do plenty of research, there’s an opportunity to generate a significantly stronger cash flow return [from Airbnb],” Mylius says.

“There are companies who can manage Airbnb on behalf of landlords… who will charge a fee… but for landlords who want to be hands-on there can be a lot of time and effort involved in managing the bookings, responding to questions and late night phone calls, arranging cleaners and so forth, and it raises the question of ‘opportunity cost’.

“Is the landlord’s time, energy and risk worthwhile for the additional yield?”

Kingsley says Spain recently introduced a fine of up to €15,000 if a host is found using Airbnb to let residential properties.

He says it has adopted the ban to help local hotel businesses survive economic downturn.

“Would I be making a major investment decision purely on the basis of a share platform, particularly given governments worldwide are increasingly seeing it as an unregulated area affecting state revenue? Probably not,” Kingsley says.

But, for now, the final – and more upbeat – words go to Koulizos.

He hasn’t seen long-term investors list on Airbnb “on a large scale” but does know one property lecturer who has made his home available.

“His property is in the leafy eastern suburbs of Adelaide and he has to move out when people move in as it is his private residence,” Koulizos says.

“One of my students has also made available her apartment in the Melbourne CBD.

“Both of them think that Airbnb is the best thing since sliced bread!”

Don’t miss API’s comprehensive feature on AirBNB for property investors in the September 2016 issue of API.

Grab your digital copy now!

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About Caroline James

Caroline James works as a freelance writer for API, the Herald Sun, national women's titles and travel magazines.

Original author: Caroline James
A solid Melbourne market
Eight Perth suburbs bucking the market downturn
 

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