In recent years, AirBnB and Stayz has surged in popularity as a preferred option for property owners looking to rent out their residences. Leveraging your home or investment property as a short-term rental through AirBnB presents an excellent opportunity to earn supplemental income. However, newcomers often underestimate the drawbacks associated with this approach.
Advantages
Higher Yields
Renting out your home traditionally typically yields between 2 and 5% in rental income. While this rate is satisfactory for many landlords, those willing to invest additional effort can potentially double or even triple their earnings by listing their property on AirBnB for short-term accommodation.
The prospect of significantly higher income is the primary motivator for most individuals contemplating short-term rentals.
Access to Your Property
An often-overlooked advantage of Airbnb is that you can still maintain access to your property should you need it for periods of the year. Short-term rental platforms allow you to choose when your property is available and allow you to use the property as desired, without having to remove a tenant or arrange furniture on short notice.
This flexibility is a great way to either make the most of a property that is vacant for a certain period of the year or even to make some money on a property that you are still living in.
Maintaining Your Property
Although there are occasional headlines about Airbnb parties causing property damage, it’s important to recognize that such incidents are rare rather than commonplace. Renting out your property does come with some risks, but these risks are not exclusive to short-term rentals; they also exist with long-term tenants.
Moreover, since renters typically pay a cleaning fee, you can maintain your property’s cleanliness consistently throughout the year due to the short-term nature of their stays. Additionally, you can oversee the property more closely and manage tasks such as garden upkeep and ongoing maintenance more effectively compared to a traditional rental arrangement.
Disadvantages
Time
While you can make more money renting out your property on a short-term basis, there are some cons to the process, such as time spent organising the process.
To run a successful Airbnb property, you will have to manage bookings, clean the property and deal with any problems that may arise. It’s also worth remembering that on top of cleaning the house, you will also need someone to wash bedding and towels as well.
As a result, this type of income is far from passive, in comparison to having long term tenants and a property manager.
While you can hire third parties to manage all elements of your short-term rental, they also charge higher property management fees given the increased workload. This is typically around 20% of rental income, which is far higher than the cost of traditional property management.
Costs
One notable distinction with longer-term renting is the potential for increased expenses. While it’s possible to enlist a property manager to handle various aspects of property management, it’s essential to consider the platform fees imposed by Airbnb and similar services.
Additionally, there are upfront costs associated with adequately furnishing a property, including furniture, appliances, TVs, and amenities like tea and coffee provisions. An often underestimated expense is covering all utility bills, typically the responsibility of tenants but falls on the short-term rental host.
Vacancies
The hardest thing to predict with a short-term rental is just how much demand your property will have and how many vacancies you’ll encounter.
Vacancies will change between seasons as well with summer being far more popular than winter. That also means your income is not consistent over the course of the year. In addition, when you start renting out a property there will be a lot more vacancies than an established short-term rental with a track record of good reviews.
Suitability
It’s crucial to recognise that not every property is suitable for short-term accommodation. For instance, if you own a property in a popular beachside vacation destination, it’s likely to attract renters. However, if your property is located in an area with minimal tourist traffic or business travel, it may not be well-suited for short-term rentals.
Airbnb Regulations
The final factor to consider is that by renting out your property as a short-term rental, there are several regulations as outlined by Airbnb and the Australian Government which need to be followed.
Compared to much of the international regulation of the short-term rental market, Australia’s Airbnb regulations are lenient to encourage the tourism economy. That’s why buying a property in an idyllic coastal town in Australia and renting it out to holiday-goers on sites like Airbnb or Stayz can be a great way to earn extra income and subsidize some of your expenses.
But amid the nationwide housing supply crisis, state governments in Australia have announced changes to short-stay accommodation rules to limit the availability of some properties for short-term holiday rentals.
If you’re considering starting an Airbnb in Australia, it’s important to consider legal issues first and ensure you fully comply with any laws for your area at the state and city levels.
State Rule Changes
Western Australia – All short-term rental accommodation providers will be required to register their properties before being able to list and take bookings, including from online platforms like Airbnb and its alternatives in Australia. Registrations are expected to open in mid-2024, and all homes must be registered by January 1, 2025.
Victoria – In September 2023, the Victorian government introduced a state-wide 7.5% consumer levy on short-term accommodation bookings through platforms like Airbnb and Stayz. The tax on short-term rental stays is scheduled to come into effect in January 2025, and as the authorities in Victoria said, it would go towards funding more social housing.
NSW – New South Wales has been one of the first state governments to enforce Airbnb restrictions, including a 180-day limit for unhosted short-term rentals in greater Sydney. Although critics say the rules are not enforced, the 180-day cap also applies to some regional local government areas, including Newcastle, Ballina, the Bega Valley, and parts of the Clarence Valley. Most short-term accommodation hosts in NSW are also required to register their properties.
Queensland and South Australia – Currently these state governments are reviewing their positions and no decision has been made similar to the rules applying in the other states.
Tasmania – In February 2024, Tasmanian Liberals promised to introduce a 5% levy on all short-stay accommodation in the state. The levy would be paid by travellers, not the property owners, and would be used to fund a first-home buyers program.
A 5% tax announcement was made without industry consultation ahead of elections and has taken hosts by surprise. The tax is also viewed as discriminatory because it would not be applied to other accommodation types, such as hotels and pubs.
Overall, Airbnb has been a game-changer for many property investors on the hunt for higher yields. However, it is not suitable for everyone or every property. Before taking the plunge, do a detailed breakdown of costs involved, with a conservative estimate of rental income with a vacancy rate of around 20-30%.
That should give you a good idea of whether a short-term retinal will be more profitable than a traditional long-term rental.
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