Expert insight: Will an Airbnb property make a good first investment?

Similar to her strategy during the first time that she built a portfolio, Ms Yoshia uses research and education to gain ‘foresight’ on the future of a property market.

“A very good example of this was when I was building my portfolio 1999 to 2000 – I bought an off-the-plan apartment in Greenwich and everybody said to me, ‘How can you spend $580,000 on an apartment when you can buy a house for that?’”

“I just saw the growth there. Unfortunately, I had to sell that property, but that particular unit is worth $1.6 million to $1.8 million today. It was really good foresight in terms of the area and what the property had to offer,” according to her.

The buyer’s agent also practices diversifying her portfolio by looking into multiple locations and different types of properties, and then taking into account the impact of the changing market on supply and demand.

Airbnb investment

With demographics changing significantly, particularly in capital cities such as Sydney and Melbourne, Ms Yoshia reminded investors of how wealth-creation opportunities in the market are also changing.

“I’m not just buying in one area and one type of property… It’s important to buy for the fundamentals, like good public transport, as well as buying a property that could offer versatile use… It’s very important to look at all uses for every property.”

One of the emerging trends that cater to the changing market is short-term letting through online applications such as Airbnb and MadeComfy.

While there is little information available about the short-term rental market, it has increasingly become a viable option for investors in locations with a strong demand created by a large number of visitors, including Sydney, which saw 3.7 million visitors for work and leisure in 2016.

According to Ms Yoshia, a good number of investors today are buying properties for the purpose of renting them out on Airbnb or MakeComfy.

Moreover, property management businesses that cater solely to short-term rental markets have also been emerging across the country, particularly in high-demand areas such as capital cities.

“The idea of renting out a property via Airbnb is that you are able to secure high rents and, therefore, higher yields. But, then there’s the uncertainty of tenants coming in and out and it can impact you from a lending point of view.”

“There’s compromise by doing that, but if you get it right and you manage it well, you can do pretty well actually,” Ms Yoshia highlighted.

When buying a property for short-term rental, the buyer’s agent advises investors to avoid ‘seasonal areas’ and buy as close to the city as possible to benefit from strong and diverse demand for short-term letting.

“Your property would be popular for business people, not just families holidaying, and I think that’s important – to factor in for the quieter months. Overall, if you buy well and you’ve got the right team on board, I think it can be a winner.”

Risks

However, Ms Yoshia strongly discourages aspiring investors to jump into an Airbnb investment as soon as they could and ultimately make it their first property investment.

According to her, while the short-term rental market has proven to be lucrative over the past few years, it’s still considerably more risky than traditional investment properties.

For one, it could be harder to manage a property that hosts multiple tenants over short intervals. In fact, major damage and noise are often cited as some of the most common issues faced by investors with Airbnb properties.

Further, with a long-term lease, investors are secured a fixed return a month, which will then allow them to plan their budget accordingly and sort out their finances well in order to expand their portfolio further over time.

In contrast, short-term rentals, while boasting a strong return potential, has more fluctuating returns.

“It’s very important to get the first run right, so at the beginning of an investment journey, I’d rather go more conservative. Buy smaller, but in the right location where there’s always going to be tenants, such as areas close to a university.”

“Even if you buy something bigger that can serve the purpose for both – Airbnb and long-term tenancy... It’s too risky as the first investment,” Ms Yoshia explained.

Before diving into an Airbnb investment, the buyer’s agent encouraged investors to do their research and, where appropriate, engage a short-term management partner and other property professionals in order to find out how short-term rental may impact their finances and, ultimately, the growth of their whole portfolio.

Some property management businesses catering to the short-term rental market offers performance predictions, which include a 12-month net revenue prediction with forecasted monthly cash flows.

Tune in to Brady Yoshia's episode on The Smart Property Investment Show to find out how to navigate the emerging short-term rental market in Australia today.