What are the pros and cons of setting up an Airbnb rental property?

Online booking platforms like Stayz, Airbnb, Booking.com and others have completely transformed how consumers can choose accommodation for their holiday. Gone are the days of just choosing a hotel, now there are thousands of properties available which are a mixture of houses, apartments or even tiny homes.

So the decision making that goes into how you use a property you own or buying one to be used for investment purposes has also changed. In the past most investors would choose the option of using it for long-term tenanted rentals rather versus owning one as a holiday rental property. 

Depending on the location of the property it can be highly lucrative to set it up as an Airbnb holiday rental home considering how easy it is these days to generate bookings online. Sometimes you might be worried to buy or set one up in an area that isn’t close to your primary residence or a location you don’t know very well. In other situations you can create a great location to enjoy a holiday when you want plus make great rental returns when it is not in use. 

Here are some of the pros and cons in more detail;

Pros

Saving money going on holiday

Holiday rental property owners can save thousands of dollars per year by using their own holiday home for weekends away or for longer breaks. There is no need to pay for expensive flights as the home is likely to be within driving distance (particularly convenient if you have a young family or dog). Other than petrol costs and maybe a post-stay clean (if you don’t want to clean it yourself), there are very costs involved.

Getting away more often

Having a holiday home a few hours’ drive away means that you can hop in the car and enjoy a weekend away at the drop of a hat. What would ordinarily cost a great deal of money to rent can now be enjoyed for ‘free’ (presuming your rental income covers your loan payments). Naturally, some holiday homeowners choose to buy properties far from home, but these are in the minority. You can use it for days that it isn’t being rented by a guest and ensure it is getting used regularly.

Investment (capital gains)

Holiday homes can be as good an investment in terms of capital gains as any other property. A carefully selected holiday home in the correct location can bring substantial gains over time.

Income

The biggest “pro” with a holiday home is arguably the amount of rental income that can be generated. If the property is run and marketed effectively the rental returns can be astronomical compared to a long-term rental (and you get to enjoy it yourself too!)

An Owner Says…

“On the current long-term rental market, our property would rent for $300 a week. Our rental income running it as a holiday home is more than five times that amount at around $1,500 per week”. Whilst many long term investment properties can only achieve negative gearing, many holiday homes achieve positive gearing!

Friends and family

You can share your holiday home with friends and family. You’ll also be surprised at how many of them are happy to pay to stay there (with a little friends’ discount of course!)

Charity

Having a holiday home also helps you do something great for the world. The majority of holiday homes have spare capacity at some stage during the year, and a great thing to do is to donate any spare capacity you may have to a charity to provide free accommodation.

“At our holiday home we have some capacity over the colder winter months so we donate this capacity to The Otis Foundation. This allows women being treated for breast cancer to stay at the house for free in order to have some time to recuperate and relax with their families after a very difficult experience.”

Cons

Having a holiday in the same place

If you buy a holiday rental home you’d better make sure that you love the house and the area that it’s in as you could be spending a lot of time there. If you don’t have a passion for it or you are someone who craves constant variety of locations, a holiday home may not be right for you so instead you just use it to earn an income rather than using it yourself.

An owner says…

“We have owned our holiday home for 6 years and we’ve never lost the love for the house or location. In fact, as time has gone by we’ve become increasingly more attached to it as we make many lifelong family memories of our time spent there.”

Expense of borrowing

Unless you are in a suitable financial position, it’s likely that you may need to borrow money to buy your property. The amount you need to borrow needs to be carefully weighed up against the potential rental income or you could find yourself in financial difficulties. 

It’s also important to remember that renting out a holiday home can be highly seasonal especially if it is located in a coastal area or a few hours away from a major city. So revenue may peak in particular times of the year and be non-existent in others. Holiday rental homes that are in major tourist destinations like Sydney CBD or Bondi or Coogee would be used all year round compared to one in Bowral or Jervis Bay.

Either way you still have to pay for your loan each month so it’s important to plan for the “peaks and troughs” of income while also understanding the negative or positive gearing aspects with your accountant.

An owner says…

“Our holiday home is located at the beach and as a result we make 70% of our income in the summer months. In the early days, we had to be careful to set aside some of the summer income to cover home loan payments in the quieter winter months.”

Expense of setting up

In contrast to long-term rental properties which may not require furnishing, holiday rental properties require a significant upfront investment in furnishing to ensure that an acceptable standard is created for guests. 

Time taken to manage the property

Some owners can find managing their properties time consuming and stressful, particularly if they are not “internet savvy” or experienced in running a business. Finding staff to clean and maintain the property may also be seen as an onerous task.

An owner says:

“Whilst we enjoy owning a holiday home and we earn good money from it we found that we just weren’t good at marketing or managing the property. We were happy to spend a bit more money to have an agency manage it for us. Many people like to do it themselves but for our personal situation it was the right decision for us.”

Use it and lose it

The irony of owning a holiday home is that often when you want to use it most, so does everyone else. If you use the property in peak periods you may live with the “buyers remorse” of lost income or in the opposite situation if you don’t use the property when you really want to you may feel that buying it has not been worth it.

An owner says…

“We’ve become so busy that we now have to book dates out for ourselves. We’ve come to terms with the fact that we’d rather have the income from peak season than spend the time there ourselves. We’ve found a balance by staying for a couple of days a month in peak season and enjoying more time at the house during off-peak periods.”

In summary

As with most things in life there are positives and negatives to pursuing different situations and making the decision to either convert an existing home or buy a new property to be used as an Airbnb holiday rental is very much the same.

Some will approach it purely from a commercial point of view with little emotional attachment, focus on its ability to generate a passive income & hopefully over time create capital gain if the property increases in value.

In other situations it may be an existing family home that gets converted to be used for short term rental or a holiday home that will be used from time to time. So there is more emotional attachment and sometimes a more passive approach to keeping it occupied.

There is no right or wrong, it comes back to your individual financial situation and personal life goals. Our property management service has a team available that can give you the advice you need and discuss the right action to take.