Sure, having a long-term tenant gives you a regular income, but it is a pretty static amount, bar the occasional rent increase. Hosting on AirBnb on the other hand gives you much more flexibility, capacity to significantly increase profits and your return on investment (ROI).
Whether you choose a long-term lease or short-term rental model you will pay a property management fee (unless you manage it all yourself of course – but that takes precious time away from other profit-making pursuits).
I think there are a number of significant reasons a property developer would consider using short term rental to complement their developmentstrategy – but the main questions that need to be answered are – does this enhance my product and make me money?
Going through a lengthy development process is – for many – not about having a fun time – (although there are some Developers who love the process as much as the final outcome) but rather about wealth creation and accumulation.
But, before we progress and outline why Airbnb can enhance your development, we probably need to de-bunk a few beliefs about Airbnb so you can continue reading this blog with an open mind.
The media loves a good ‘property gets trashed by AirBnb guests’ story causingAirnb to cope some pretty bad press. And yes, it can happen – but there are ways to prevent it!!!!
Guest vetting will weed out many of the dodgy players. Vetting includes – engaging the guest in a conversation about the purpose of their stay, capturing the full names and photo ID of all guests staying, charging a security deposit, getting a home and email address. In our years of running short term rentals this has always worked. When we let our standard slip, then we experience the consequences. This is the same across any industry.
So how can Airbnb benefit developers?
Let me set out the ways I think it can complement what you’re already doing.
1. Sell the completed property with higher rental income already in place – perfect if your target market is property investors.
In many suburbs around Australia the rental return from listing a property on Airbnb vs renting it out to a long-term tenant can be 10, 15 and even 50% better. Now of course not all suburbs suit AirBnb. The best areas are tourist destinations, capital cities in all States and Territories, Central Business Districts (CBD’s), major cities, rural and event destinations e.g for weddings or country escapes. But there could certainly be many other untapped opportunities and other locations.
Imagine selling your property with Airbnb already set up and earning money. Your investor buy is handed a turnkey property with an immediate income and set up in place.
2. Make money while waiting for the property to sell.
It’s well know that staging a property for sale adds significant value (some say $10,000) to the end sale price. You can either pay a stylist and hire their furniture or buy your own. Buying your own often makes sense if you know you are repeating a similar development model again and again.
If you’ve bought furniture to stage a property while waiting for it to be sold and settled, you could recoup this cost by listing the property on Airbnb. You can schedule open for inspections into the calendar so you don’t have guests staying at these times.
Making money to offset your holding costs makes sense.
Unlike long term residential tenancies where you have to give the tenant notice to move out, you can limit the availability of the property on Airbnb to fit with settlement dates.
Who knows, the prospective owner may want the property to continue as an Airbnb and buy the furniture along with the house.
3. Diversify rental portfolio
Adding AirBnb as a strategy to your rental portfolio means that you are able to take advantage of different markets. Long term tenants provide consistent and predictable income. Airbnb income may ebb and flow according to seasons, location and demand but during high demand periods the returns can be significant, and when averaged out across the year,higher than long term rental income.
Like all property investment strategies, knowing which property suits an AirBnb strategy requires some research and due diligence.
4. Economies of scale
If you have more than one property you want rented out on Airbnb you have the benefits of economies of scale. For example, you can source multiple beds for a discounted price, linen hiring or amenities purchasing in bulk.
One set of cleaning equipment, storage facilities, porta cots and high chairs may be sufficient to service one AirBnb site with multiple properties e.g 3 apartments in the one building.
5. Turn a distressed property into a positive cashflow asset.
I was chatting to a developer friend in Adelaide and she told me about how the discovery of AirBnb really changed the profitability of her development projects. She went from being a distressed owner to an advocate of the model and has even niched down into sustainable guest experiences. When you’re deep in the trenches it’s hard to think out of the box for creative solutions. Applying an Airbnb strategy to a portion of her developed properties gave her enormous financial relief.
Often negatively geared property can become positively geared when turned from long term to short term rental.
6. You can actually personally utilise the property.
I think this is the icing on the cake. You own the property so can book out the nights you’d like to use but still earn money on the nights you don’t need it.
I know when I have completed a property deal and created a beautiful product, I wish I could stay and use it sometimes.
I have some closing thoughts….
Why use a property management company?
- If you plan to keep some of the properties you are developing, I recommend you engage a property manager on a commission model.
- When you partner with a reputable Airbnb host management company they will look after all the advertising, guest vetting, cleaning etc.
- But, most importantly they are part of your team and have a financial incentive to make your property as profitable as possible. They will be riding the waves of income with you and striving to increase the profitability of your property at all times.
- Get an appraisal from an AirBnb expert. They can look at the data and give you a good estimate of your possible returns listing on Airbnb. The should have the research tools and know how to help you complete your due diligence.
You can build with Airbnb in mind?
- Each council is different in terms of the regulations covering AirBnb in properties, and you would need to consult with them directly about the details. An Airbnb expert can help you navigate this as they will be familiar with the council regulations.
- Also consult with an Airbnb expert about things to consider in the design of your end product. Thinking about adequate storage for linen and cleaning products is a great idea.
- Can the property be designed to be disability friendly. g flat entrance to the property, lifts or no stairs, at least one wheelchair friendly bathroom? Having these features will significantly open up the market for a larger number of guests.
Forget tenants – get guests.
If this blog has been of interest to you may want to check out my video on You Tube for an over view of the data you need when comparing long term and short-term rentals. Here’s the link. https://www.youtube.com/watch?v=-51mQSPnarc