Buy-to-let on Airbnb?
Is it financially better for landlords to invest in a buy-to-let property for short-term lets on Airbnb rather than to the traditional long term tenant?
What is Airbnb?
First things first what is Airbnb?
Airbnb is a privately owned and operated company (headquartered in San Francisco) that was set up in 2008 to allow house owners to let spare rooms or entire properties for short periods. It is estimated to currently list over 1½ million properties in around 34,000 cities in 191 countries with more being added daily.
Its business model is to operate as a peer to peer accommodation market place that connects hosts (vendors of rooms/accommodations) and travellers via its website and takes a service charge for each transaction that it enables without directly owning any rooms/properties by itself.
Typical tenants are holiday makers, weekenders, business workers needing to stay for a night or more and others who have a need for temporary accommodation on a short term basis.
Are Landlords renting via Airbnb?
The short answer is yes.
According to a report compiled by the Residential Landlords Association there has been a surge of homes on the website in the wake of George Osborne’s crackdown on buy-to-let borrowing. The report estimates that roughly 100,000 UK properties are now listed on the site and that over half of the listings in major cities like London, Manchester and Edinburgh are whole flats or houses. This means that around 25,000 homes which might otherwise be available for long term rent are no longer on that market.
The number of entire flats or houses available in London on Airbnb has jumped by a quarter in the last six months taking an estimated 4,250 properties out of the long-term rental market.
A good Opportunity for Landlords?
How do the relative rental incomes compare?
The average price for a single night’s accommodation in London on Airbnb is £139, compared against an average of £52 per night in a long term let.
Over a year, and making the strongly optimistic assumption that the property rents every day. this would give a staggering 60% better return via Airbnb than through a long term let!
On the above average prices the breakeven point would be achieved at 138 days of rental income per year (between 2 to 3 days per week).
There are additional cleaning and servicing costs associated with a short term rent but none of the rules and regulations that apply to long-term lets currently apply to Airbnb lets.
Also from April next year a “sharing economy” tax break means that tax won’t be payable on the first £1000 made from a room or property let via Airbnb.
What’s the Government’s view?
David Smith of the Residential Landlords Association and author of their report argues strongly that “the growth in the usage of short-term letting websites is eroding the housing stock. At a time when the government is trying to further regulate private renting it is incomprehensible that it is also trying to encourage an unregulated sector, where there is a huge potential for properties to move from long-term letting to short-term renting. Yet it is clear from the statistics that professionals are now taking over the market.”
A spokesman for the Department of Communities and Local Government said the government was committed to creating a “bigger, better private rented sector without excessive state regulation”.
However, many London Councils are pushing for the website to be curtailed, saying that it is driving up rents, which have increased in some areas of London by around 11% in the last two years.
Separately, Westminster Council are investigating 1,200 landlords for using Airbnb because planning permission is needed for short-term lets over more than 90 days a year and analysis suggests that over 40% of entire London properties were let for more than 90 nights a year.
There is a possibility that London and other areas of the UK may decide to follow the lead set in Berlin which earlier this year banned homeowners from letting out whole properties to tourists in an effort to keep housing affordable, after rent rises in the city.
If you are a landlord seeking a quiet life and a stable relatively risk free income, then short-term renting probably isn’t for you but for some landlords it may be an excellent way to maximise income either by letting a whole property or by renting on a room by room basis. For landlords whose properties are struggling to let long term it is also a way of minimising the loss during dormant periods.
However if you have bought your property with a buy-to-let mortgage then make sure that the terms of your mortgage agreement allows you to let via Airbnb as many lenders specifically debar such arrangements. Also ensure that any insurance arrangements you have in place are not invalidated by letting via the site.
If you would like to explore this option further; are looking to get into the buy-to-let market or have an existing portfolio that you would like to maximise your return on, please get in touch to arrange a free consultation. Call 020 7205 4060 or email [email protected] or visit sourceinvestments.com.