P407, Airbnb - Is it a good fit?
A question comes up quite often is should one turn the current rental(s) into Airbnb? My personal view on this is quite simple: No. More accurately, I don’t recommend this option for the city I am currently living in – Edmonton. The reason? I can sum-up it in three words “Good, bad, & ugly”.
In this post, I will share with you what are these reasons in detail and why Edmonton, in my personal opinion, might not be the best place for Airbnb option.
Airbnb was started in 2008 by a few college students, with a simple idea – “sub-let” the living room of their rental to a few-night-dwellers and make a few quick bucks. (which if you think about it from a different angle, it is likely not what many landlords originally bargained for…). Via Airbnb’s platform, homeowners can turn their empty rooms into a reliable income making machine, while the savvy travelers save money by staying in residential homes instead of expensive hotels.
In recent years, instead of just renting out empty room(s), it becomes more and more common to turn the whole house/condo/rental into the Airbnb accommodation exclusively. People who are doing his for some obvious good reasons. To name a few:
- Triple the profit – This is especially true for the cities attracting many tourist all year long. In comparison, Airbnb normally has 3-5 times higher daily rate than traditional rents. All you need is to add a few pieces of furniture and some additional cleaning work, you put ads on Airbnb for “free”, and watch the money rolling into your bank (while Airbnb cuts their share from both sides (the host and guest) for about 3-5% of the total amount on each transaction.
- Easy process – comparing to traditional renting, many Airbnb’s hosts find the process to fill their accommodation is much more pleasurable. You don’t have to market your property, screen your own tenants, sign off the lease, collect the rent, all these are being taken care of by Airbnb beautifully designed platform.
It all seems great until you ask you a simple question: what is the catch? There are some unpleasant surprises about Airbnb once a newbie dips the feet into the water
Here are a few common concerns/issue you may need to be aware of:
- High vacancy rate – This is especially problematic to the cities/locations that are not famous tourist destinations. Take Edmonton as an example, when I was an Airbnb host, I was getting emails from Airbnb urging me to drop the price in the winter months, but still, very few interests. When I finally called in Airbnb, the lady told me it is quite common that there are just not many people travelling to Edmonton in the dead winter. With the fact that more than half of the year is winter, all of sudden, the high daily rate become less attractive than it appears due to 50% high avancy rate.
- Labor intensive – The nature of Airbnb leads to frequent turn-overs. It may be manageable when it is just a room or suite within your own home or nearby. However, it became a quite hassle to keep getting the whole suite cleaned up and ready for the next guests. These tedious work adds up very quickly before it turns into a real heavy burden eating into your valuable time that otherwise can be well-spent on other more enjoyable things. You may hire someone to do these for you as long as the cost and quality of the work make economic sense. This issue, compounded with the high vacancy rate, can wipe out all the benefits Airbnb might bring.
Besides the above 2 obvious downsides, there are some not so obvious and ‘ugly’ aspects one should know before trying out Airbnb.
- Grey legal area – Airbnb is in a relatively new field that is different from traditional ones such as residential or hospitality. As such, there are grey legal areas many hosts have to deal with. To name a few: what is the by-law requirement? Is a business license needed? if is it is in a condo, does the condo by-law allow such practice?… All these factors shall be considered and investigated fully before any informed decision can be made.
- Insurance – your current home insurance likely won’t cover the Airbnb scenario. In addition, you may hear Airbnb offer something called “host guarantee”, which offer up to $1million for certain liability claims or damages. And that may not cover everything, making a claim can be complicated. Due to the risky nature regarded by the insurance providers, the cost to insure your rental as an Airbnb can be hefty, if you manage to get it set up.
- Property taxes – Many cities are catching up to impose substantial properties taxes on the properties used as short rentals via “Airbnb”. It obviously increases your overall cost vs the traditional rental option. Depending on the overall local sentiment towards Airbnb, this cost can be marginally or significantly higher than the “long-term renting” option.
- Safety – Airbnb has much higher turn-over rate, and many more uncertain factors when various guests in and out within a short-time span. (Instead of staying one year, most Airbnb guests choose to stay much shorter term such as 3-5 days). This may poise as the safety challenge as you have very little information about the guests and you will likely heavily depend on Airbnb to resolve this to the best they can. Based on my personal experience, Airbnb has nothing more than telling you to call local police if things went really wrong.
As a personal opinion, I don’t think Edmonton is the best city to host Airbnb, especially you are hoping to exert it as the main investment tool replacing the long term renting option. Here are the 3 key disadvantages:
01). The demand are far less than the Airbnb’s in the cities of tourist favorite destinations, such as Vancouver. It translates into high vacancy rate and lower daily rate.
02). The long-winter months also means a high than normal vacancy rates throughout the year, which will compromise the overall income greatly.
03). The city of Edmonton is a big advocate of affordable housing, and Airbnb is not something on the top of the priority list to be prompted anytime soon.
When there is less demand, higher vacancy rate, and less favorable regulation from the local government, one might find an uphill battle in turning your current rental to Airbnb.
Airbnb, is one of many effective real estate investment vehicles, if it is being used properly. It is up to the individual “driver” to decide how to pick the right option at the right time on the right location.