What to consider when investing in short-term rentals

Published:
July 26, 2018

It’s no shock to anyone that the traditional buy-to-let market is much tougher than it was before. And with recent tax relief changes meaning you can’t deduct all of your mortgage expenses from rental income to reduce your tax bill, it doesn’t seem like things are going to change any time soon. 

In a recent survey, commissioned by Houst, asking 1000 landlords about the issues they face in today’s rental market, 68% admitted they find managing their property more stressful than they initially anticipated. Unsurprisingly, the biggest problem landlords face is late payment of rent according to the survey, with almost two thirds of landlords finding themselves out of pocket thanks to late-paying tenants.

The top five things landlords reported as causing them the most stress are: 

1. Late payment of rent (62%)
2. Tenants breaking rules e.g. pets, loud parties (54%)
3. Managing third parties e.g. cleaners (47%)
4. Demanding tenants (41%)
5. Complaints from neighbours (39%)

So, if you’re a landlord, what can you do? Nowadays, many savvy landlords are using Airbnb and other platforms to increase their returns, combining flexible short stays with more traditional longer lets to generate bigger profits and avoid void periods. Airbnb reported that 5.9m people used its UK site in 2016/17, and its popularity shows no sign of abating. This isn’t necessarily tourism from abroad either, the staycation trend is still growing too, with the number of 4+ night domestic trips increasing by over 20% according to visitbritain.org. 

If you’re a landlord or property investor, it may be time to move away from the traditional buy-to-let market and take advantage of the increasing returns you could earn through platforms such as Airbnb.

We’ve been around a few years now (nearly 4!) so we’ve been lucky enough to see the evolution of the short-term rental market. One of the main questions we get asked is whether or not we have any advice for potential property investors looking to buy an Airbnb property. There are a lot of things to consider and while you want to aim for a high occupancy rate, it isn’t always that easy. So with that in mind, here’s our Houst guide on the top things to consider before buying Airbnb investment property.

Check local laws and regulations

Before you begin the process of buying a property for Airbnb or other platforms, make sure you know where it’s legal. There are many cities and countries where short-let rentals are illegal, or at the very least tightly regulated. Cities like London and Amsterdam enforce a cap on the number of available days you can short-let your property, so taking this into account when thinking about your returns is always a good step to ensure you’re on the right side of the law.

Location & seasonality

If this is your first time investing in short-lets, one of the key things to be aware of is location. The most profitable areas for long-term lets may not be the same for shorter stays so it’s always a good idea to look into the market and analyse the rental potential of an Airbnb investment property. Consider using specific sites or tools (like our own property calculator) to see how much you could earn in your chosen location.

The rates you can charge can vary based on the season too, with peak tourist dates creating high demand. Therefore make sure you’re taking note of them so you’re aware of what’s going on in the area and can price your listing accordingly. Luckily, our own in-house pricing algorithm takes dates and expected occupancy into account when setting rates for your listing, allowing for intuitive pricing so you always get the most out of your property. 

Hidden costs

One of the things that many short-let real estate investors come face to face with is property expenses. If you think that the only money you are going to spend is the cost of your investment property, then you might be in for a surprise. There are far more expenses than meet the eye. For instance cleaning expenses, landscape expenses, utility expenses, damages, general wear and tear and so on. This is exactly where financial planning comes into play and can help you avoid huge unexpected costs. Therefore, before buying an Airbnb investment property, make sure you learn all about the expenses that are associated with running it.

Understanding that it’s not a passive investment

Short-term rentals can’t be effectively managed with a hands-off approach and investing in an Airbnb property means a constant stream of ever changing guests. More than just investing your money, you also have to manage the property, check your guests in, be on hand for any issues and also respond to reviews and feedback.
Without going into the organisational side of cleaning and laundry, just these factors alone mean that if you’re not able to dedicate enough time to managing your property, you might want to consider a property management service (like Houst).

With expert property management from Houst, you can maximise your profits in a completely hassle-free way. We can create your listing, provide cleaning and laundry and even provide 24/7 support for your guests. If you’d like to find out more about our services feel free to give our team a call or try our property calculator below and see how much your home could earn. 
 

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