Are you planning to rent your investment property? Here’s a look at the pros and cons of Airbnb vs long-term rental.
Things have changed. The long-term rental market has seen a massive shake up thanks to the dawning of Airbnb. Let’s have a look at the pros and cons of both options.
Airbnb – what are the pros?
Flexibility is key with Airbnb. You can be really clear about what you want in terms of who stays, how long they stay for and the rules that apply while they’re there. You’ll be able to vet your guests prior to meeting them and give them reviews when they depart. Not to mention that you’ll be able to charge a nightly rate that can far exceed what you’d see in long-term rental profits. Additionally, you’ll be able to adjust this rate based on current events, so you can charge more in peak periods.
If you aren’t too keen on the social side of interacting with your guests, you can enlist the services of a company to manage the key drop and cleaning for you – they’ll just take a cut of your earnings. You’ll also be able to advertise your property for free on the Airbnb platform. Of course you will pay service charges to the company, but it comes in at only 3%.
Apartment-dwellers take note: be sure to check your building allows short-term letting.
Renting – what are the pros?
You can’t go past the cash flow in this situation. Once you’ve found suitable tenants, you can rest easy knowing that they’ll stay put for the extent of the contract (or pay to break it). This is really where traditional long-term rental wins against Airbnb. You don’t have the hassle of the frequent meetings with new tenants and you know your property will be filled for an extended period. Even though you may not pull in the dollars as quickly as you could via Airbnb, you’ll have a little more security for the future.
Another plus of long-term rental is that you can enlist the services of a real estate agent to be your property manager. Though you will have to pay between 7%-10% of your rent to your property manager, you’ll be able to essentially hand back all of the admin tasks that go hand in hand with renting. You won’t have to be on call to manage any issues with the property itself, including general repairs and any awkward conversations about late payments. If you want to handle the repairs, but not the payment chats then you can tweak your contract with the property manager accordingly – you can be as hands on or hands off as you like.
Airbnb – what are the cons?
Though you can enjoy a boost in the value of your property (or spare room) using Airbnb, there are a few risks attached. The big one is that your property might not sit within a great location that will attract foot traffic. You can use AirDNA to see if your property sits in a good area to attract a steady flow of people. Even if your property is in a great location, you have to contend with the possibility that it won’t be solidly booked out. You may see ebbs and flows in your bookings due to changing seasons or competition from other properties.
A big cost to consider is your budget for furnishing the property. Yes, you may be able to claim certain items back on tax, but you also need to be sure to declare all of your Airbnb earnings at tax time. If this is in addition to your annual income, you will need to consider the tax implications, check in with a tax agent before you start renting your property to make sure you’re well-versed in the ins and outs of tax.
Another thing you need to be on top of is where you stand with insurance. Because you’ll be renting out a furnished property, there are more risks associated with damage to property and your standard home and contents policy may not cover it. While there is the Airbnb Host Protection Insurance, which covers third-party claims of property damage and bodily injury, it doesn’t cover loss of earnings or property damage due to mould or pollution. If you’re considering renting out your property on Airbnb, familiarise yourself with the full summary of the program so you know exactly what’s what.
Renting – what are the cons?
When you’re comparing long-term renting to Airbnb, the main con comes down to the lower rate you can expect from your tenants. You won’t be able to take advantage of seasonal peaks to up your property’s price and will be locked into the same price for the duration of the contract. Plus, you’ll have to pay to advertise your property to attract your tenants.
Just as with Airbnb, you’ll need to declare all of your earnings from rent to the tax department – not a con, as such, just an important thing to remember. This includes any bond money you hold onto if a tenant damages something, insurance payments you receive due to lost rent as well as any other funds you receive due to your property.
Long-term rentals can have similar issues to Airbnb around property damage, but each state will have its own set of rules as to who is accountable – the landlord or the tenant. It’s important to know where you stand as a landlord with regard to your rights and the rights of your tenants. Each state’s Department of Fair Trading equivalent will be a handy resource to refer to before, during and after your rental agreement if you aren’t sure of the right way to handle any mishaps.
When it comes down to it, you need to find the right option for you. It’s important to evaluate the ideal situation based on your property, weighing factors like its location, its attractiveness to potential tenants and the likelihood of that being affected by the changing seasons. Do the right thing by your investment.
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