What’s going on guys, it's Jordan de Jong here and today I want to ask you if you have ever considered short term rental stays for your investment property? Short term stays are another avenue for property investors to increase their cash flow, in this video, ill specifically be talking about Airbnb, as we have set up two investment properties on Airbnb and I want to go over the benefits and disadvantages, so you can make your own decision. This is going to be more of a side business than a typical passive income investment property, however with a small amount of additional effort you could considerably increase the amount of income generated by your investment property. It may not be for everyone, but for people who want to fast track their positive cash flow to feed into other investment properties, this may be an ideal solution. Firstly, let’s go over the benefits of listing on Airbnb. Overall, this should be a much better return on investment, based on the last 6 months of hosting on Airbnb we have on average nearly doubled what we would have received if we had just rented out the property. Which for the most part is pure profit, either way, you still have to pay your mortgage, rates & strata fees if they apply. With the addition of having to pay Electricity, Gas & Water it can be well worth the trade-off. Property managers are not required, if you want to manage your Airbnb yourself, it's fairly straight forward, and only requires 10-30 minutes of interaction with each guest from initial inquiry to check-out, of course, you can always hire someone to do this for you. You get free advertising, no more display board costs or property website listing fees, It’s in Airbnb’s best interest to occupy your house, without it being occupied they aren’t generating business and don’t get paid either. When I say free, you could get a professional photographer if you wish, although using your own photos (depending on your photography skills) is sometimes just as good, you do also have to pay a “hosting fee” with each booking, which could be considered a part of the advertising cost. If you sleep better a night knowing your investment property is well maintained, with guests frequently checking in & out, you have more control over your property and can maintain the ascetics more regularly, rather than being stuck in a 12-month contract. This is due to the ability to have better selection and interaction with guests who are staying at your Airbnb, depending on how strict you want your settings to be, you can set house rules & requirements which they must agree to and even chat to all guests before they are able to book. Airbnb provides insurances for their listings; the Host Protection Insurance program currently provides primary liability coverage for up to $1 million USD per occurrence in the event of a third-party claim of bodily injury. The Host Guarantee currently provides property damage up to $1 million USD for every host and every listing at no additional cost, giving you peace of mind that your property is insured in the worst-case scenario. The day after your guest checks in, you get fully paid upfront. Airbnb deals with all the payments, there’s no late payments or awkward conversations about money with your guests. This is a massive benefit if you have a month or a longer stay, getting paid in full upfront, while using an offset account against your mortgage, reduces your interest repayments from the day after they check-in. With all these benefits, it does also come with risks and disadvantages you should consider when deciding if setting up an Airbnb is right for you. As I said before, this is no longer a set and forget passive income investment property, Airbnb does require a significant amount of additional work, which, if you have consistent bookings and making good returns, you could consider automating most of the process. Although I don’t really consider anything just a passive income, meaning, if you have a rental property, you still did all the work to acquire it, find & maintain your property manager and ensure they are always being competitive, this still takes up some of your time. A better indicator is something I call ROT or Return on Time, meaning how much return you’re getting for your time, if you have a negatively geared investment property, taking capital gain out of the equation, your actually getting a negative ROT. The three biggest time constraints are cleaning the residence after a guest leaves (About 3 Hours), communicating with potential and current guests (about 30 minutes per guest) and managing your listing and pricing, (about 2 hours for initial setup and 30 minutes per week). All these things can be fully automated, you can find a cleaner who is also willing to do sheets & towels and you could hire a co-host for your listing to manage communication with guests and monitor competitive pricing. Setting up an Airbnb can be pretty costly, depending on the vibe and feel you want to go for, fully furnishing a property is expensive. There are significant benefits to choosing some key pieces that will pop out on your photos. More attractive photos mean more bookings, I wouldn’t recommend just going to Ikea & Kmart to fill the entire house. For the Airbnb’s we have filled, both being 2-bedroom townhouses, a good indication is about 10-15G to fully furnished inside and out. Low occupancy rates are another risk you may face, having no one booked for an entire month can be a little daunting, although I have said that it’s in Airbnb’s best interest to occupy your house, if you’re not competitive with your prices you’ll only get the drips and drabs of unwanted guests. If you consistently monitor your pricing, including prices of hotels, motels and other Airbnb’s in the area you should be able to mitigate this risk. Including removing other costs that may deter someone from booking, like additional guest fees, high cleaning fees & security deposit. Unexpected parties or damage to property, although this hasn’t happened to us yet, we have heard some horror stories. The best way to mitigate these risks is to be selective with who you allow booking. Ask Questions about their stay, who’s staying with them and reason for their visit. Banks don’t consider income before the first 12 months, like any new business, banks need a full 12 months of steady/reliable transactions to even consider it being a viable source of income, so if you think two months of high rental returns are going to increase your borrowing capacity, think again. Future laws & regulations, right now, laws on short term stays are minimal, in Victoria, it's only currently a problem if you Airbnb under a body corporate and have constant noise complaints or unease to the communal living conditions. Under these situations, other body corporate residents can make complaints to VCAT. However, they will need significant proof and by selecting your guests you can avoid this altogether. These are currently laws and may change dramatically in the future, worst case scenario you can just go back to leasing normally. The final risk is setting up an Airbnb in a location that doesn’t have demand for short term rentals, suburbia away from major city centres, far from public transport and not close to working areas are not ideal for Airbnb. If you have a property near a holiday spot such as a beach or tourist destination, just be wary that your stays may be seasonal, and you’ll have to factor the lower occupancy rate seasons into the price for high seasons. As always, seek your own professional financial advice for your current situation. Until next time, happy house hunting.

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