Friday, 14 February 2014

Thinking about air BNB. Yes worth a look

Holiday and short-term rentals: Do the finances stack up in a real life case study?

By Cameron McEvoy
Wednesday, 12 February 2014

Recently, we identified new ways to rent out your investment property, via the likes of Airbnb. Though this strategy will not work for every property, there is clearly opportunity to be had in renting your apartment with this approach.
Property Correspondent has since contacted a friend who has shared some top line stats of his experience.
Is it worth it?
We asked our friend, who owns a modest two bedroom unit in the inner west of Sydney (within 5 kilometre access to the CBD; Balmain area) about his experience with his unit because he’d rented it out in the tradition way for a number of years, before converting it to an Airbnb property recently.
Here’s some rough apples-for-apples comparison numbers for his first year of operation:
  • Rented on a standard lease at $620 per week: $29,760 annually
  • Real estate agents’ management fees of 6% of rental revenue: $1,785.60 annually
  • Maintainance & repairs allowance: $1,500 annually
  • Total actual revenue: $26,384.40
  • This example assumes an average of 5 out of 7 nights per week of rental occupancy.
  • There were several initial up front costs:
  • Initial cosmetic ‘light’ renovation (simply paint and new carpets) – $1,400
  • New furniture (master suite, 2nd bedroom suite, washer/dryer combo, ironing equipment, kitchen cookware, utensils, fridge, lounge, coffee and dining tables, side tables, art/decoration, TV/AV/Internet facilities, linen) – $7,600
  • Security key installation – $110
Then there are administrative running costs that needed to paid on a regular basis, so I’ve calculated these as an annual figure:
  • Airbnb listing costs (nomimal): $100 annually
  • Housekeeper costs: $200 per week, so $10,400 annually
  • Maintainance products (Cleaning products, soaps, shampoos, handwash, toilet paper, kitchen towel, perhaps a welcome gift each time. My friend joined Costco for about $50 and buys all of this in bulk once per quarter): $3,800 annually
  • Property maintainance and repairs (Year #2 onwards only): $2,500 annually
  • Nightly commandable rent rate: $230
  • Total rental revenue ($215 x 260 days): $59,800 annually
  • Total annual expenses (Year #1): $23,410 annually
  • Total net revenue (Year #1): $36,390
  • Total net revenue (Year #2 onwards): $43,000
Of course, both ‘revenue’ figures will then require strata, water, council rate, tax and other additional property operating expenses furhter to those listed above. I asked my friend if there were any horror stories thus far in his experience. His feedback was that problems were minimal, providing that he was always contactable and available, and he screened his tenants carefully.
He did mention a couple of incidents where the tenant had clearly had parties, requiring additional housekeeping costs. Additionally, there were instances where tenants had lost keys. Although the tenants paid the key/lock replacement costs out of their bond; it did cause the property to be out of action for more days than expected, resulting in future-booked tenants having been cancelled. As you could imagine, this did not help his review ratings at the time. These were just a handful of little bumps along the road that he is still discovering.
This case study highlights the profit potential for renting an entire property out. What is missing is the ‘human’ cost – of your time commitment – in running the property for twelve months. There is also the opportunity to live in a two bedroom property yourself, and ‘Airbnb’ the second room out at a reduced nightly rate. However, investors need to be mindful of tax implications in producing rental revenue from their owner-occupied home.
Still, it may well be worth it. If instead of renting your second room for say $250 per week, you could get someone in at least four nights per week, for say $90 per night ($360 per week minimum), you’d be well ahead. An added benefit would also be that you’d only have a flatmate for four to five nights per week.
Australian investors are best served to keep this in mind when considering this approach to renting out their properties.
Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Correspondent.

       Holiday and short-term rentals: Does your property fit the bill?

By Cameron McEvoy
Wednesday, 29 January 2014

If your investment property is in a highly desirable location, you may want to explore alternative ways to rent it out. It is common in some mining towns throughout Australia, northern USA and southern Canada to rent out properties at nightly rates, for near-ludicrous rental returns. These properties can command such high rates and rental structures due to their remote location and general lack of housing stock required to house the growing mining industry working population.
For those not familiar with Airbnb and Flipkey, it is worth visiting both websites to educate yourself on these enormous global rental listing sites.
In short, both services enable property owners to rent out their property, fully furnished, at nightly (or sometimes weekly/monthly) rates, direct to their tenant. For well located and well serviced properties, the profit possibilities are far greater than the conventional way of renting a property out in Australia (i.e. via a real estate agency who sources a tenant who pays a fixed rental rate for a six or 12 month term).
I actually recently returned from a trip to Hawaii where I enlisted both of these services, as a holidaymaker/short-term tenant, and was very pleased with the entire experience.
Introducing this for an investment property in a non-resources town location however, can be quite challenging. There are two major components that you must carefully consider components to doing this.
Location and property type – Is your property relevant?
You should consider all of the following before offering your property for rent on such services:
-          First and foremost, if your property is a unit and not a house, you need to check with your strata committee the rules on operating your investment property in such a way. Some building strata by-laws will not allow for an Airbnb-style approach to tenancy.
-          Location needs to be genuinely awesome. The two major users of these services are holiday makers and travelling business people. Short-term student stays would arguably be the third user persona. All users have a high expectation that the property is in the best location to either enjoy their holiday hotspots, commute to business meetings and offices, or close to the campus or facility where their student program will be based.
-          Users also have high expectations regarding the quality of the property and features. Holidaymakers do not want to spend time in anything less than a property that, well, makes them feel like they are on holiday. Similarly, travelling business people expect to pack less in their suitcase and have everything they need, laid out for them.
-          So, cheap second-hand furniture bought from Gumtree likely will not cut it.
-          In line with the above, this means that properties will need to have fresh linen either fitted or neatly presented for the tenant (towels, sheets, kitchen cloth).
-          AV facilities should include TV/Blu-Ray player/stereo/free wi-fi internet access. Additionally, a folder that serves as a local guide is also a smart move. Include local restaurants/attractions, directions to transport and fun things to do, in the folder.
-          Tenants expect a fully functional kitchen stocked with quality working applicances. If parking is possible, instructions for how/where they should park their vehicles need to explicitly laid of for them.
-          A bit of a wow factor. This is important as negative reviews online will hurt your continued success on the service. Future users simply won’t book. In this way, it is typical to see welcome champagne/chocolates with a nice welcome card for tenants, sometimes fresh flowers, and sometimes a cute ‘guest book’ where tenants can read about the previous tenants holiday trips.
-          Other handy tips to help make your property a more unique and special experience to consider would be a little bowl of local spices or products in the kitchen. For international travelers, you’d be surprised at the positive response to supply local delicacies such as Tim Tams, Vegemite, or Manuka Honey can provide. You can even go one step further and leave a note requesting a positive review if they’ve enjoyed the place/service

Service commitment – Do you have the required ongoing time spare to commit to it?
To commit to ongoing, often daily, changeover of tenants, you need to have your property serviced frequently. You can either do this yourself, or hire the services of a maid/housekeeper, which is an additional operating cost. These are just some of the many considerations to keep in mind. All of them obviously add to the time you will be spending managing this property:
-          Security maintenance. Typical setups usually enable tenants to access a little pin-coded lockbox on the exterior of the dwelling. Inside are house keys. When they leave/check out of the property, they simply put the keys back in and pin-lock the little box. Tenants will never meet the next tenant, so this is how keys/access is usually passed along. You may be up for upfront costs to install such security necessities.
-          Above mentioned maid / housekeeper costs. Typically, Airbnb properties are run where the tenant(s) check out by 12pm, and the new tenants check in no earlier than 3pm, allowing a three hour window for the housekeeper to come and perform a set roster of duties. You must set the roster and practice it through with the housekeeper prior to the first tenant stay.
-          Site listing maintainance. Not only do Airbnb service costs need to be taken into account, but keeping the listing up to date and securing as many positive reviews as possible, also requires significant time investment.
Cameron McEvoy is a NSW-based property investor and maintains a blog, Property Correspondent.