8th July 2019
What to Consider When Purchasing an Airbnb Investment Property
The role of a New Zealand landlord comes with many responsibilities and at times, stressful situations. Long-term traditional tenancies require a substantial commitment in time and money, with growing obligations in the market and narrowing profit margins. Many Kiwi landlords are exploring their options when it comes to renting out their property. With new systems like Airbnb, opportunities are increasing for property owners to enter the short-term rental market, experiencing a flexible alternative to traditional methods.
While Airbnb can generate much more profit than long-term tenancies, there are still a number of factors that go into a successful investment. Achieving the income of a full-time Airbnb host does not happen overnight and requires thorough planning from the very beginning of the process. When looking for an Airbnb investment property, there are multiple considerations that should be made before signing on the dotted line. These factors will allow aspiring hosts to assess their costs, their potential earnings, and the role they will take on in their efforts. By understanding the Airbnb investment process and what is required, home buyers should be able to make informed decisions from the very beginning of their journey,
Here’s what home buyers should consider when purchasing property for Airbnb and short-term rental:
Local Short-Term Rental Laws and Obligations
Just like with traditional tenancies, there are regulations around short-term rentals in New Zealand. Beyond that, your local council will also have its own specifications around letting property. For instance, last year, Auckland Council introduced the ‘Bed Tax’ to target Airbnb hosts based in this city. The ‘Bed Tax’ or APTR rates requires those renting out their entire house for more than four weeks in a year to pay a tax on their earnings.
Before purchasing an Airbnb, hosts should always understand what their requirements will be in the area they are operating in, to ensure they fully understand costs and potential profit. As a newly thriving industry, hosts should continue to expect adjustments in regulations and processes surrounding the sector. As the property owner, it is essential to adhere to rules and regulations, ensuring you are aware of any changes in the industry as you are entering this endeavour.
How you operate your short-term rental property is a fundamental part of the pre-purchase process. Whether you are choosing to manage a listing by yourself or hire a professional, this consideration should be had prior to buying the property to ensure you are covering all the bases in costs and profit potential. While running the short-term rental on your own will allow you to save money, it does require knowledge of the industry and considerable time and effort. Surveying what’s out there in terms of Airbnb property management will allow you to gauge expenses and earnings before you make any decisions.
Demand for Accommodation in Your Location
The region you live in will make a massive difference to your potential earnings on Airbnb. If you are purchasing a property with the intention to rent it out on a short-term rental platform, the area you choose to buy in is of the utmost importance. It is always a good idea to weigh up the options and think about how much interest you are likely to get in a certain area. The last things any Airbnb host wants is for a property to sit empty because there is low demand for accommodation in your area.
Potential home buyers investing in an Airbnb property should always consider the need for accommodation in the area they are purchasing in. Auckland, Wellington, Queenstown and several other holiday-spots are the major locations for short-term rentals in New Zealand. Outside of these areas, it’s important to understand that there may be periods of inactivity with a listing on Airbnb.
Seasonal Fluctuations in Visitors
Seasons will always have an impact on short-term rentals so as such, it’s crucial to think about their influence on your success before a property investment is made. Where you buy and how seasons affect you will depend on what your expectations are as a host. If you are intending to operate the property as a holiday rental full-time, you may not want to consider an area that is only popular in the summer. In the same light, if you need to reside in the property during winter, you need to find somewhere that is a hot spot during the summer. Season fluctuations have large ramifications on host earnings in certain locations, understanding this can help a lot with the purchase process.
The initial purchase of a property will not be the only money you will need to spend in your investment. Along with property management, if you choose to go with it, is upkeep, utility expenses, damages and any other renovations you may engage in. Before buying an investment property, it is always a good idea to gather an estimate of these costs and ensure you will be able to finance them as they arise.