How to pick the perfect Airbnb investment property
With little information publicly available about the short-term rental market, how do you select the right Airbnb investment property? Quirin Schwaighofer, co-founder of MadeComfy, gives a summary of advice he gives to customers when asked this question.
Short-term rentals have become an attractive option for property investors benefiting from the strong demand created by the large number of visitors (3.7 million in 2016, just in Sydney) coming to Australia every year for work and leisure.
In the meantime, low long-term yield is becoming more and more of a problem for investors in covering their mortgages for property in Sydney, Melbourne or Brisbane.
These are the three main areas where you want to have your ducks in a row:
1. Location
As with any property, location is the most important factor when selecting your perfect short-term rental.
While you often hear about Bondi and Manly being great spots for Airbnb rentals, you need to be aware that you are facing larger supply in summer months and lower demand in winter months.
The value of property is also on the higher side, making it more difficult to cover the higher mortgage payments over the low season months.
We usually recommend areas with a more constant but still strong demand, with less supply in the form of hotels or other short-term rentals and that are close to public transport. Current hotspots are Pyrmont, Chippendale, Redfern, Surry Hills, Neutral Bay or Potts Point.
If you are after a great deal, the ideal spot is where you have a large delta between long-term and short-term rental yield, meaning low long-term but high short-term returns. Why? Investment properties with low long-term yields often put you in a better negotiation position while there are less competitors interested in your target property.
Additionally, you want to ensure that the location and the property match with your capital growth and risk expectations.
2. Property type and setup
This largely depends on the location of your property. We experience that one- and two-bedroom apartments deliver the strongest yields in the inner city, inner west and lower north shore suburbs, with several of our properties reaching 9 per cent to 10 per cent yields.
Important to note, you want to check the by-laws of the building to understand the acceptance of short-term rentals. Properties with two to four bedrooms on the other side perform very well in the inner west, northern beaches and eastern suburbs.
One general rule for successful short-term rentals is to stand out among other short-term rental properties. This can either be by providing car parking, pool and gym (especially inner city), having a quirky property like an old warehouse, an apartment in a funky designed complex, or having special views of landmarks.
To stand out, you do not want to save money on furnishing and styling as this is one of the most important parts of successful short-term rentals that results in high nightly rates, five-star reviews and returning guests.
A great design and high-quality furniture will make your property stand out and provide an exceptional experience for the guests. It also requires you to repair and replace furniture less often.
3. Performance prediction
With a long-term lease, you get a fixed return per month, which is easy to plan but often not enough to cover the mortgages. Short-term rentals, however, give you a strong return potential but it also has the reputation of high-risk and fluctuating returns.
There are companies that offer you a fixed monthly return, which is slightly higher than the long-term rent you could get. However, you will find that you are usually losing out on the upside potential and only have the offered when the annual rental return can likely be higher.
We recommend that you do your research and ask your short-term management partner for a 12-month net revenue prediction with forecasted monthly cash flows.
With these three things in mind, you are a step ahead of the competition to pick that perfect short-term rental as your next investment property.