Factors to Consider When Buying a Property as an Airbnb
When you have made the decision to buy there are a few factors to consider …
How Much to Spend
Whilst your own financial situation will determine how much you can afford to spend on the property it’s a good idea to estimate how much income you’ll need from rentals in order to cover your costs.
You can get a good idea of demand from assessing other properties’ booking calendars and as a rough guide you can estimate income based on the number of weeks rental per year.
Here’s an example of a basic estimate:
| Number of Rental Weeks Per Year | 15 |
| Average Rental Per Week | $ 2,500 |
| Estimated booking income | $ 37,500 |
| Loan Repayments | $ 15,000 |
| Cleaning | $ 4,500 |
| Rates | $ 3,000 |
| Utilities | $ 3,000 |
| Maintenance/repairs | $ 2,000 |
| Total Costs | $ 27,500 |
| Profit/Loss | $ 10,000 |
Think carefully about what you want to achieve. Whilst some owners are happy to cover their costs and enjoy the property themselves, others want to make substantial profits. It’s important that you do not stretch yourself financially – you do not want to feel like your holiday rental is a millstone around your neck.
An owner says …
Don’t forget that buying the property is just the start of your expenses. Make sure you budget for renovations and furnishing before you buy.
When to Buy
You are likely to find a lack of supply during peak periods due to the income available during these periods. You may find the best time to go shopping is in the low season when holiday rental owners may be looking to sell. Saying that, it is more than likely that you will not find many holiday rentals up for sale. Most holiday rentals (even when run poorly) still create a greater income for owners than long-term leasing and this makes many owners reluctant to sell.
You may also find that vendors selling current holiday rentals that are performing well may charge a premium due to the established rental income – similar to a business that has goodwill.
Checking Regulations and Laws
Before you make the decision to buy it’s vitally important to check the regulations in the local area as well as the laws in your country to ensure that short-term rentals are permitted. Whilst some government authorities are supportive of holiday rentals as an important source of revenue, many holiday rental owners are increasingly finding themselves in hot water with local councils and government authorities for setting up holiday rentals and then finding out that they have breached rules and regulations. It is essential to check the laws in your area to understand if short-term rentals are permitted. Even if they are permitted there may be certain restrictions in place (for example a cap on the number of nights the property can be rented).
It’s also very important to understand the rules that are applicable in your country regarding taxation, depreciation and capital gains. Advice from both a solicitor and accountant is recommended.
As soon as you’ve signed on the dotted line to purchase the property, there’s no time to waste! If the property is in a rentable condition then obtain copies of the photos that the real estate agent has used in the listing and list the property. Be sure to add a note to your listings indicating that you’ll be improving the furniture in the photos. Guests will have no problem with the furniture being different to the photos as long as it’s of better quality. Be sure to give yourself adequate time to finalise the sale and furnish the property by blocking out your booking calendars.
If the property isn’t in a rentable condition and needs to be renovated, get that underway as quickly as you can and delay listing on rental websites until you have a better understanding of completion dates – renovations have a nasty habit of going on longer than you’d expect!
An owner says …
Before we even owned the property we had $4,000 in advance bookings. We used the real estate agent’s photos and added a comment in the listing saying that we’d be upgrading the furniture. You may have to price the property a little lower initially to get traction on bookings.
