As a property investor, you naturally want to get the possible return on your investment in the form of rental income. While traditionally your only option was conventional letting (either long- or short-term), the growth of the App-based economy has disrupted this model, giving both owners and tenants more options.
Airbnb has transformed the way that business and leisure travellers book and pay for rental accommodation, and has become immensely popular. As a result many property investors are asking the question: to Airbnb or not to Airbnb? In other words, is listing their property on this accommodation platform likely to result in increased revenue?
In this blog, we’ll look at the key factors to consider when answering this question. It’s important to remember, however, that there are no right or wrong answers – your decision will be affected by the location of your investment property, among other considerations.
No lease, no problem?
At first glance, using your investment property as an Airbnb can seem like the obvious solution – after all, there are a number of advantages as we’ll examine here. However, it’s important to note that there are cons as well as pros, and it’s vital to research the market before making your decision.
Airbnb appeals to many landlords due to its flexibility – a wide variety of properties can be listed on the platform, from 1-bed apartments to farms. Unlike traditional property rental websites, listings on Airbnb are free. You can also potentially reach a much wider audience, including overseas travellers.
It’s easy to see why Airbnb is popular with travellers: accommodation choices tend to be cheaper than equivalent hotel rooms, and privacy is guaranteed when you book an entire property. Both guests and owners receive a degree of payment protection backed by Airbnb.
The combination of convenience, value and flexibility means that many people prefer to use Airbnb rather than book a hotel, which is potentially good news if you’re an investor.
Do the sums
If your Airbnb property is fully booked for an entire month, you stand to make up to 50% more than if it was let to a conventional tenant. That is naturally an attractive possibility, but it has led some investors to question whether Airbnb’s value proposition is too good to be true.
Location, location, location
This is perhaps the most important consideration. You need to know which type of Airbnb guests you want to target; and then look at whether your property offers, for example, scenic seclusion for leisure guests, or an easy commute to the airport and CBD for business guests. As with any property investment decision, you are strongly advised to do your research beforehand.
The cons
With normal letting, you have the option of letting your property as an unfurnished unit. This can save you initial costs, although it may put a cap on the rent you can ask. In contrast, operating your property as an Airbnb comes with significant upfront costs, including needing to fully furnish and equip the property.
Ongoing costs will include supplying all the amenities you would expect to find in a hotel room; and probably paying someone to manage, clean and prepare the Airbnb for each new guest arrival. To ensure that your property remains highly marketable, you’ll also need to carry out regular maintenance.
Security and permission
Overseas visitors in particular may be nervous about the risk of crime in South Africa, so an Airbnb in a complex might seem a good choice. A note of caution, however: many body corporates and homeowners’ associations do not permit short-term rentals or properties being let via Airbnb. This is to protect other residents from noise and anti-social behaviour by tenants. Unlike a normal lease, the vetting of Airbnb guests is primarily focused on their ability to pay.
As the owner of an Airbnb property, you will be responsible for any nuisance caused by your guests, as well as having to make good any damage they cause before you can let the property again.
Modelling your revenue
With a conventional lease, it is much easier to project your revenue once your tenant has signed on the dotted line. With an Airbnb, revenue may be more sporadic and/or seasonal. So-called “black swan” events, such as COVID-19 lockdowns, can derail your entire business model without warning. It’s also worth remembering that Airbnb income results in a VAT liability, whereas a conventional lease does not. You’ll also have to pay the Airbnb commission each time you successfully let your property.
Our advice
At Reeflords, we’d strongly recommend doing your homework before listing your investment property on Airbnb. While the potential revenue can be alluring, it’s vital to weigh up the pros and cons. Not forgetting of course, the oldest truth in property investment: location, location, location.
If you have questions about any of the topics discussed in this blog, email terry@reeflords.co.za or connect with us on our Facebook and LinkedIn pages – Reeflords Property Development. We’ll get back to you as soon as we can. Think Home, Think Reeflords.
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