Should I use my investment property for Airbnb?

Adam Smith 18 October 2017

AirBnBAirbnb can offer much higher yields than traditional investment properties, but is it worth the extra work?

Airbnb has fundamentally changed the short-term accommodation market by turning everyday people into hoteliers. It could change the face of the property investment market as well.

Property investors have traditionally purchased a property with a view toward finding stable, long-term tenants. The more an investor is able to “set and forget” while letting capital gains accumulate, the easier their property investment journey can be. But, for those willing to take a more active role, Airbnb could be an incredibly lucrative opportunity.

Looking at the numbers

Recent analysis by finder.com.au has identified the scale of the opportunity presented by Airbnb. The analysis identified areas near airports and suburban hotspots across major cities in Australia, and found the average weekly Airbnb rent for a two-bedroom unit was $1,357.

The number by itself is impressive. It becomes even more impressive when compared to traditional rental properties. According to SQM Research, the average capital city asking rent for a two-bedroom unit for the week ending 12 October 2017 was $447.

Average rents compared

  • Airbnb weekly rent: $1,357
  • Traditional weekly rent: $447

Airbnb comes out far ahead of traditional rental properties in rental yields as well. Rental yield, which is the ratio of annual rent for a property to that property's value, is a key metric for property investors.

The finder.com.au research found the average rental yield for a two-bedroom Airbnb unit was 12.74%. This is a far cry from the much more modest 3.6% national rental yield quoted by CoreLogic in September 2017.

finder.com.au’s research also identified the top suburbs across Australia for Airbnb rental yield, and the results are impressive.

Top Airbnb rental suburbs

SuburbTraditional rental yield (2br unit)Airbnb rental yield (2br unit)
Surfer’s Paradise6.0%21.48%
Darwin City5.3%15.14%
Adelaide City5.4%14.87%
Hobart City5.4%13.85%
Melbourne AirportNo data13.16%
Brisbane AirportNo data13.13%
Melbourne CBD5.5%13.11%
Canberra CBD5.2%11.17%
Perth CBD5.0%10.97%
St Kilda4.1%10.74%
Sydney CBD3.6%10.52%
Sydney AirportNo data10.02%
Bondi3.2%9.13%

Sources: finder.com.au, realestate.com.au

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Should I use my investment property as an Airbnb rental?

So is it worth buying an investment property purely for use as an Airbnb rental? Should you pursue this strategy instead of finding long-term tenants? The answer comes down to the work you’re willing to put in.

finder.com.au Money Expert Bessie Hassan says Airbnb properties require an extremely hands-on approach.

“Generating high yields from Airbnb requires the property to be turning over guests one after the other, and this requires more property management than traditional permanent leasing,” she says.

Moreover, you may be looking at a larger initial investment to prepare a property for Airbnb.

“Airbnb’s are also marketed as furnished, so kitchen and laundry appliances need to be in working order, and furniture needs to be cleaned and maintained in between guest stays,” Bessie says.

Airbnb can be an incredibly lucrative market, but it will require much more work on your part. You’ll also face risks you wouldn’t in a more traditional property investment scenario. Slow tourist seasons, bad weather and cancellations could all eat into your rental returns.

There’s also the risk of the tenants themselves. While long-term tenants are more likely to treat a property as their own home, short-term tenants might not be as conscientious. However, Airbnb does offer a Host Guarantee that will reimburse eligible Airbnb hosts up to $1,000,000 in the event of property damage.

Ultimately, the decision of whether or not to use your investment property as an Airbnb rental comes down to your personal goals and lifestyle preferences. If you’re happy to take a hands-on approach and shoulder some of the risk involved, you could come out far ahead versus a traditional property management arrangement. However, if you’re looking for a low-touch, set and forget property investment opportunity, you might want to check out of Airbnb.

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