AIRBNB VS LONG-TERM
WITH PROPERTY DEVELOPMENTS SPRINGING UP ALONG OUR NORTH COAST, INVESTORS NOW NEED TO CONSIDER IF LONG-TERM LETTING OR GOING THE AIRBNB ROUTE IS THE BETTER OPTION, WRITES GARETH BAILEY
Since it launched in 2008, Airbnb has shaken up the hospitality industry, and is currently valued at around $35-billion. With that much capital behind the Airbnb platform, one would expect that Airbnb hosts would be cashing in as well. But, the question is, are property owners better off holiday-letting their property through Airbnb or sticking with the more traditional long- term letting option?
Airbnb income is a product of the nightly rate and occupancy. It is possible to charge lucrative nightly rates, but the rentals are for far shorter periods and need to be sustained over time to compete with the long-term option. An auxiliary income with Airbnb versus traditional renting is that with Airbnb, hosts can also make extra money from cleaning fees.
Airbnb’s policy requires guests to pay money in advance by reserving this money in the guests’ bank accounts which then gets directly transferred into the host’s bank account once they check in. This offers booking security and is a great benefit to Airbnb’s hosts.
By comparison, one of the biggest advantages of traditional renting is that hosts secure occupancy for relatively long periods of time. With Airbnb you might have full bookings for one month and no bookings for another, especially if there is a big swing in seasons.
Occupancy rates on Airbnb rely heavily on the location and whether the area is close to tourism attractions, shops, restaurants, and beaches. Another significant differentiating factor includes making the space as beautiful, functional, and comfortable as possible. Lastly, taking professional photos and uploading them to Airbnb with a creative and eye-catching description will have a big impact on enquiries and the occupancy rate achieved.
All the hosts efforts are efficiently, transparently and sometimes ruthlessly rated by Airbnb guests, which impacts on the property’s ranking on Airbnb. Hosts should pay close attention to getting good reviews because Airbnb users rely heavily on these to evaluate a property before booking it. These factors play a huge role in increasing the Airbnb occupancy rate, and average occupancy rates in popular areas can range from 20% to 75% a year.
Airbnb charges hosts a 3% fee and the host may also incur an agency fee of another 10% to 20% depending on whether the host elects to operate the Airbnb property directly or outsource this process via an agent.
From a risk point of view, besides occupancy risk, one would expect that with all the traffic associated with shorter letting terms, the property would not only require more maintenance, but also be at a higher risk of being damaged. Fortunately, Airbnb has a one- million-dollar insurance policy that comes with the hosting account to cover damage to property.
Likewise, there are also mechanisms in place to protect long-term letting hosts as it is customary for tenants to pay a one- or two-month damage deposit upfront.
So, where does all of this leave us? Airbnb as a rental strategy does not generate higher rental income by itself, as it depends tremendously on the location of the investment property and the willingness of the host to market the property, get good reviews, work the system, and take advantage of the Airbnb rental strategy.
Ultimately, hosts need to choose between being on “cruise control” and having an “automatic income” versus generating greater profitability but with no guarantees other than hard work.