Estimated Read: 15 minutes
Maybe you are a landlord considering moving into Airbnb. Or maybe you are wondering whether you should be a landlord instead. There are benefits and disadvantages to doing either. Choosing which option is best for you may depend on what you are trying to achieve and what type of work you are willing to do.
You may make a higher return on investment with Airbnb.
Given the short-term nature of Airbnb, hosts can often charge guests a higher proportional rate than they would if they were a regular landlord with tenants. Take London as an example. Airbnb’s UK Insights report confirmed that the typical Host in London earns £2,600 a year with 35 days being the typical amount of nights hosted per year for a typical listing. That’s £74.28 a night for the typical host. According to a report by the Office for National Statistics in December 2019, the median monthly rental income for long term tenancies in London was £1,450. Comparing the potential annual income you could get from both figures (before tax and other costs are deducted), you get the following:
Potential annual income from Airbnb (if rented out 365 days a year): £27,112.20
Potential annual income from long term tenants: £17,400.
It worth noting that there are lots of caveats to consider here. Whether you can get a high occupancy rate through Airbnb will depend on your location and having it occupied every day of the year might be unlikely. If you were are doing everything yourself, it could be an enormous amount of work if you spent every other day meeting guests and cleaning the property before the next ones arrive. Local restrictions like the London 90 day rule (limiting how many days you can host to 90 days a year) will also affect how much income you can earn. However, when simply looking at the potential ratio for return on investment, there may be significant benefits to running an Airbnb.
You may have more spare time with long-term tenants.
Once you are all set up and have tenants in the property, the day to day management of being a landlord could be easier than running an Airbnb. Provided that you are following all of the required regulations, have a good tenant and your property is safe and well maintained, your involvement would mainly be needed when a problem arises. Many landlords hire an agent to manage the day to day running of their properties, giving them even more free time. Contrast this with running an Airbnb where you may be responsible for meeting guests, cleaning the property and dealing with day to day issues on a regular basis. If you are considering running a full-time Airbnb or have multiple Airbnb properties however, you may also want to consider hiring an agent to manage this for you to free up your time.
There may be less regulatory hurdles if you run an Airbnb.
To get set up as a landlord, you will need to conduct risk assessments, health and safety checks and make sure your property is safe and well maintained. You will also have to adhere to regulations regarding tenant rights and handling deposits (check out our article on becoming a landlord for more details on what is involved). The Airbnb industry by contrast is still an emerging industry and is yet to catch up. You will still have to follow basic regulations such as for fire and safety and it makes sense to keep your property in a good shape if you want to attract more guests (see our article, on how to be an Airbnb host for more information on how to get started). You will also have to follow less regulations than if you were a regular landlord. As calls for more regulations around Airbnb grow however, it also makes sense to focus on providing your hosts with a safe, comfortable experience. Doing this may also improve your bottom line.
Landlords may have a more stable income.
Both landlords and Airbnb hosts may experience periods where their properties are unoccupied. However, once a landlord gets a tenant in their property, the typical minimum tenancy period is 6-12 months. Give the short-term nature of Airbnb hosting, Airbnb hosts may have more periods where no one stays at their property. How often this happens may depend on factors such as the location of your home, how good you are at promoting your property and general market trends. If your property is in a popular holiday destination then you may be affected by seasonality as well. Properties situated in big cities like London may be less affected by this. Crises such as economic shocks may also convince guests to travel less. In times of uncertainty, it could be tempting to stick to more traditional property sectors than short-term lets.
Running an Airbnb may give you a more flexible lifestyle.
The beauty of listing your home on sites like Airbnb, HomeAway and Booking.com is that you can list or delist your properties from their websites when needed. Don’t feel like having guests over? No problem. But if you are a landlord with a tenant on a fixed term, assured shorthold tenancy then you will have a lot less flexibility. Typically, you will have got them to sign a contract allowing them to reside in the property for a minimum period of 6-12 months and getting them to leave during this period is not straightforward. As the landlord you must give a legal reason that a tenant must leave the property during the tenancy (such as rent arrears) and would have to get a court order to evict them. If you put a premium on flexibility then running an Airbnb property will make more sense for you.
Being a landlord may expose yourself to less risk.
Landlords and their agents often require tenant background checks to minimise the risk of things like rent arrears. Given the long term nature of tenancies, doing this makes sense and the tenant may have more of an incentive to look after the property if they are living there. If you are running an Airbnb however, you won’t have time to conduct these types of background checks. If you accept automatic bookings, you may struggle to do any kind of checks at all. Hosts can require guests to complete Airbnb’s guest verification service. However, this type of check is basic and will not be as thorough. If you are running an Airbnb, you run the risk of having guests who are not who they say they are. Not only that, without extensive background checks you will not know what type of person you have allowed into your property. In addition, if you have a high turnover of guests there could be a greater chance that you may have to claim.
Airbnb is a growing market.
Since its UK operation was founded in 2012, Airbnb has generated an estimated £3.5 billion to the UK economy, according to Airbnb’s latest Insights Report in 2018. Several regions within the UK have seen over a 70% increase in the growth of inbound Airbnb guest arrivals. Companies like HomeAway and Booking.com have also entered the market, giving hosts a wider range of platforms to market their properties on. Whilst there will always be a demand for the long-term rental sector, the growth for short-term rentals may be appealing to landlords that have seen their returns on investment diminish in the face of subsequent regulations by different governments. With the Covid-19 crisis impacting world trade at the time of writing it looks like this growth has been halted abruptly. However, once this crisis is over it inevitable that people will start travelling again.
Landlords may have less trouble with mortgages and insurance.
The landlord market is well established and there are several buy to let mortgage and insurance products available to landlords. By contrast, most home insurance policies don’t cover Airbnb. If you have a landlord insurance policy, whether your insurer is prepared to cover you for Airbnb may depend on whether you do this in between tenancies or are intending to do this during a tenancy. Unfortunately, most landlord insurers do not provide adequate cover for platforms like Airbnb either. Specialist insurance companies like Pikl can cover you is you are not covered for this. If you have multiple properties, you may want to consider checking out our portfolio insurance.
Many mortgage providers including buy to let mortgages do not allow short-term guests in their mortgage terms. However, there are now some specialist mortgage providers starting to cover this. Speak to your provider if you are unclear regarding the terms of your mortgage.
Which option is better? It depends on what you are looking for.
Which option suits you will depend on your goals and the lifestyle you want to live. If you are planning on doing one or the other, you may want to write down a list of what is important to you. There are lots of variables to consider. Broadly speaking though, the decision could be broken down as follows:
If you are already a landlord, you could try Airbnb in between tenancies to maximise your level of income (provided your mortgage provider and insurer is comfortable with this). For those with a mixed portfolio of properties, running some properties as full-time Airbnb homes and others as traditional rental properties may be a good way to balance any risk with the potential gains in income.