We are often asked by our clients whether they should consider renting out their Australian investment property on Airbnb or stick with the traditional long-term rental model. There is currently a growing number of property investors testing the water of the Airbnb model, particularly for inner-city and holiday location properties such as the Southwest of Western Australia or Byron Bay for example. It’s important to recognise that there is no ‘one-size-fits-all’ approach to deciding which option is best for you and you need to do your homework.

In this week’s article our team explores the pros and cons of the short-term Airbnb rental model compared to the traditional long-term rental approach.

The Pros

As the saying goes, cash flow is king, and this is typically the number one driver for the popularity of Airbnb. The nightly rate that you can charge, particularly during peak season, typically far outweighs a long-term lease rate. You can also adjust these rates as you see fit, particularly if there are events that are coming into town, a large conference or something else that leads to peak levels of demand.

Another key benefit of the Airbnb model is that you can specify the rules for people staying in your property, vet any applicants and also review them online following their departure. This ‘social’ element to the Airbnb platform encourages good behaviour given the community that it creates.

You can also employ the services of a third-party operator to take care of all guest liaison and cleaning of your property to ensure that it does not take up too much of your time. Advertising on the Airbnb platform is generally free, and then you must pay for the other services such as cleaning, which is approximately 3% of the rental income being received. It’s important to check any additional costs here and ensure that the overall cash flow makes sense and is in line with your financial goals.

The Cons

One of the key negatives of the Airbnb model can be both the seasonality of your investment property being rented out as well as competition from other properties, particularly if you’re in a high density location such as the inner city. If the rental yield is very attractive, this can lead to an influx of other investors entering the market and may lead to a reduction in rental income and a potential increase in your vacancy rates.

You also need to factor in the costs of both furnishing and maintaining your property. If you’re looking to lease your property on a short-term basis, then your guests are not going to want to have to bring anything with them. This can lead to a significant expense on your part. It’s important to consider any tax implications of the furnishing also as you may be able to claim some items back on your annual tax return.

Next, you need to consider the insurance implications of an Airbnb style lease. A standard landlord or home contents insurance policy may not actually cover everything within your investment property, and given that it’s a short-term rental there is typically greater chance of damage to your furniture. It’s important to consider the insurance options offered by Airbnb, or any other short-term rental company you choose to work through, and review any potential implications of damage to your property.

Finally, it’s important to consider any potential tax implications of renting out your property on a short-term basis, if you’re an Australian expat. If you’re currently a non-resident of Australia for tax purposes, you may want to ensure that you’re not using the short-term rental model so that you can go back and stay in the property each time you return to Australia. You may just find that the Australian Tax Office (ATO) deems this to be your home and you suddenly find yourself owing the ATO a significant sum to cover your new tax liability as an Australian tax resident. As always, ensure that you seek professional advice in this realm from your accountant and financial planner.

If you’re assessing your options and considering the Airbnb model, be sure to crunch your numbers first, and seek the professional advice of your financial planner and tax adviser. They can assist you in outlining the various scenarios, considering all costs and tax implications, and guide you towards making a fully informed decision.

Ally Home Loans Pty Ltd is your ally in finance for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.

Book an obligation-free, complimentary consultation here today.

Ally Home Loans Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.