Should you buy an investment property, or a property for Airbnb? Both are good profit-making strategies. However, the ideal characteristics of the properties suitable for each one differ.
Bernadette has had properties listed on Airbnb for the last 10 years. Her initial goal was to have as many short-term rental properties as possible. However, more recently, she has realised that is not the best strategy for making a profit from Airbnb.
With Airbnb, it’s so much fun because you get to let your creativity run wild. It’s a really good strategy for someone that doesn’t have property, but still wants to push up their cash flow.”
Between managing her own Airbnb properties and leading the She Renovates community, which includes members who are both new and experienced Airbnb hosts, Bernadette has some useful insights on what to consider when buying a property for Airbnb.
What Is Short-Term Rental?
Airbnb is an online marketplace for people who want to rent out their properties or part of their properties for short-term stays. In Australia, there is legislation regarding what is considered to be a short-term rental and the type of properties that are suitable for such a venture.
The definition of a short-term rental involves a lease agreement for less than 90 days or 3 months. Anything over 90 days is no longer considered a short-term rental.
10 Things To Consider When Buying A Property For Short-Term Rental
#1 Location Is Key To A Successful Airbnb
Location is always an important factor to consider when purchasing a property. However, when you buy a property for Airbnb, the location becomes critical to your success. Bernadette has identified the following three areas where you are most likely to get a good return on investment from your short-term rental property:
- One-bedroom inner-city apartments for business travellers or people visiting the city.
- A country house is usually a bigger property in areas such as Daylesford or the Southern Highlands in New South Wales.
- Rural locations for people who want to escape from the city.
I discovered this by accident when I was renting out a two-bedroom unit for my mom in a place called Rochester, which has a population of 2,300. On long-term rent, I would’ve got $220 a week; on short-term, I got $700 a week. So it turned out to be a winner.”
#2 Determine The Demand For Short-Term Rentals In The Area
Investigate the demand for short-term rentals before spending money on a property. An easy way to find out if there is a demand for Airbnb properties in an area is to do a search on AirDNA, an online resource for short-term rental data.
Simply type in the address, and the site generates a report on how much money you can expect to make on the property from short-term rentals. Unfortunately, it is not a comprehensive report, and sometimes the figures are over- or understated, usually because there is insufficient data in the area. However, it’s a good place to start.
#3 Should You By An Apartment Or A House For Airbnb?
Whether you buy a unit or a house depends on your location and your strategy. In the early days of Airbnb, any property could be successful. As the number of Airbnb hosts has grown, though, you need to be more strategic in what kind of property you decide to buy.
Bernadette prefers smaller properties because they require less maintenance and attract smaller cleaning fees. Her sweet spot is a one-bedroom unit because it can accommodate four people; a queen or king bed in the bedroom and a sleeper couch in the lounge. However, most of your guests will be single or couples.
#4 Become Familiar With The State And Local Legislation Around Short-Term Rentals
It is vital for you to understand the state and local legislation around short-term rental. Officially a short-term rental is 90 days or less. In Sydney, the maximum number of days you can have your property on short-term rental or Airbnb is 180 days per year.
If your short-term rental is part of your home, there are fewer restrictions on the length of your lease agreement.
In some council areas, you are required to get a development application stating that you intend to change the use of the property, which comes with a significant cost. Other regulations to consider for Airbnb properties relate to fire and safety laws.
The bottom line is you must find out from your council about the local legislation regarding short-term rentals in your area so you can ensure that you comply with the law.
#5 Renovated Airbnb Properties Are More Popular
You can put an existing property on the short-term rental market. However, it is significantly easier to rent it out once it has been renovated and all the surfaces are new.
New or newly renovated is definitely my preference now.”
Older properties lend themselves to cute retro themes, however, older bathrooms, for example, tend to be more difficult to keep spotlessly clean, and a dirty bathroom is extremely unappealing.
Newer properties are more likely to have parking, which is desirable, especially in the city. A lack of parking reflects negatively in your reviews. Sometimes you can get away with no parking if the city has a good public transport system.
#6 Unique Properties Attract More Guests
Bernadette recently interviewed Mary and Lilah Nieuwland, who ensure that all of their properties have a unique selling point, such as a private outdoor space in an inner-city apartment.
There are a lot of properties listed on Airbnb, and you want yours to stand out from the rest and stop people scrolling. Create a feature that people are going to want to talk about. Examples include:
- A spectacular view.
- A lucious garden.
- A theme.
- A selfie wall.
- A historical property.
#7 Decide Who Will Manage Your Airbnb Property
If your short-term rental property is not near you, someone else will have to manage it for you. It usually costs approximately 20% of your income plus GST, but the fee could be lower, depending on where the property is located.
Bernadette prefers to manage her Airbnb properties herself and employ an onsite cleaner. She pays them a bit more than the usual amount because she is saving money on the management fees, and that person takes some responsibility for the property.
When you outsource the management, you have no control over what happens, and your guests aren’t always prompted to write a review. Without reviews, it’s challenging for your property to gain momentum.
Reviews are the lifeblood of your listing, so you want to get as many reviews as possible as quickly as possible. It generally takes about four reviews for your listing to gain traction.
#8 Set The Home Up Economically
Things get damaged, most often through everyday wear and tear, not malicious damage. Therefore, we strongly recommend setting up the home as economically as possible.
Keep the cost down because you’ll be changing it over fairly regularly.”
Bernadette recommends keeping your eye on Facebook Marketplace and Gumtree for some good buys to minimise your outlay. She has managed to style a property for under $1000 using this strategy, but admits that it takes some commitment.
A significant expense is linen. Having beautiful, clean linen is essential. Engaging a linen service is an efficient way to manage it.
#9 The Utilities Are For Your Account
You will be paying for water, electricity, and gas, which can be a significant cost. Ensure that you factor the utilities into your feasibility study before you start to maximise your return on investment.
You want to be getting at least double the income from short-term rental as you would from a long-term rental to cover all your costs and still be ahead.”
One good Airbnb listing is better than 10 mediocre listings. Mediocrity doesn’t work on short-term rentals. As a result, Bernadette is doing a fairly extensive renovation on their Airbnb to make it more luxurious to maintain a high income and reduce the vacancy rate.
#10 Tax And Insurance For Short-Term Rental Properties
if the property is attached to your own home, there will be capital gains tax implications. You must talk to your accountant about that if you want to sell the property.
It is also advisable to determine whether your insurance covers short-term rentals. Standard landlord insurance often doesn’t cover it. However, you must ensure that you are insured for public liability and malicious damage.
Bonus Tip: Make Your Guests Feel Special
Spoil your guests; make them feel special. The easiest way is to be there to meet them when they arrive and welcome them to the home. It can’t always be done, especially if you don’t live near the property. In this case, find other things you can do to make your guests feel valued, spoiled, and looked after.
Conclusion: Owning An Airbnb Property Is Fun
Owning an Airbnb property is fun and allows your creativity to run wild. Usually, in renovating, we must keep a lid on our creative flare to appeal to a broader market. In the case of short-term rentals, creating something a little bit quirky will make your listing jump off the page.
You don’t even have to own the home. Earlier in the year, Bernadette interviewed the owners of Maggie’s in Trentham. The beautiful, gracious, old house is rented by two gentlemen who have set it up as an Airbnb to generate an income stream. It’s a great strategy for someone that doesn’t have property but still wants to push up their cash flow.
