Wednesday 1 March 2017
Maybe Airbnb isn't the way forward for your rental, be it in Clapham or elsewhere...
Let me start this article by saying that I admire entrepreneurial spirit. Naturally maximising return on your investment should certainly be applauded. Things that are, however, high on my agenda are sustainability and longevity when it comes to property investment. Oh, and I like passive income...
So with that in mind, let's delve deeper into the phenomenon of Airbnb.
What is it?
In case you didn't know, it's essentially a property website for tourists that matches would be hotel guests to property owners that are in the position to rent out a room, or even the whole property for a "short let." So anything from a night to say... 365 nights.
Well simply put, a property is worth more by the night than it is by the week/month/year. A bit like a hotel. For £150-200 a night you can book a room at the Ritz, but you can also rent a swanky 2 bedroom 2 bathroom penthouse with some river views. Self-catering mostly, but there is something awesome about staying in a plush new build rather than a hotel. So there's definitely appeal from guests, and the monetary incentive is there for the owners. A market - and Airbnb provides the platform.
No problem as yet, no. There is demand, there is supply, there is basically a Rightmove of short lets connecting owners and guests, so what's the problem? Well, hang on to your hats...!
1. A lot of leases will prohibit using the property for commercial use, ie serviced apartment style short letting arrangements such as the one on Airbnb. If you're just renting out a spare room it may be another story though, but naturally if you want to make money from it like you would to a buy to let then you'd let the whole property. In contravention of most leases... As the age old saying goes, RTBL (Read the Bloody Lease)!
2. Mortgaged property - your mortgage company will probably have stipulated in their terms that you have to let your property to professional, working tenants, maybe even restrict the length of AST (commonly 12 months) and crucially let on an AST. A short let is not an AST for one, and the interest rate you pay reflects the risk that the lender is taking by lending to you. A short let/holiday let type business is more risky and requires commercial finance. Lower LTVs, higher rates.
3. Factor in your time. You will need to meet & greet, deal with late arrivals (and believe me there are plenty, if not all) and damages need to be fixed pronto before the next guest. But hey, you wanted to be a self-employed hotelier, didn't you?
4. Just pay someone to do it? No problem, there's plenty of people that can manage your Airbnb listing. They'll charge you 15% of every booking on top of Airbnb's costs and perhaps even a charge for every meet & greet they do. Profits dwindling pretty fast there. Beware though, a lot of them won't tell you about the legal obligations in this article. If they have Ts and Cs they will have a tick box you need to tick to "indemnify them against all claims" of such nature and they will assume that by signing "you have sought all the necessary consents." Problem is, up until reading this article you may not even have known what they were.
5. Insurance. You took out landlord liability insurance right? Well you've just invalidated that by short letting. Fire? Trip? Guest hurt themselves? Game over.
6. Planning permission? Yes that's right. If you're reading this I'll take a wild guess you live within the M25 and therefore your Airbnb will probably be too. You can only short let for 90 days or less in any one 365 day period without applying for planning permission to change the usage class of your domestic dwelling from C3 to C1, Hotels, Bed & Breakfast, Guest Houses, Inns, Motels
and Halls of Residence. No problem you say? Well, see points 1 and 2 above, your freeholder most definitely won't like it and chances are your lender won't either.
So what next?
It's abundantly clear from the above there are a lot of legal hurdles to jump over if you want to do this whole "get rich quick and make £200/night as opposed to £200pw" thing. So why are people still doing it? In my opinion the legal aspects are being completely flouted. Does that make for a sustainable business? A passive investment? Nah. Sustainable? Well put it this way, what if you wanted to remortgage the property and you told your new lender that you think you'll achieve £2000pcm. "Great" they say, "can you supply us with last year's tenancy agreement?" Game over, you won't have one because your last "tenant" was backpacker from Venezuela. Good luck with that...
So don't be suckered in to people telling you that the "profits are amazing" and "I've never made so much money by changing some sheets" take a moment to factor in, if nothing else, the time element of managing it all. I happened to run an Airbnb listing myself and thanks to a very good, local help I was able to stay hands-off. Truth be told though I didn't make much more money than a long let, if any once I factored in voids. You're never going to let it 7 nights a week and you still need to pay for all the bills whilst it's vacant.
There's the other aspect of Airbnb changing neighbourhoods and driving rents up, but I think that argument is slightly far fetched. Regulations are there for a reason and most people will understand they need to adhere to these. However for the flouters - beware - councils are cracking down on these short lettings under nuisance/ASBO laws and can take drastic action. If neighbours complain to environmental health about noise nuisance then things can go pear-shaped for a flouter quite quickly!
So, speaking from experience, I would always invest in a sustainable, less labour intensive form of property investment. I am currently achieving very good returns for clients by sourcing them good investments, or they invest in my projects and learn the process hands-on. If you would like to know more about some of the projects I'm doing at the moment - sustainable, legal, profitable, passive investments - then do get in touch via social media or email: email@example.com
PS: A little video in the link below that I'd like to share with you for a laugh, essentially highlighting some of the pitfalls of Airbnb. Facts above, fun below, some of it is a little exaggerated! Happy investing
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