Have you heard of house-hacking?
Many property listings today, especially in St Heliers, Kohimarama, Glendowie, Orakei, Mission Bay or Remuera, advertise a sleepout or self-contained unit as having potential for Airbnb (or any other short-term rental provider) to generate additional income. People read that and then rush into buying the property, thinking they are going to make incredible profits off it thanks to articles like this. But is that really a smart decision made based on actual facts?
In this post, the focus is on residential properties in traditionally residential suburbs such as St Heliers or Glendowie (and not on holiday homes in the Coromandel or Northland which are traditionally used/advertised as such) and includes the particular parts of the property (for e.g. a downstairs room or an annexe). I also draw on my personal experience in operating an Airbnb in Auckland.
Hopefully, you can learn how to find a property that pays for itself (and maybe even you) to live in it.
Be In The Right Place At The Right Time for the Right Price
For property, location is always key. It is in fact more important if you want to run a successful Airbnb and reside in that property. People generally want to stay near the very purpose of their trip.
For tourists, that generally means near attractions.
In Auckland, that refers to apartments in the CBD, and houses within walking distance Mission Bay / St Heliers beach or having views out to the Tamaki estuary, Rangitoto and Browns Island. These are very popular with tourists.
For business travellers, that means near their conferences venues or office locations.
In Auckland, that will likely mean the CBD area where the Sky City Convention Centre is or major industrial areas.
For working holidaymakers, that means near amenities (banks, post office etc) where they can set up their New Zealand ‘life’. These are very price sensitive travellers so they are open to staying outside of the central suburbs for the right (i.e. cheap) price.
Therefore, the crucial question is: are you near anything that people would travel for…or are you in a very rural part of town? If so, then your accommodation must be a destination in itself that people are willing to travel for…e.g. farm stays or a very unique treehouse. If you’ve got a great location (you’ve ticked all the boxes above), congratulations, you are one step closer to being a successful Airbnb host!
Houses in Glendowie, surprisingly, can be good for Airbnbs. In the summer months, tourists like to stay in the Eastern Bays as they are near beaches and cafes. In the winter months, which are traditionally slightly quieter, Glendowie is still popular as many overseas parents bring their children over to attend holiday programmes and short term school programmes at Glendowie Primary, Glendowie College and Sacred Heart College.
Next, you will want to maximise revenue – either have a high price (unlikely unless you are in a fantastic location and/or limited competition) or have high occupancy. Some areas are just seasonal (and tend to be in smaller cities focused on the peak tourism seasons in summer). That’s fine if the price that you can command for the periods of high demand is sufficient to cover the low-demand periods.
Obviously, for major cities like Auckland which attracts people all year round, the odds of making a decent income from Airbnb are more favourable. In the Deloitte Airbnb study, it was found that ¼ of all the stays in NZ in 2017 were booked in Auckland.
However, you need to consider that you are not alone in thinking that you can make a quick buck off Airbnb given the low barriers of entries. Even in the best locations, there is a big problem of oversupply and even top Airbnb hosts are facing pricing pressure. Newcomers will definitely struggle to gain traction and generate bookings.
Consumers’ decisions when choosing accommodation are affected by many factors. However, price will almost always be a factor for tourists, depending on the type of travel (for e.g. business or travel). Airbnb/short term accommodation competes with hotels, hostels and motels and the prices are largely dictated by supply of these rooms and your Airbnb’s competition.
Before you buy a house solely because you think it will be good for Airbnb, go on Airbnb’s website in incognito mode to check out your competition by searching your area. Make sure you are searching for listings that offer the same amenities and have the same capacity as to what you are hoping to offer. See for example:
- How many people are hosting in your area and their prices – are there many hosts around and what are their prices like?
- What their occupancy rates are by checking their calendar. If there are not many hosts around your area and they are booked out very far in advance, then you stand a good chance of succeeding!
- Tourism trends – The number of visitors to New Zealand in June 2018 was 212,200, down 17,800 from June 2017 (Stats NZ). Given the discretionary nature of travel, this may be affected by the strength of economies around the world, especially in key markets like China, Australia, Germany and USA.
- Check out what your future competition might be. If you are buying an apartment in Auckland CBD with the intention of doing short term rentals, take note that many hotels are coming up in Auckland and there are already many new apartments being operated as short-term accommodation. That becomes your direct competition unless you are able to charge a competitive (i.e. cheap) rate. This in turn brings into question the rental returns after factoring in cleaning costs, rates and taxes (covered below).
Is your property configured for Airbnb?
This depends on whether you are trying to rent out the entire dwelling, a self contained unit, a sleepout or just a private room in your property.
If you are renting a basement flat as a self-contained unit, due to poor soundproofing in New Zealand, many guests have complained that they can hear footsteps from people walking above them. That will adversely affect the guest’s experience (and the reviews), especially if they come from countries whereby many properties are built from concrete and soundproofing is much better. Bad ratings will obviously affect your business.
The problem is compounded since most guests who rent self-contained units generally do so for the purpose of peace and privacy. Therefore if you have young children/noisy families and hope to run an Airbnb in a basement unit, it’s going to be a challenge. Your ratings will then depend on how well you can manage the guests’ expectations.
Self-contained units also face issues with the Auckland Council’s newly introduced accommodation provider targeted rates. Read below to find out more.
If it’s a sleepout whereby you are only renting out a room without any other amenities, then you have to permit guests to come into your main house and use the bathroom or kitchen. That’s not very ideal when it’s raining or during winter and could again adversely affect the guest’s experience. It’s therefore much better if the sleepout has its own bathroom.
If you are aiming to target tourists with more spending power and are located relatively near restaurants/café, then it may be fine if your sleepout has no kitchen and you can provide a kettle, microwave and toaster. However, if you are in a rural part of town and/or tend to attract budget travellers, then not having a kitchen in the sleepout or not allowing your guests to use your kitchen is going to be an issue.
Therefore, depending on the amenities you are providing for your sleepout and your willingness in allowing your guests to share the main house’s facilities, not all sleepouts are aptly configured for operating a successful Airbnb. Like self-contained units, sleepouts may incur Auckland Council’s accommodation provider targeted rates.
If you are renting a private room, then the properties which are good for Airbnbs are those where there is some separation between the host’s and the guests’ room(s). That could mean they are in separate wings so that there is less chance of noise travelling across each other.
Where the bathroom is located is also critical. As previously mentioned, sound proofing is terrible in New Zealand. Therefore, you may not want your guests’ bathroom to be located right next to your room as you will be likely be affected by the noise every time they use it.
The picture below depicts the perfect Airbnb layout which satisfies the two above-mentioned points – there are two wings which makes a clear split between the guests’ space and personal space.
For all the above properties without separate facilities, hosts have to be aware that they have to share and might have guests who constantly occupy the shared areas.
I have heard of stories whereby the guests stay in the lounge all day and the host basically cannot watch his/her own TV shows. Some guests use the kitchen for extended periods (and worse don’t clean up after themselves) which would make it difficult for the host to cook. One suggestion to solve the first problem is to put TVs in the guestroom so that they have their own form of entertainment. As for the kitchen, you would have to make it clear to your guests that there should be dedicated usage times. At the end of the day, sharing your home on Airbnb is like having a new flatmate move in all the time – you get bad ones and good ones.
Of course, you still need to decorate your room/house beautifully or at least keep it well presented. No one wants to stay in a dump! If you want to price your place cheaply, be aware that you will have a greater chance of attracting guests who are price-sensitive and nit-picky at worst. If you are able to furnish your house and make it warm and cosy, and take extraordinarily appealing photographs (very important), then you’ve got the ability to command a higher price!
Are you made of ‘superhost’ calibre??
If you’ve got all of the above figured out, then you’re nearly there! The remaining key factor: are you a good host?
A good host is important because Airbnb is fundamentally a hospitality business, so you must treat this professionally. This is not just a passive rental business where you provide a place to sleep. Hosts must think about the amount of commitment and money they are willing to invest.
There can be significant capital outlay at the start because you need to decorate/style the house and room, provide quality bedding and bath accessories, cook scrumptious breakfasts (although not compulsory, definitely a plus) and likely have to lower your price at the start to generate demand and reviews, especially due to the oversupply problem as pointed out earlier.
There is also a lot of time and effort involved to communicate with the guests regarding house rules, check-in/check-out times, answer all their questions (despite having described everything on the listing since many people don’t read) and sometimes to the extent of planning their itinerary – you are basically the receptionist, cleaner, concierge and hotel manager all in one.
If you are a stay-at-home mom or a retiree, then perhaps you have the time to deal with the guests. However, if you are a busy working professional, then you would need to automate a lot of things and think about cleaning/turnover – reliable cleaners at a fair price are hard to find.
Good hosts can sometimes make up for a bad location but good locations cannot make up for a bad host. Airbnb is not as passive as many people think it is – unless of course you leave it to a professional management company to look after it (which also means your profits will be lower and the service standards may not be high and in turn affect your occupancy).
Cash-strapped local councils around New Zealand are examining the financial aspects of short term accommodation providers and starting to impose restrictions or additional charges on such activities.
The ‘bed-tax’ in Auckland / Queenstown
In Auckland, entire houses or apartments that are rented out for the short term will have to pay an Accommodation Provider Targeted Rate (scaled to the number of days and zone) on top of general property rates if they rent it out for more than 28 days in a year. There has been a lot of confusion and debate over whether self-contained units are subject to the same regulation and Auckland Council itself does not have a comprehensive answer. In fact, there has been ongoing discussion without clear guidance as to what exactly constitutes a ‘self-contained’ unit.
I personally know of hosts in Glendowie who have seen their rates bill rise by more than 300%. If you are a seller and wanting to sell your property (see here for how to choose the best real estate agent), you should definitely aim to get the rates bill changed before going on the market as you are scaring off a lot of potential buyers.
Even those who are still willing to purchase from you will expect a discount on price to cover the additional commercial rates which they have to fork out for the rating year. Therefore, agents advertising such a property should target those buyers who are keen for additional income and are unfazed by the rates as the profits are more than enough to cover them. Conversely, as a buyer, you need to be aware that you may be liable for those increased rates (even if the owner has yet to receive a letter from Auckland Council stating as such) if you are buying such a property – at least for that rating year.
Based on Auckland Council’s guidance:
- If you withdrew your listing prior to 30 June 2017, then changes will not apply to you.
- If you removed your listing after 30 June 2017, then the changes do apply for the 2018/2019 rating year but will not apply in future years.
If you have a body corporate, you also have to check whether there are certain rules that restrict you from renting it out on Airbnb. Even if there are no current rules, that could change in the future if majority feel that the constant flow of people coming from Airbnb is disruptive and could potentially create an unsafe neighbourhood.
Hosts need to consider that Airbnb income may be taxable and that decreases your profit. On the other hand, you may be able to claim operating expenses against that income. Take appropriate accounting advice before you begin.
When you rent a part of your house on Airbnb, make sure you inform your insurance company and obtain written approval. There have been cases in Auckland where guests have stolen things or even burnt down a room (due to an electric blanket). Without full disclosure, you may face difficulties claiming for those damages (if even covered) While Airbnb offers their million dollar host guarantee, they have clearly stated that this does not replace your regular home insurance. It has also been notoriously difficult to claim from other guests’ experiences.
Rough Formula To Consider
A = REVENUE PER YEAR: estimated cost per night x expected occupancy (number of nights in a year)
B = COST PER YEAR: this is the SUM of
- estimated cost in providing supplies (for e.g. food, toiletries etc)
- initial costs for furnishings etc amortised over an expected lifespan
- time taken to operate/respond/clean (you can estimate at least 30 hours per month assuming a full occupancy) x value of your time on a per hour basis
- targeted rates (for entire apartments/houses/self-contained units)
- apportioned mortgage interest/rates/electricity/water/gas/internet (check with your accountant for calculations)
NET PROFIT AFTER TAXES = A – B
Is it now worth it for you to run an Airbnb in Kohimarama, Orakei, St Heliers, Mission Bay, Glendowie or Remuera compared to having a long term flat mate?
There is definitely money-making potential with short term rental platforms. Do it right and you can even get a property that pays you to live in it.
Buyers should do their own due diligence as to how feasible and profitable it is to run a successful Airbnb on that particular property that they are interested before buying. You have to think whether the effort, time and money you invest is worth the revenue generated from the business (compared to long term rentals or getting flatmates). If the property is being advertised as a successful Airbnb, ask the agent to produce evidence of that revenue (records of which are all stored on Airbnb).
Do your research before plunging into it. Speak with people who operate Airbnb and find out what works for them. The ‘sharing’ economy is here to stay so if you are keen to get started on using Airbnb as a viable income generator, feel free to reach out and I am happy to share my personal experience.
If you are having trouble with the accommodation provider targeted rates, feel free to get in touch and I will share some helpful contacts with you.
Found this post useful and have more questions? Or still confused?
Please get in touch and I am happy to have a chat over coffee! (Contact details below)