While Airbnb has completely changed the holiday rental landscape, and has opened the opportunity for rental investors to earn good rental income, it is not without its drawbacks.
The onset of the Covid-pandemic and halting of local and international travel for example was a huge setback for Airbnb property owners. Bookings came to an abrupt halt, and tourism has taken a few years to recover to the pre-pandemic levels.
Investing in property for the rental market, whether for residential or Airbnb purposes, both come with risks and require administration. Both can significantly impact your financial returns and lifestyle. Each option comes with distinct advantages and challenges.
Seeff highlights a few of these.
When it comes to what tenants expect from residential, they usually look for long-term housing. They generally look for a lease of twelve months, and in many instances, with the option to renew it for a further lease period of twelve months.
Residential tenants would usually look in an area which is convenient for them to be close to work, or with good transport infrastructure. Basic amenities such as a kitchen, bathroom, and laundry facilities would be essential. The property should be well maintained, and the landlord responsive to repair needs if these arise.
Airbnb property on the other hand would generally be sought by guests who only need it for a short-term period, sometimes as little as a day, but it can be for up to one, three or even six months. These might be for a variety of needs, from holiday to business trips and events, and there would be a constant turnover of guests moving in and out of the unit.
Guests usually require more than just the basics. Aside from a fully furnished property, they would look for extras such as Wi-Fi, smart TVs, and comfortable bedding. The expectation is also generally for a high standard of cleanliness due to the frequent turnover. Regular cleaning will also usually be required.
In terms of the income streams, a residential rental tends to offer a more predictable and consistent rental income. Rental rates tend to be lower compared to Airbnb units as residential rentals are usually not furnished, or just furnished with basics without any extras. Rental yields therefore tend to be lower compared to Airbnb, but more secure.
Airbnb property on the other hand can yield higher rental income, but there is no guarantee of full occupancy as guests will come and go. Out of season could for example result in the unit standing vacant for a while. Nonetheless, if the property is in a popular spot for tourists and visitors it should have good occupancy, provided the market is not saturated with competing Airbnb properties. Earnings may also fluctuate depending on the time of year.
There are also higher operating costs due to frequent turnovers, cleaning, and potential property damage when it comes to Airbnb rental properties.
Both property types offer the opportunity for tax deductions of property related expenses, but all income must be declared. Capital expenditure such as renovations or improvements, or purchasing of assets cannot be claimed.
The decision as to which type of rental investment property would be more suitable would depend entirely on the investor. In both instances, the property owner/landlord must ensure they set aside funds for maintenance, and to act as a buffer in the event that the unit stands empty, especially in the case of Airbnb.
The amount of time committed to the investment is also likely to be much higher in the event of an Airbnb property as it requires constant updates on the system, in addition to ongoing management of guest bookings and the unit itself.
It is important that prospective purchasers and investors do their due diligence and investigate the type of rental that they choose carefully. Ultimately, while you can earn a lot more with an Airbnb unit, it can fluctuate, and the property requires a lot of administration and funds to keep it going. In contrast, a residential rental offers a more secure and steady income stream, although it also requires maintenance and upkeep to ensure it attracts good tenants and a good rental income.