Thanks to new technologies, renting out investment properties as vacation rentals is simultaneously easier than it used to be as well as a lot more complicated. Becoming an Airbnb host, for example, is a relatively painless process and one that arguably has many more positives than negatives, but does take you down a different path compared to the traditional process of using a leasing agent to find short term or long-term tenants.
Traditional modes of leasing a property, especially short-term vacation rentals, still have a strong role to play, but even leasing agents have cottoned onto the benefits of disrupting technologies and have adopted these platforms as part of the service they offer. It is up to you whether you become an Airbnb host as an alternative or in conjunction with more traditional forms of leasing.
Traditional property leasing vs becoming an Airbnb host
You may have had an ongoing and long-term arrangement with a leasing agent that you have found beneficial and simple. In this case, you could consider using a platform such as Airbnb in conjunction with your leasing agent. However, be aware of a leasing agent that has not kept up-to-date with such changes and is not offering to lease your property through such platforms. Those who are aware of the way the industry is changing continue to keep their services relevant, and will often act as the Airbnb host themselves on your behalf, maintaining their traditional role while providing you with the benefits of such an influential digital platform.
If you do choose to become an Airbnb host yourself, there are definite advantages to this decision but a few considerations to make as well.
The greatest advantages to becoming an Airbnb host?
- Save money on administrative fees that you would usually pay to a leasing agent.
- Maintain more control and insight over the sorts of people you lease your property to.
- Potentially earn more from your investment compared to a traditional leasing agreement.
Associated fees using services such as Airbnb are quite low (usually a service charge of approximately 3-4 per cent of what you charge for your property/room), as they rely on economies of scale to drive their income as well as other incentives, such as charging extra for advertising.
There are some warnings out there that you place your property at risk of destructive tenants, but instances of this sort of thing are rare and the increased control and visibility you have over the people you lease to only help to mitigate against the risk of damage to your property. On top of insurance that you should have, Airbnb’s success relies on a good public profile, so should be responsive to damage done to your property or furniture.
A strategically-placed property, quite often an apartment, that is close to the city, bars, tourist spots and transportation and that is attractive as a property in its own right is likely to attract tourists on a regular basis. A two bedroom apartment close to the city that may see $450-500 coming in each week through a long term lease could attract double if not triple this through Airbnb. Tourists are happy to pay $300-$500 a night for a two bedroom apartment that can cater for two couples or a family. Having an investment in a sought-after location is key to earning an income through Airbnb throughout the year, especially in the colder months.
What is less clear about becoming an Airbnb host or using a similar hosting platform are the legal and tax implications.
- Landlord permission: if you are renting the property from a landlord and you wish to become an Airbnb host or similar, you are technically sub-letting the property or part of the property and may need permission from your landlord as well as a tenancy agreement. These rules vary state to state. Not doing the relevant research could land you with fines.
- Capital Gains Tax: during tax time, you can claim areas of the house that you rent out. The best thing to do is to keep track of expenses and talk to your accountant. Leasing a room in your Permanent Place Of Residence (your home) may mean you pay taxes (Capital Gains Tax) that could outweigh the income you derive, so be aware of this.
- Tax deductions: you have the opportunity to make tax claims on the depreciation of fixtures and appliances within the area you rent out, but again this varies state to state. The short term nature of leasing through Airbnb requires you to keep track of all your leases and may require a little more work on you and your accountant’s side to ensure you are complying with the law when you make certain claims.
Leasing your investment property through traditional means, whether DIY or through an agent, is still the most common form of leasing an investment property as it is the most regulated, ensuring your rights as a landlord are clear, and longer-term leases are the norm. This is changing, however, as more and more people buy investment properties to be essentially managed by a new breed of property managers via Airbnb, who can either help or take over the process of booking regular tenants.