There’s no denying that websites like Airbnb and Stayz have turned the holiday accommodation industry on its head. Anyone with a property, or even just a room to spare, can potentially make some handy cash from this new segment of the travel market.
If you’re thinking of buying an investment property with the express purpose of listing it as a short-term rental, here are some things to keep in mind.
Ask first, rent later
Before you buy an investment property and sign on with a third party like Airbnb, make sure your planned short-term rentals will be legal. Check that your listing doesn’t breach any home owners’ association or body corporate rules and that you’re complying with applicable zoning laws.
The laws around hosting paying guests vary greatly from city to city, and between local governments. In some cities, landlords are required to obtain permits and licences. As there is such variance in laws and requirements, do your legal research thoroughly or your plans might have to do a swift 180.
You’re the agent
When you rent through a third-party website, you’re doing the work that a real estate agent would normally do – advertising the property, responding to emails, coordinating bookings and payments, arranging cleaning and maintenance. It’s not a set-and-forget investment.
The upside is that you’ll have more flexibility. For instance, you might choose to adjust the rental price to respond to the market – when demand is high, there’s an opportunity to increase your price. Alternately, you may only want to rent out the property when you’re not using it for your own holidays.
Not all insurance is created equal
You will, of course, want to protect your property and its contents while you’re renting it out. Consult an insurance broker about this, as regular home and contents insurance doesn’t cover you for paying guests. You may need landlord insurance if you’re not going to use the property yourself during downtime, or you may need a combined policy.
Some people might think that Airbnb will protect them, however Airbnb’s Host Guarantee is not insurance. Ensure you properly read up on all the terms and conditions so you’re 100% aware of what’s required of you.
Income vs expenditure
An investment property provides the opportunity to boost your income, whether you rent to holiday-makers or longer-term tenants. However, if you do go with the short-term option, owner costs might only be deductible during the percentage of the year the property is available to be rented.
A short-term rental means a higher tenant turnover. You’ll therefore need to budget for when the property is vacant, particularly during off-peak times, so you can manage any cash-flow disruptions.
Holiday rentals are usually fully furnished, which means you may need to spend some money before you even start advertising. As with any business, big-ticket items should be depreciated over time. Talk to your accountant about creating a depreciation schedule for items such as furniture and whitegoods.
While there are many benefits to ‘rentvesting’, these particular short-term rental markets are volatile – the laws aren’t always clear and there they’re changing regularly. It’s important to do your homework, and to understand your rights and responsibilities. For more information about buying an investment property, contact your mortgage broker today.