What’s the average return on investment using Airbnb-250

Airbnb versus a savings account

Airbnb is an active investment that requires a large lump sum to get started.

After starting life as just another startup in August 2008, Airbnb has grown into a multi-billion-dollar company hosting property listings in around 190 countries in the world. In Australia, property listings on Airbnb have doubled within the last year, bringing to 40,000 the number of houses, flats and rooms available for rent.

An Airbnb investment property

While the initial idea was built around renting out space you already own, there is an increasing trend in investing in property specifically for short-term renting on the Airbnb platform. The idea would be to generate enough money to pay off your loan, but how quickly you do that depends on the amount of work you put into your acquisition. Location is everything in the Airbnb business, but Australian listings aren’t necessarily concentrated in metropolis hubs or the most popular coastal towns and cities. In terms of high profit margins, towns like Tin Can Bay (Queensland), Jindabyne (NSW) and Mudgee (NSW) are among the top-five most profitable Airbnb locations in Australia. If you’re a property owner in these towns, this means that you’re guaranteed a profit if the Airbnb rate is higher than your rent and if your property is consistently booked out. finder.com.au has compiled a listing of the average rent-per-room rates compared with the potential Airbnb profit margins in 2,000 locations across Australia. See Australia's most profitable Airbnb locations here. The laws regarding renting out property in Australia differ from state to state, so make sure you understand the implications. You also need to be aware of the tax implications. Speak to your accountant today for helpful tips on managing your taxes as an Airbnb host.

Investing the time

Besides the financial investment, there’s also the time commitment to consider. Upkeep, day-to-day management and tenant relations represent a lot of work, especially if you’ve invested in more than one property and/or you’re managing several short-term rent periods during a busy period. Unless you plan to take on what it is equivalent to a full-time job yourself, hiring a property manager implies another expense to take into consideration. Several companies have sprung up offering property management services for Australian Airbnb property owners, including Urban Key, Host keep and My BNB based in Melbourne.

The risk factor

There are other, lower-risk ways to see a return on an investment. Allowing a large sum to accrue interest in a savings account is a reliable, sure-fire way to make your money work for you. It represents almost zero risk and your guaranteed growth – albeit incremental – over a period of time. Buying into reliable stocks could be a solid, safe investment option for anyone looking to grow an initial lump sum (although it’s important to consider these with the usual allowance for risk). Whether you manage it yourself or through an adviser, the risk involved with these kinds of investments is relatively low. Besides staying updated on the market’s movements, there’s little you need to do to in terms of managing your investment. Investing in an Airbnb property is a different undertaking in that the onus is on the owner to keep attracting renters and cultivating a positive presence on Airbnb.

Term deposit or Airbnb

Francine and Roy recently inherited $380,000 from their late grandfather. Roy is keen to invest in a one-bedroom apartment in their native South Brisbane and then list it on Airbnb. Francine lives in Sydney, so she would rather open a term deposit account and split the annual interest. Roy is convinced that an Airbnb property would yield a bigger return on their investment.

ROI on $380,000 over a 12-month period

Airbnb investment (Roy)Term deposit (Francine)
  • $350/week mortgage vs. $728/week (average per-week rate on Airbnb)
  • $378 profit/week x 40 weeks/year = $15,120
  • $11,400 paid out at maturity
  • 3% interest rate
  • If left for 24 months, interest paid out would equal $23,142

In order to cover the mortgage and turn over a profit of at least $15,000 with a 12-month period, Roy would have to ensure that the flat is booked 40 weeks of the year. If he takes on a manager to oversee cleaning, customer relations and general administration, those costs would be subtracted from any brute profit generated. During the same period of time, Francine’s investment would yield $11,400 with little to no effort on their part in generating that money. While the returns of the term deposit are lower by $3,720 – there was no ongoing investment involved.

Capital and gains

Airbnb is a long-term financial engagement combined with consistent effort in ensuring that the investment turns a profit. For example, the average price of a three-bedroomed house in Woolgoolga (NSW) is around $420,000. Average rent per week is $380. Airbnb listings for similar houses charge around $1,000 per week (including Airbnb’s administration charges). While the potential for clearing a decent profit is high, it’s the owner’s responsibility to make sure that the property offers value for money and that the rapport with the customer is a positive one. The peer review system is such that travellers can comment on the state of your property, whether or not you were helpful and friendly and whether or not they’d recommend you to other Airbnb users. One or two negative comments would be enough to dissuade travellers, which would have a disastrous effect on your efforts to reimburse your loan. The finder.com.au guide on avoiding CGT when selling your investment property

The rise of peer to peer platforms

In January 2009, the Airbnb team received their first funding of $20,000, followed by massive injection of 7.2 million in November 2010. Since then Airbnb has continued to attract investors keen to cash in on this unique business model. The biggest investment was a one-off $1.5 billion, the highest amount in one of the largest funding rounds in startup history. With a presence in 190 countries, hosting 1.2 million listing and servicing over 35 million guests, Airbnb has revolutionised the way people book their holiday accommodation.

Becoming a host: how it works

As a host, you’ll be asked to list details about your property, including availability, accommodation type, location, the number of people it can accommodate, the price, and whether or not you offer cleaning services for an additional fee. Travellers can then get in touch with you and if you agree to host them, the payment transaction is conducted wholly on the Airbnb platform. This entails the payment being held until 24 hours after check-in, after which it is released into the host’s account. Airbnb takes 3% on every booking from hosts and between 6 and 12% from guests. Depending on what you charge and how often you rent out your property, there is a real opportunity to make money. It’s important to note that Australian property owners must declare revenue earned on Airbnb as income.

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Shirley Liu

Shirley Liu is a program manager at finder, formerly the publisher for Banking and Investments. She is passionate about helping people make an informed decision, save money and find the best deal for their needs.

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