Last year I stayed in 24 Airbnbs. It was a three month trip to Europe that became six and then nine months away. My partner Pam and I funded our accommodation by renting our homes out on Airbnb.
We travelled from Australia to England and Wales, South Africa, Portugal, Spain and Morocco. It was an amazing mind expanding trip which changed our perspective on life for ever.
But that’s another story.
I want to share my knowledge about the viability of Airbnb hosting as a property investment. As there is a price of $599,000 on my apartment and I’m going to be radically transparent about the income and costs (see this Google spreadsheet) it’s a good case study on Airbnb investing.
My apartment is an entire floor of the old Aboriginal Services Building. It is a loft — or New York — style open plan 80 square metre space on the corner of Peel and Smith Street in Collingwood. Hipster central. (You can see the AirBnB listing here.)
Pam’s home is a two bedroom off-street townhouse with a garage in the quietest street in St Kilda. It’s a 5 minute stroll to Luna Park, Acland Street and the beach. The complete opposite of my place.
The first year I rented my apartment on AirBnB was pretty hit and miss until I got the hang of things. Last year as I become more professional in my management and I earned more as a result.
Pam, a hard-core programmer of banking mainframes and ever the analyst, took a much more serious approach right from the beginning.
What hindered her was the seasonal nature of a beachside suburb and the clunkiness of using Airbnb to manage a two bedroom property. AirBnB calculates extra people, not extra bedrooms. So two single people might use up both bedrooms, making for expensive cleaning costs for less income. Some people would check into the accommodation as a one-bedder; others would pay extra for the full two and the additional cleaning. It was hard to manage.
Yet thanks to her hard work she made Superhost status. On average she earned $149 a night, which reflected the larger size of her house. But despite her efficiency and Superhost status only managed to achieve a 65 per cent occupancy. She earnt $27,633 for the 282 days that we were away.
In contrast, Collingwood is attractive winter and summer for anyone who wants to soak-up the inner city hipster vibe. Or simply stay somewhere while in town for the tennis, footy, spring racing or anything else on Melbourne’s ridiculous festival schedule.
I had a couple of tricky guests and missed Superhost by 1 per cent — achieving 5 star ratings only 79 per cent of the time.
Yet my average occupancy was 87 per cent in 2016. The first 6 months occupancy was 76 per cent due to mainly to the 24 hour gap between stays to give time for my cleaners to turn over the property.
The second six months achieved 97 per cent occupancy with cleaners turning over the joint on the same day. This occupancy rate was achieved despite a broken water tank and associated issues meaning I lost a few days rental income.
So how do the number compare to long term rental? My unit previously rented for $24,000 p.a. as a long term rental using a traditional real estate agent as manager. And I paid 5.6 per cent of the rental for management.
Last year on Airbnb I earned $33,836. It splits between $14,803 for the first half of the year and $19,033 for the second half, testament to how improved efficiency can improve the income.
It is currently on the market for $599,000 so Knowing its actual value we can look at property yields before costs are taken into account.
Long term rental gives a gross yield of 4 per cent.
AirBnB gives a gross yield of 6.3 per cent for the investment.
Beyond Pricing is an excellent tool that for one per cent of your income, adjusts pricing up or down due to demand. It takes climate, festivals, events and day of week into account. Both of us used Beyond Pricing which does a far better job than AirBnBs built in pricing tool.
The saturation of the Airbnb market in St Kilda and the seasonal nature of the location and plus the inefficiencies of renting out a 2 bedroom house meant she didn’t reach her full income potential. Had Pam achieved my 97% occupancy she would have earned nearly $41,000 in nine months.
But wait there’s more…
AirBnB has higher costs than a traditional long term rental. In addition to my mortgage and body corporate costs, the only cost for a landlord of a long term rental is water rates and agent fees.
For the long term rental on my place it was about $1,344 for the agent and taking off council rates (about $1200) the water rates (I can’t find the precise figure) and Body Corporate fees I earned $20,716 — the net yield is about 3.4 per cent.
With Airbnb I also paid management (15 per cent), body corporate and water rates but also water usage, gas, electricity, internet and cleaning.
There is no reason why a unique 1 bedroom in an inner city suburb can’t hit 97 per cent occupancy for the full year. With all additional costs subtracted, the net income should be $37,746 minus $5,662 for management and other costs of $5,287. That’s $28,372 if you have it fully managed — a net yield of 4.73 per cent. Or if you managed the property yourself the net income is $32,459. And the yield 5.4 per cent.
You could get an interest only investment loan (with a 10 per cent deposit) that would cost less than $22,000 p.a. via a broker like Loanmarket. Great for negative gearing for a long term rental if you need the tax break.
But if you prefer income over tax break, you can make a profit of up to 10 grand renting out on AirBnB while your investment pays for itself and apartment increases in value.
More detail. And cleaning
Cleaning costs don’t seem to affect yields. For both the first and second halves of the year my average nightly rate was $106 (though I charged as low as $80 on Sundays and Monday in winter and as high as $155 during spring racing carnival) despite charging from at the beginning of the year $60 to $70, and later on, $120 per stay for cleaning.
For four of the first six months I had cleaners who required me to leave a 24 hour gap between bookings. I paid $110 including 10 per cent GST for each turnover, which includes cleaning and laundry and naively only charged guests $60 for cleaning. I took the view that it would be compensated by a higher nightly rate evening out the figures.
Once we started travelling and using a manager, our first manager fee was 7 per cent of our Airbnb payouts plus $90 for each clean (no GST). Later in the year we appointed a new manager who charged a 15 per cent fee and, for my place, $90 for cleaning and $30 for laundry — $120 for every turnover. They also upped my cleaning fee on AirBNB to $120 ensuring the cleaning did not come out of my income. Their greater experience meant they knew that guests would pay the fee.
As we prepare to travel again, Pam has decided she is better to rent her townhouse long term to a tenant who wants it for two years. Her location and apartment size made it too unpredictable on AirBnB. Mine is up for sale as it was far more viable as an AirBnB than as a long term rental but my extended absence makes it impractical to retain it.
For anyone looking to invest in property, the advent of AirBnB means hip inner city one bedroom units are a brilliant return for money spent. In fact, you can even buy mine. I’ll even throw the appliances and furniture in as I’m moving abroad.