The Age of Airbnb & How It Affects the Investment Market

airbnb

There has been a lot of commentary about Airbnb and its impact on property investment in Australia. We thought it would be helpful for you to understand where Airbnb fits in our market and how you could take advantage of their market to boost your bottom line. As you read through we’ll cover the pros and cons of Airbnb as it relates to investors.

Why Airbnb?

AirBnb, is a fast growing innovative business specialising in putting together those who are seeking temporary accommodation with those who have properties available. The business was originally called AirBed and Breakfast after its founders needed to raise some money to pay for the rent on their apartment and they came up with the idea of putting an air mattress in the living room, renting it out for the night whilst also supplying breakfast.

After this modest start the business has achieved incredible success with the number of transactions doubling from 5 Million in 2015 to 10 million in 2016.

Airbnb is principally designed for short term lodgings and is geared towards holiday accommodation. A quick perusal of the website shows that properties are advertised on a per night basis exactly as a traditional Hotel business would. This contrasts markedly with residential investment property which has always used monthly or weekly rental amounts and which caters to long term housing needs. Eg typical lease agreement are for 12 periods.

Residential investment propertyAirbnb has a prominent online presence which assists with millions of transactions per year and earns revenue by charging registered property owners, known as hosts, airbnb host fees.

On the other hand, the traditional Residential investment property market has support through multiple Real Estate offices in every suburb of every State as well as dedicated Real estate websites. In practice, investment properties can be managed by the owner themselves or preferably, by dedicated property management businesses which collect rent and distribute the proceeds.

On Airbnb the property experience is managed by the host, with payment being facilitated through the Airbnb website. Airbnb has no direct involvement in the property condition or presentation.

A residential lease is a written contract between the owner and the tenant who is also protected by Australian law via the Residential Tenancies Act in each State and Territory. No such protection is provided to Airbnb guests.

So, at the very least, Airbnb provides additional options for investors to add extra income to their portfolios. The downside is that management of the property rests with the owner as does advertising and organising cleaning etc. The arrangement with the guest is more akin to a holiday rental and may well be just as sporadic. However, it could suit those investors with properties in prominent holiday locations or CBD apartments perhaps. The host is responsible for setting the price per stay with Airbnb taking a percentage of the amount as their fee so there is a delicate balance between attracting guests and making as much as possible.

While there are similarities between renting residential property and the Airbnb innovation strategy model of matching people with property, the similarities end there. Residential investment provides a stable income source, managed by a Property Management business enabling the owner to remain at arm’s length from the tenant. The Airbnb business model requires the owner or host to organise the booking, the cleanliness of the property and any maintenance issues.

The upside is a higher return per stay although the frequency of guests booking will be limited by the location of the property. We’re not sure Airbnb is suitable for a 4 bedroom property located in outlying suburbs far from the CBD, but it could be feasible for CBD apartments or those located close to holidays areas.

Why not call us today to discuss whether this type of strategy is for you?

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