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  1. #1

    Default Air BnB as an investment

    I have a friend who is thinking about buying a low-end $380K property in a tourist town and letting it through Air BnB who will also property manage for 15%. The nightly rental seems to be around $150 on average and Air BnB gave indications that he should expect 50% occupancy, which would be a 7% gross yield. With all outgoings (interest on 100% loan,insurance,management,utilities) it seems to around 4K -ve.

    Does this all sound reasonable for an Air BnB investment? Does anyone have any experience with the pro's and cons?

    Cheers

  2. #2
    Join Date
    Oct 2013
    Posts
    1,572

    Default

    Short term lets are a much higher risk proposal than long term, I'd be wanting WAY more than 7% gross. Doesn't seem like a good buy to me.

    My experience with AirBnB and short-term management companies has not been particularly positive, for my AirBnB apartment in Auckland CBD.
    AAT Accounting Services - Property Specialist Accounting - AATAccounting.co.nz
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  3. #3
    Join Date
    Sep 2014
    Location
    South Tarawa, Kiribati
    Posts
    490

    Default

    I'd be wary. The more properties flooding the Air B&B market the less money everyone will make- it's a race to the bottom. I've heard the average return is about $3500 per year.

    Tourist towns (eg Queenstown) are starting to regulate them too- via rates and limiting number of nights people can stay. May be better buying traditional rental in the town for the workers no longer able to afford to live there

    Craig
    Volunteering on South Tarawa, Kiribati

  4. #4

    Default

    I am a full time, professional host with AirBnB. I have been so getting on towards 4 years now.

    The market I operate in is absolutely saturated with listings, mostly due to agents thinking it is a great marketing idea to pitch to mum-n-pop investors that "hey this property is not quite to standard, it has a few issues" or "its a little overpriced and the market is uncertain, but..", "this would be a great AirBnB, because it pays more and the silly tourists don't know that the place they have booked has watertightness issues, or is quake prone!".

    I have seen this first hand in Wellington. I only buy in buildings that meet the current and previous NBS.

    To my knowledge, AirBnB do not directly manage properties in New Zealand. If they did, I would be concerned about the conflict of interest in the same company preparing your property for you as you have to call, often asking for compensation or action against the guest, when things go wrong.

    And things do go wrong.

    Last week I had a Mongrel Mob member trying to book one of my properties for one night, posing as a legitimate clean cut guy. Through channels I established he was not, and I had to be creative to ensure my property was protected and I would not end up with holes in my walls, things stolen (yes, I have had a lot of assets stolen during my hosting experience), tenants bringing in more people than agreed (increasing wear and tear), tenants defecating on the floor, spilling wine over carpets and driving off into the sunset, hanging soaking wet towels over vacuum cleaners and then wondering why there is smoke pouring out of the vacuum cleaner, denying it was the water and then a look of shock on their faces when I showed them the soap suds on the motor.. the list goes on and on.

    My occupancy rates are high, but I have been in the game a long time, I have formal education and now developed experience in marketing the properties, as well as formal education in business statistics so I do my best to maximise income. On top of this, if you are smart you are paying taxes, because it is a new industry with a lot of heat coming from a very envious and upset hoteliers association, who would do anything to see AirBnB banished from the shores of Aotearoa altogether. Do not be surprised if at some point, the IRD declares they are targeting AirBnb hosts, no doubt there are huge numbers not meeting any tax obligations at all, hoping nobody will notice.

    Cleaning is also a huge cost, so if you are not doing your own cleaning chances are you are going to struggle to make decent money - and you need to, because it costs to set the property up properly for AirBnB tenants - I worked out the other day I spend $13,000 on average, above and beyond the cost of the property to set it up specifically for short term tenants.

    It is advertised as a short term game, but I can assure you that it is a very long term game with fading reward and high levels of regulatory and market risk involved. With apartments in my building renting for only $20 per week less than I earn during the winter after all expenses, I have seriously considered moving off the AirBnB platform in recent months - at least then I can stop waking at 2am because Sally from Michigan and Garry from Scotland want immediate answers to how far your place is from the airport, where is a good place to park, where a great Thai restaurant nearby is, and how many minutes to walk to the sky tower.

    Tell your friend to think carefully.

  5. #5
    Join Date
    Jun 2004
    Posts
    9,882

    Default

    Great answer!

  6. #6

    Default

    What town are you thinking of buying in?

  7. #7
    Join Date
    Mar 2015
    Location
    Brisbane Wellington Auckland
    Posts
    624

    Default

    Quote Originally Posted by absoluteproperty View Post
    I am a full time, professional host with AirBnB. I have been so getting on towards 4 years now.

    The market I operate in is absolutely saturated with listings, mostly due to agents thinking it is a great marketing idea to pitch to mum-n-pop investors that "hey this property is not quite to standard, it has a few issues" or "its a little overpriced and the market is uncertain, but..", "this would be a great AirBnB, because it pays more and the silly tourists don't know that the place they have booked has watertightness issues, or is quake prone!".

    I have seen this first hand in Wellington. I only buy in buildings that meet the current and previous NBS.

    To my knowledge, AirBnB do not directly manage properties in New Zealand. If they did, I would be concerned about the conflict of interest in the same company preparing your property for you as you have to call, often asking for compensation or action against the guest, when things go wrong.

    And things do go wrong.

    Last week I had a Mongrel Mob member trying to book one of my properties for one night, posing as a legitimate clean cut guy. Through channels I established he was not, and I had to be creative to ensure my property was protected and I would not end up with holes in my walls, things stolen (yes, I have had a lot of assets stolen during my hosting experience), tenants bringing in more people than agreed (increasing wear and tear), tenants defecating on the floor, spilling wine over carpets and driving off into the sunset, hanging soaking wet towels over vacuum cleaners and then wondering why there is smoke pouring out of the vacuum cleaner, denying it was the water and then a look of shock on their faces when I showed them the soap suds on the motor.. the list goes on and on.

    My occupancy rates are high, but I have been in the game a long time, I have formal education and now developed experience in marketing the properties, as well as formal education in business statistics so I do my best to maximise income. On top of this, if you are smart you are paying taxes, because it is a new industry with a lot of heat coming from a very envious and upset hoteliers association, who would do anything to see AirBnB banished from the shores of Aotearoa altogether. Do not be surprised if at some point, the IRD declares they are targeting AirBnb hosts, no doubt there are huge numbers not meeting any tax obligations at all, hoping nobody will notice.

    Cleaning is also a huge cost, so if you are not doing your own cleaning chances are you are going to struggle to make decent money - and you need to, because it costs to set the property up properly for AirBnB tenants - I worked out the other day I spend $13,000 on average, above and beyond the cost of the property to set it up specifically for short term tenants.

    It is advertised as a short term game, but I can assure you that it is a very long term game with fading reward and high levels of regulatory and market risk involved. With apartments in my building renting for only $20 per week less than I earn during the winter after all expenses, I have seriously considered moving off the AirBnB platform in recent months - at least then I can stop waking at 2am because Sally from Michigan and Garry from Scotland want immediate answers to how far your place is from the airport, where is a good place to park, where a great Thai restaurant nearby is, and how many minutes to walk to the sky tower.

    Tell your friend to think carefully.
    Charging your time into the equation what net yield would you earn ?

  8. #8

    Default

    In Rotorua

  9. #9
    Join Date
    Mar 2013
    Location
    Auckland
    Posts
    1,538

    Default

    Has your friend checked out how much competition there already is, not just on Airbnb but Bookabach? Doing this has been a 'thing' is Rotorua for decades....long before Airbnb even existed.
    Does the location offer the guests something 'extra'? Has your friend factored in commercial insurance and high utility costs? The fixed daily electricity charge for a non owner-occupied property is over $2 per day. Will need to get broadband on. Does that return also account for the $30K involved in kitting it out?

    I have one and certainly couldn't afford to have someone manage it and still make a profit. Don't forget that the management fees don't include the booking website's commission.
    My blog. From personal experience.
    http://statehousinginnz.wordpress.com/

  10. #10

    Default

    This is absolutely right from my perspective too. Too much saturation from new hosts who underprice the market in order to garner reviews and realise it's not worth it - except that there are plenty of new hosts who do the same.


 

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