Is Airbnb Property a Good Investment in Australia?

With the rise of the sharing economy, the accommodation industry has seen a significant disruption.

The primary catalyst behind this disruption is Airbnb, a platform that has reinvented how people travel and invest in real estate.

The desire for more cashflow has prompted some landlords to ponder whether they should list their properties on online accommodation platforms such as Airbnb or Stayz, hoping to make more money.

Before they do, however, they must understand the various ins and outs as well as their rights and responsibilities because successful property investment is about the long-term result, not just the possibility of short-term rental returns.

Who’s using Airbnb?

Airbnb has emerged as a strong competitor in the travel industry around the world as travellers look for cheaper and more bespoke alternatives to staying in hotels.

And for property owners, Airbnb can offer the potential of a lucrative money-spinner.

Airbnb's user demographics in Australia are diverse, spanning multiple age groups and professions.

From international tourists to locals on a weekend getaway, the platform's users vary greatly.

The commonality amongst these users is a desire for unique and personalised accommodation experiences.

Airbnb suggests millennials (25-34 years) make up the majority of its users, followed by Gen Z and Gen X.

International tourists, particularly from Asia, North America, and Europe, comprise a significant portion of Airbnb users in Australia.

These visitors prefer Airbnb due to its affordability, local experiences, and flexibility.

The platform is also popular among domestic travellers seeking local staycations, remote work accommodations, and weekend breaks.

All this does raise questions about the benefits of booming short-term accommodation when even local Australians are struggling to find somewhere to live, thanks to the rental crisis.

In fact, the current housing crisis has renewed the debate about how to regulate short-term rental platforms such as Airbnb, with many councils urging owners to lease their holiday homes and Airbnb properties out to the long-term rental markets in order to help ease undersupply.

Which type of property is suitable for Airbnb?

There are two types of Airbnb accommodation - entire houses or apartments and partial listings where you rent a room in someone’s home.

Airbnb rentals are typically short-term, which allows Airbnb investors to host multiple guests throughout the year, unlike traditional investment properties which are leased for a set amount of time to long-term tenants.

A particular property’s suitability for Airbnb hinges on several factors, including location, amenities, and unique features.

Properties located near tourist attractions, central business districts, and transport links tend to perform well on Airbnb because travellers often seek accommodation that minimises their commute and offers proximity to landmarks.

Entire house/apartment listings are generally more concentrated around the city centre and beach suburbs, while partial house/apartment listings spread out more to the middle, fringe and regional suburbs.

While entire houses and apartments are in high demand on Airbnb, unique properties such as treehouses, yurts, and beach houses often attract higher rates due to their novelty.

So when it comes to which type of property is suitable the answer is… almost any property.

But in terms of the most profitable, the best type of property for Airbnb is one that gives you the most income and a higher occupancy rate.

And as with any investment, the location will do the majority of the heavy lifting.

For example, Finder compiled a list of the most profitable Airbnb locations for homeowners, using CoreLogic data and found the top three are all located in Western Australian suburbs.

Wanneroo is the most profitable suburb, where homeowners can expect to make 69% or $6,658 more per month than renting out that same property.

Exmouth and Broome are in second and third place while Mount Martha in Victoria is the most profitable suburb in our southern state.

In South Australia, Nuriootpa in the Barossa Valley generates the most profit from Airbnb, and in New South Wales, Coffs Harbour is the stand-out suburb.

The pros of investing in Airbnb property

There are many pros of Airbnb investments, and the different clientele of an Airbnb investment throws up a unique set of benefits and also negatives.

The main pros of investing in an Airbnb property are:

1. Higher-income – Potentially higher yielding rental income versus renting out your property via the traditional long-term method is the biggest pro. You’ll be able to achieve a rental yield of up to 25% (or more) versus around 5%. If the property is furnished with unique interior design features, the perceived value of your rental could also go up.
2. You’re not locked into one tenant - Unlike when an investor rents out their property via the traditional method for the long term, Airbnb investors aren’t reliant on one particular tenant, which is particularly helpful if they’re bad tenants.
3. You can still use your property when you want - Short-term rents mean that you can still use your property during the vacant dates, or block out dates that you want to use or access the property.
4. Your property will always be maintained - As you’ll be charging a cleaning fee to each renter, your property will be kept in good condition and clean at all times.
5. Lower and easier advertising - Advertising on Airbnb means less effort to find and secure renters. They will come to you.

The cons of investing in Airbnb property

Despite the appealing prospects, Airbnb investments also come with challenges.

While there are many benefits of an Airbnb investment, there are just as many negatives to bare in mind.

Negatives include the following:

1. Higher upfront costs - You’ll need to furnish and supply your Airbnb investment with creature comforts and the basic necessities before listing it for short-term rent.
2. Less security - While short-term tenants offer more flexibility, they also offer less security than long-term tenants and you might find it sits vacant for a period of time which will dampen your month-to-month income.
3. It might take a while to take off - Airbnb runs on reviews, so as a first-time renter, it might take a while to accumulate enough traction to get more bookings.
4. Maintenance costs are higher - Airbnb guests expect the property to be in excellent condition and fully maintained to hotel standards, which comes with additional property maintenance costs.
5. Higher running costs - Not only are maintenance costs higher but running costs are also higher. Owners will be responsible for utilities bills, rather than being able to outsource them to tenants, and insurance will also be higher.
6. It’s time-consuming - Running an Airbnb is essentially a second job. So unless you’re planning to outsource to (and pay for) a property manager to run the bookings and clearing then you can expect to spend a significant amount of time doing property upkeep and prepping for the next visitor.

Airbnb landlord rights and responsibilities

Short-term rental accommodation (STRA) was once regulated at a local council level under the local environmental plan, but since the Airbnb market boomed and the pandemic hit, new regulations and requirements have been put in place in some states to protect both landlords and tenants.

Airbnb landlord rights and responsibilities differ in each Australian state so here is a breakdown of each:

Airbnb investments in NSW: The rules

As of November 2021, NSW imposed a new state-wide policy for the regulation of STRA -  the new rules were set out in the State Environmental Planning Policy Amendment 2021.

• Hosts need to register their STRA dwellings on the NSW Government’s STRA register and comply with a new STRA Fire Safety Standard.
• Hosts need to pay a 1-year $65 registration fee and a $25 annual renewal fee.
• STRA listings (unhosted or not) can operate all year round across NSW, except in Greater Sydney and nominated regional NSW local government areas where unhosted STRA listings are limited to 180 days per year. Bookings above 21 consecutive days are exempted from the daily limit.
• Hosts have to comply with NSW fire safety standards.

Airbnb investments in VIC: The rules

There are no permits or restrictions applied to STRA in Victoria, but there is talk of rules similar to those in NSW being imposed.

At present the only law around Airbnb in Victoria relates to fines for guests causing unreasonable noise, a health or security hazard, damaging common property or obstructing another resident from using their property - VCAT can issue $1,100 fines to guests and hosts can be forced to pay neighbours up to $2,000 in compensation.

Airbnb investments in QLD: The rules

Queenslanders need to apply for a short-term rental permit from their local council before hosting on Airbnb.

Only owners of the property can list it as an STRA (tenants are forbidden from leasing out rooms on Airbnb) and the host has to be present - unhosted whole property short-term rentals are not permitted.

The property also needs to be the host's permanent residence, meaning they live there for at least 275 days each year.

Airbnb investments in SA: The rules

According to the short-term rental accommodation bill, properties used as STRA must be registered with the local commission.

There are no rules around who is able to nominate their property as an Airbnb property.

Airbnb investments in WA: The rules

In Western Australia, each local council has their own by-laws around STRAs so you need to contact your local council to find out if your Airbnb investment is subject to any approvals or requirements.

Airbnb investments in NT: The rules

Landlords in the NT need to register their Airbnb and apply fire safety standards.

No other rules apply.

Airbnb investments in ACT: The rules

The ACT Government has no particular regulations in short-term rentals, but those who want to sublet the property need their landlord's written consent.

Airbnb investments in TAS: The rules

Airbnb investors in Tasmania are required to register for a permit with their local council or claim an exemption if their listing is eligible.

Landlord rights

State Governments are considering how to balance the rights of landlords and tenants when it comes to the issue so in the meantime it is vital that property owners have a thorough understanding of the contents of their leases.

This includes whether subletting is approved as a standard tenancy without the prior consent of the landlord.

Generally, however, if a tenant has a general tenancy agreement, they must ensure they have the landlord’s written consent before listing the premises on short-term rental sites such as Airbnb.

Some real estate agents are even updating their rental agreements to say that tenants are not allowed to list their leased property on Airbnb without the express written consent of the landlord.

However, until legislation catches up, the best strategy for landlords is to ensure that their professional property managers are conducting regular inspections and reporting any unusual movements, such as unusual luggage or revolving “visitors” at the property.

Airbnb investments vs rental property in Australia

Both Airbnb and traditional rental properties have their merits.

While Airbnb properties can generate higher returns, they demand more effort and face income variability.

A conventional rental property is typically a long-term lease, where tenants sign the lease for 1+ years and pay a monthly rent, giving consistent and reliable cash flow over that period.

But Airbnb investments are short-term rentals which require more initial cash input, higher maintenance and responsibilities, but can yield a higher profit margin than a conventional rental property.

When you’re deciding whether to buy a Airbnb investment or a conventional rental property you’ll need to think about your target market - is your area popular for tourists? Is demand seasonal? Is demand higher for short- or long-term rentals? Do you have time to manage a short-term property?

If you live in an area which is popular with tourists, then an Airbnb investment could give you significantly higher returns.

But if the area you live in is in lower demand from holidaymakers and business people you might run the risk of having your property sit empty for a large portion of the year - in which case the stability that the conventional long-term rental offers would be more suited to you.

Is Airbnb a good investment right now?

Many property investors are considering renting their properties on Airbnb because of the higher rent that can be charged per night.

But speaking to many who’ve tried it, the income is not as easy as it initially seems (nothing ever is, is it?).

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Like any short-term rental accommodation, the occupancy rate will determine whether the rent is superior to having a long-term tenant in the property.

In most cases, it is unlikely to be, which means you could possibly have problems with cash flow if you have a month when there is not much demand from Airbnb guests you will still have to pay the mortgage.

There are also a number of costs involved in listing your property on Airbnb including the cost of your time.

Unlike a traditional residential tenancy that is managed by a professional property manager, most Airbnb hosts have to invest their own time to market the property as well as to prepare it for guests and clean up after they’ve left, too.

In fact, according to research, most hosts spend about eight hours a week doing this, so you must consider whether you actually have those hours spare.

Plus, at a time when Australia’s rental market is in crisis mode and suffering significant undersupply, landlords can get a higher price when renting out their property long-term and low vacancy rates also provide stability knowing that your property will unlikely sit empty at any time.

Difficult and hands-on management, less-than-ideal profits, and a saturated market are turning investors from the one-time disrupter, which was no longer seen as easy money.

At the same time, you must also understand the relevant laws, including owners’ corporation or body corporate, because there may be limitations on such things as whether you can leave keys out for guests.

Of course, you will also have to pay your share to the Australian Tax Office, and the property will also be liable for Capital Gains Tax when you sell it, too.

According to Airbnb, Australian hosts earn about $5,600 per year which is probably reflective of people renting out a part of their house or a room from time to time rather than the entire house all year around.

When it comes down to it, the decision to rent your property on Airbnb is one for you alone.

However, if you ask me, securing a tenant who will stay for the long term is likely to be a better financial outcome when all things are considered.