Last Updated: 15/10/2022
- You’ve GOT to know what you’re working with!
- Is Airbnb EVER worth it?
- Why 2022 MIGHT be a difficult year to own an Airbnb
- Why 2022 is going to be one of the BEST years to own or start an Airbnb
- Here’s a Real-world Example
- Here’s the Reply
- The math works. But there is more to consider.
- Expensive STR Properties Limit Flexibility
- Let’s look at the STR data for the Gold Coast
- Here’s How This Situation Could be Different
- So, was this a good move, or should they have waited?
- What do we recommend?
- How are YOU going to position yourself to make the most of post-COVID tourism?
- Get Some Professional Advice On Your Situation
You’ve GOT to know what you’re working with!
Opening an Airbnb can be a nerve-racking time.
Some people take it in their stride, some freak out, and others rely on their ability to recognise that everything will be OK. Or all 3!
Whatever your style, it’s always a smart idea to get the facts and figures. Then you will completely understand the situation, and be able to carefully plan your path to success strategy.
I recently received an email from a new client, who wanted to know more about the current Airbnb market and get an idea on the estimated revenue he could expect with long-term rental versus short term rental.
This is a smart move. Knowing what the market is doing in your operating area, and understanding the audience your property is likely to attract, are some of the first steps to creating a successful Airbnb.
So, let’s dive into the example so you can see how we use a mix of research and data to inform our decision making process.
Is Airbnb EVER worth it?
We’ve all heard the stories. It’s a lot of work. Your house might be damaged. It’s a full-time job, that doesn’t let up (hopefully, you want to be booked!).
But on the flip side, you’ve got the opportunity to create a business that can set you up to be financially free.
Take a moment to consider this. What other business can you literally give to someone else to manage (like us), while you make all of the profit, without doing anything?
There are a few, but they are usually much more involved to create, maintain, and grow.
Opening your own short term rental can give you the ability to get out of the rat race and enjoy a new life that’s on your terms.
Or it can help you to build an empire that can grow your family’s generational wealth.
Usually, we all have different motivations. But the fact remains that for the majority of hosts, it’s totally worth it.
Not many people regret owning an Airbnb, and if they do, its usually because they have burnt out or had a bad experience.
Both of which can be managed with some careful planning and professional support.
Why 2022 MIGHT be a difficult year to own an Airbnb
It doesn’t take a genius to figure out these reasons! We’re living in some wild times.
Coronavirus has made it a challenging for people to travel due to fear of illness or quarantine.
Some people have also fallen on difficult financial times, which has put travelling out of the questions.
Border closures have also limited people’s options.
They might be putting off their travel plans until a later date, or instead focusing on local destinations.
So, there is some deterrence involved with travelling that we haven’t seen prior to these times, which is evidenced in the lower-than-usual occupancy rate many BNB hosts are seeing.
But we also don’t believe in fear mongering, or sitting on our hands.
Idle time is wasted time.
Why 2022 is going to be one of the BEST years to own or start an Airbnb – EVERThere’s always a flip-side, right? 2022 is an excellent time to own your own Airbnb. If you’re just getting started – even better. Here’s just SOME of the reasons:
- The urge to travel hasn’t just disappeared. For many, being cooped up inside has made the urge to travel stronger than ever. Once everyone is free to travel again, there will be a HUGE amount of people looking to explore the world, have new experiences, and visit some different places. There’s lots of catching up to be done!
- Those who can afford to travel are likely to have been saving their money, which means they have financial reserves they will be able to spend on travelling, so they may be more elastic when it comes to splashing cash on their accommodation.
- The growth of the experience traveller. For many, COVID times have brought about a reevaluation of their priorities in life. Now they’re looking for more from everything, including their travel.This will add to the growing segment of travellers who prefer experience holidays, where they get to enjoy something novel, unique or simply different. This presents an opportunity for the new host who is prepared to offer something to their guests that they can’t get anywhere else.
- There are still tax write offs available to property investors. Need I say more?
- Quiet times present an opportunity for renovations and property improvements. So, 2022 is the time to seek out and acquire a property, renovate it, and get it ready for bookings. This way you won’t be interrupted and need to stop to make repairs or adjustments when you’re already operating.
Here’s The Real-World Example
Backstory: We received an enquiry after this client had bought their newest investment property, and wanted to understand the feasibility of choosing to rent out this property long-term compared to listing it on Airbnb.
We are looking at using the property as an investment and potentially long-term lease vs short-term (Airbnb) scenarios.
I understand there are relatively new regulations imposed by the GC City Council for new Airbnb applications.
It would be great to get an idea about what processes are required to operate an Airbnb, legally, including associated costs and how it would impact on council rates etc.
In terms of our expectations of Airbnb management, we would ideally prefer a hands off approach, however happy to take part in looking after segments of the management, given we are located on the GC.
Here’s the Reply
Hope you’re well. Thanks for your reply.
Sure, I’m able do some quick calculations based off of the available data.
Long-term Rental Estimate
- The weekly rent for your property was listed as being $1400 as of 2019. Let’s assume you can get closer to $2000 in today’s market. For the purpose of this exercise we’ll choose a conservative $1600.
- Yearly LTR at $1600 x 52 = $83,200
- 9% Property Management fee = $7,488
- Total $75,712 after costs
Short Term Rental Estimates from AirDNA
- Annual Revenue – $121.7K
- Average Daily Rate – $676
- Occupancy Rate – 49%
Calculation Using the Above Figures
- We’ll allow for $4-5,000 for rates once you have approval for your Airbnb. Council can advise on exactly what this will be, but it is roughly double and varies by property value and location. Rates are partially tax deductible for an investment property.
- We’ll also allow an estimated $12,000 for your Council application approval costs.
- HoliHome “Passive Income” Management Fee, which is our hands-off package, is 15% of gross with our new pricing schedule for 2022 = $18,135.
- Please note that our management costs are fully tax deductible.
- Alternatively you can choose our Co-Host Package which is 10% to handle all of your online activities.
- Airbnb’s service fee for Hosts is currently 3% of each booking (fully tax deductible).
- Estimated Short Term income per year minus costs – $85,000
- LTR $75,712 / STR $100,902 = 75.03%
- Therefore this property can earn 24.97% more doing short-term rental VS long-term in the first year with these conservative figures, our Passive Income package at 15%, only 49% occupancy, and assuming you claimed any applicable costs against your income tax.
- The return will of course improve once these initial costs are recovered, and especially so with a higher occupancy rate.
- Additionally, you should be able to claim the Council rates, our management fees, maintenance costs, furniture depreciation, cleaning, and other costs associated with an investment property as a deduction against your tax.
- As we work to get your occupancy closer to 80-90%, and find the perfect nightly booking rates, these figures will look even better.
- 80% occupancy, which is the standard across the industry, you would be looking at bringing in almost $200,000, with the property generating $197,332 without dynamic pricing adjustments for times of higher-demand.
- We can also work on raising the nightly rate with extra amenities, good design, more comforts, inclusions, raising the rate for busy times with dynamic pricing, and marketing tactics.
- So, we can see these figures certainly work on paper. After one year you would have recovered your base costs and gotten into the green even with these conservative figures and low occupancy rate.
About Gold Coast Airbnb Council Approval
- In short, everyone on the Gold Coast needs Council Approval to operate an Airbnb, unless they live at the property.
- Many choose to go without approval and try to get away with it. I personally recommend getting approval for your peace of mind, to avoid any fines, and to ensure you aren’t forced to stop operating while you seek approval.
- The application fee for a material change of use is around $8,500.
- You’ll need a town planner to work with you on submitting your application, and possibly getting some reports done. Your town planner will advise you on the total costs here.
- I recommend setting aside $15,000 for this process, which may leave some change. Every property and location is different.
- This is still a relatively affordable investment considering you’ll have the approval to operate a lucrative Airbnb as a result.
Potential costs to set up your Airbnb properly:
- Water Blasting
- Interior design
- Costs for the above will vary depending on your property’s condition, how much you want to spend, what you already have, and the level of finish you want your property to have. We would first need to inspect the property and obtain quotes.
- Has the property had any renovation done since the pictures were taken? If not there may be some opportunity to give the product a quick spruce.
- Generally, properties with a higher standard of finish, and a more luxury standard of stay, attract higher nightly rates.
- Some of these are costs also fully tax deductible.
- This property is in a great spot for tourism on the Gold Coast. I would be confident in it being able to get a higher occupancy rate, and especially so once tourism has returned to normal.
- If you are at all worried, you could perhaps consider doing a long-term rental for 6 or 12 months and reassess at a later date.
- Our best recommendation is to consider listing on Airbnb and raising the minimum stay length. This will target all of the people who are moving to the Gold Coast and are currently unable to find a long-term rental because of the huge amounts of competition. 30 days would also negate your need for Council approval.
Hopefully I have given you some useful information here!
It can be a bit overwhelming trying to figure everything out in these early stages, so if I can make it easier then I’d be glad to help. If you have any other questions then fire away.
When you have a moment, let me know what your thoughts are on moving forward with these figures in mind.
All the best for Christmas!
The math works. But there is more to consider.The above example leaves out one very important factor – that this client most likely has a sizeable mortgage. This particular property is in an expensive area, and our research shows that it was purchased for $1.6 million. This means two things:
- Depending on how big their deposit was, they may have some large mortgage repayments to cover. This problem may be compounded when interest rates increase, which is a likely occurrence, and especially so when we consider that they are exceptionally low at present.
- Because they are likely to have a large mortgage, and need to cover these costs, they don’t have a great deal of room to move on their nightly booking rate and meet the market.
Expensive STR Properties Limit Flexibility
Which is not a good thing when we consider that occupancy is already down, right?
There are a few reasons why expensive Airbnb properties are more risky than smaller and cheaper options.
1. They cost more and therefore require more financial commitment.
2. This has a knock-on effect. When there are higher financial commitments, the host then has to charge higher nightly rates to generate the required revenue, and be able to cover costs with enough room for profit.
3. Because this property has a high nightly rate, and is itself quite large with four bedrooms, it has a limited target audience.
Let’s Look at the STR Data for the Gold Coast
Airdna lists the average Airbnb nightly booking rate for a property on the Gold Coast is listed at $260, which includes a divided cleaning fee.
Furthermore, this property is in the 8% of Gold Coast Airbnb’s that have 4 bedrooms. While this means it is somewhat more rare, most travellers, and even families, don’t have a need for so much space.
So, even though the house is capable of accommodating a family, and more milennials with children are travelling now than ever before, it is most likely out of the price range and size requirements for the majority of travellers.
So, they’re more likely to choose from the 42% of Gold Coast Airbnb’s that have 2 bedrooms.
It’s a fact that there are more people out there who can afford a cheaper nightly rate
then there are people who can afford to stay at top-dollar properties.
This all filters down into a smaller pool of potential bookers, and may in fact make it more challenging to book the property all year outside of the peak times such as holidays and Christmas.
We can see this in the average occupancy figures for the Gold Coast, which can drop to as low as 30% in the off-season.
All of this adds up to making it more difficult to maintain a steady stream of bookings, which can limit your cash flow and impact your annual revenue.
Here’s How This Situation Could be Different
Researching Before Purchasing –There is no doubt that this is a very nice property, and represents an opportunity for capital growth as it appreciates in value over time.
However, from a short-term rental perspective, it is not the most careful choice.
Personally, I’m more inclined to limit risk by diversifying investments.
Of course, it depends on this client’s financial position and long-term property investing goals.
But if it were me, I would have considered purchasing more than 1 property with that money, and ideally in different markets.
The reason for this is that property cycles and holiday preferences always change with the times. So, by owning properties in different markets, you are limiting your exposure to the effects of these cycles. When one property goes up, the other may be down, and it’s not a major problem.
But if you own just 1 expensive property, and that market takes a hit, everything you own will be down, and you’ll have to wait for things to pick up, which can take years, if it ever recovers.
Buying At The Peak – This property was purchased in the peak of a real estate boom. South East Queensland, and in fact all of Australia, have seen an amazing growth in real estate prices during the pandemic.
While the market may continue to rise, there is always the risk that it might fall, particularly if the interest rates rise sharply, or the economy experiences a recession.
The result may be a property owner who has a mortgage they can’t cover, while they’re unable to sell the property for the same price. The result is a bad investing experience, a hit to the back pocket, and the stress that comes from financial difficulty.
Location – This property is in an expensive area. In terms of potential for capital growth, this is a great move. In theory, the property should continue to gain value. Then, it can eventually be sold for a higher price than it was purchased for, and the extra money used to springboard into another property.
However, there are other areas that are not as expensive, which provide more privacy, and points of differentiation to competitors. The Gold Coast is full of ageing houses with a pool that overlook one of many canals.
Buying A Newer Property – This house was built in the early 90’s, with the earliest sale listed as being in 1989. The property has obviously made some huge gains in capital growth, as it originally sold for $327k.
But the flip side of this issue is that it’s beginning to show it’s age, with dated design features and a need for renovation.
No matter what way you slice it, renovating a large 4 bedroom house is not cheap. So, this lends some weight to the argument that buying newer properties is easier, more time efficient, and often less costly.
A property that doesn’t require much if any renovation or significant money spent on maintenance prior to opening for business can save a huge amount of time and money. It also allows them to open sooner, so there is less down time and more available time to accept bookings.
Of course buying a newer property may mean compromising on the location to some degree. This may lead to a trade-off between location and property age, but the primary focus should be on the match between your target audience and the revenue you can generate, with less consideration being placed on capital growth. Capital growth doesn’t come from bookings, and a healthy Airbnb busines should provide a return that far outpaces that of normal capital growth.
Providing a Unique Stay (unlike any of the nearby competition) – While this particular property is nice enough despite being dated, it’s very similar to many other canal-front properties on the Gold Coast. It looks at other houses on a canal, and has neighbours on both sides. Unfortunately its not very private, nor does it offer a particulrly unique experience.
The fact is, that in a competitive market, where there are fewer travellers, the best properties are going to be booked first. Usually there would be greater numbers to fall back on, but at the moment it isn’t so easy.
We’ve been hearing reports of feast or famine from various hosts in these challenging times. The difference is usually that their property offers something unique or unusual that captures attention and drives bookings.
Was it a good move, or should they have waited?
Investing in property, and opening an Airbnb during a global pandemic, are both risky endeavours.
But with some careful planning and research, you can mitigate these risks, and turn the situation into an opportunity.
The difficult part is that the situation is constantly changing. Until we know what is happening for certain, any forecasts for the future must be taken with a grain of salt.
Having said that, I like to see everything as a positive, unless there is a reason for it to be considered as a negative.
So, on the positive side of things, this particular client has got the ball rolling. They’ve purchased a great property that is in an excellent location, and now have the opportunity to prepare for the upcoming travel boom.
In the mean time, we would recommend that they act to mitigate the risks of a lower tourism numbers. The easiest way is to raise the minimum stay length.
Offering your Airbnb for longer time frames, such as 30 days, has a series of benefits, and especially so because the Gold Coast is experiencing a huge migration from the southern states, as people move away from Sydney and Melbourne for a new lifestyle.
Longer minimum stays also reduce the effort needed for cleaning, wear and tear, and vacancy.
Alternatively, the client could return the property to the long-term market, and be sure that they would earn their money with the security of a lease.
Ultimately it depends on their propensity for risk and their desire for reward.
As the saying goes; “fortune favours the brave.”
What do we recommend?
Our recommendation is to cautiously make the best of the situation.
After all, there is no time like the present to start working towards your goals.
Additonally, there is usually an tangible amount of work to be done to set up an Airbnb.
Here is an easy step-by-step of events:
- Complete any renovation or improvement work while the property is empty.
- List the property with a longer minimum stay to target the sea and tree changers moving to Queensland.
- Give it some time and then assess the performance. New Airbnb listings are given a boost in rankings for around a month (this is not a written policy, but it’s widely recognised). If you begin to get bookings – roll with it!
- If the property is listed on Airbnb and things are slow, contact a trustworthy local real estate agency (if there is such a thing), and have them list the property to rent for 6 months at a price that will well and truly cover the mortgage.
- Make a decision once you have more info, with an indication on the demand from each direction as well as an idea of the progress on the return of tourism.
How are YOU going to position yourself to make the most of post-COVID tourism?
Generally, if the market is in a good place, and your financial situation allows, you should plan to purchase a property as soon as you can afford to and in the best market conditions available.
While the market has seen some exceptional growth, it will be ineresting to see how 2022 plays out. Particularly in terms of interest rates rising and tapering demand from sea and treechangers, but also with the potential return of tourism.
Your best bet is to keep your eyes peeled and position yourself so you can act as soon as an opportunity presents itself.
If you already own a property, now is the time to work on creating a unique experience that sets your Airbnb apart and drives bookings.
Get Some Professional Advice On Your Situation
If you would like some advice on your market and best way to proceed, send us a quick message and we’ll be happy to help.
We’re positive we can help to extract more value from your property, without more work.
Reach out when you’re ready to get started.