To Airbnb or not to Airbnb?

According to a 2016 Fin24 interview, Nicola D’Elia, the managing director for Airbnb Africa and Middle East, noted that Airbnb hosts in South Africa earn on average ZARR28,000 a month by letting their property on a short-term basis through this popular rental website. Furthermore, Nested released an encouraging report that found that South Africans could recuperate their house value quicker through Airbnb than via traditional rental options.

With such prospective returns, it’s clear that Airbnb can potentially offer an exciting income stream. However, an interesting article on Maya on Money analyses whether it’s worth the investment.

The article highlights that it is important for South Africans to not just see Airbnb as a get-rich-quick scheme, but to do careful research before buying a property if it’s intended to be used specifically for this purpose. It’s important to be aware that the average income in South Africa will be skewed by properties in popular locations. If you wish to achieve a near full-occupancy, you should look to invest in a place that is well situated near the heart of busy tourist hubs, and is also close to landmarks of note. The same property in a less central location might only be able to get bookings over the peak periods.

Depending on where you buy the property and the state it is in, as well as your own financial capacities, it’s also important to understand that there is a lot of extra work involved in running an Airbnb property compared with having a long-term tenant. As a result, the co-founder of Property Fox, Ashley James, advises setting “a goal of securing at least 60% more income from an Airbnb property than you would from a long-term tenant. Anything less than this, and you should consider very carefully whether it is worth it.”

If you are considering investing in a property to let on Airbnb, then it’s advisable to study its feasibility before you make any commitments. Start by researching what’s already available online. Websites like AirDNA provide area-specific Airbnb information, with details on the number of rentals in the vicinity, occupancy rates, the average price per listing type, and price shifts according to seasonality.

Spend some time on the Airbnb website learning about the area in which you wish to buy. While researching, act as though you are a potential renter and select the ‘check availability’ option to look at calendars over an extended time period. This will give you an idea of occupancy levels and any seasonal dips to expect. Also have a look at the map alongside the listings to see where there are clusters of rentals, so you know which places are popular or where there is too much competition.

If you do decide to invest in a property to let on Airbnb, there are ways to maximise your returns, such as adjusting your rates to suit low and peak periods, and uploading a short video to show off any attractions in your area. Find a few places that are similar to your prospective property and chart what each place offers in terms of amenities and prices. You can then determine what price will undercut your competition and what extras will set you apart.

Take into consideration that you will also need to budget for a regular cleaning service and welcome gifts for guests. Nice decor, modern amenities, secure parking, unlimited WiFi and special little touches will all help you to get referrals and great reviews.

Before making any decisions, pay close attention to all the expenses and legalities involved. Your accommodation needs to comply with zoning restrictions, and you may need to apply for permission from the city if you wish to buy an entire property for short-term lets. If your property is in a sectional title block or development, it is also important to check whether Airbnb and short-terms lets are actually allowed.

Airbnb does provide host protection insurance, but it’s advisable to understand what this entails and to be prepared to pay for extra coverage if necessary. In terms of tax, you will also need to declare your new revenue and understand any tax implications this investment may have. Deciding to buy an investment property is an exciting and potentially financially rewarding step, but there are lots of elements to consider before making any choices. If you wish to discuss any issues before committing, don’t hesitate to arrange a meeting.

Posted in Blog, Financial Planning.