“People make how much more?!!” is usually the response from people when we get talking about the facts and figures of hosting on Airbnb.
First we should warn you that this is quite a long blog but we promise that it’s packed full of useful information. Might be wise to put the kettle on or if you’re really short on time maybe jump to the conclusions section.
While making extra money isn’t always the only motivator for people wanting to list and rent their property through Airbnb, it’s often one of the primary reasons along with the full flexibility that it offers – you can use the property when you want to and rent it out when you don’t. How convenient!
So to help people understand what the potential financial upsides might be we decided to crunch the numbers to see what it really looks like.
To do this we sought the most accurate data that we could lay our keen hands on, made a few assumptions (see assumptions, data sources and definitions) and got busy with the number crunching.
Since the heart of our business is the Eastern Suburbs of Sydney we used data from a number of these suburbs - Ben Buckler, Bondi, Bondi Beach, North Bondi, Tamarama, Bronte – to try and make this as relevant to our readers as possible.
Average weekly comparison
First we looked at the average weekly revenue for each property type (1, 2, 3, 4+ bedrooms) and as you can see from the graph below there is a hefty increase seen in the Airbnb rental revenue compared to the “traditional” rental revenue. All property types bring in additional revenue through Airbnb starting at a massive 52% increase for a two bedroom property.
Each month throughout the year
To see what this looks like throughout the year and over longer periods of time we delved into the data for 2 bedroom properties. Although 2 bedroom properties show the smallest increase in revenue these are also the most common properties listed on Airbnb in the locations used.
Other than the low months of May and September (since these months miss the summer season and calendar events such as Mardi Gras, Easter, Winter Festival and International Food Festival) the monthly revenue from Airbnb is far greater than the revenue from “traditional” renting. Not surprisingly, the months from November to February really come into their own when our Eastern Suburbs attract guests from all over the world to experience our world class beaches and lifestyle.
Costs and profits
“What about the costs and profits?” we hear you say. Well, we looked at those too and this is where a lot of the assumptions come in (again, refer to end of blog for full details).
The graphs used so far are useful to see the comparative revenues, but when we compare the 2 types of profits then the potential financial benefits of Airbnb become even more clear, especially how this accumulates over a 12 months period.
As you can see below, the same 2 bedroom property listed and rented through Airbnb brings in an extra $10,173 profit in a single 12 months period.
And what about over a mortgage period of 25 years?
After seeing the data above we wondered what this would look like over the period of a typical mortgage of 25 years.
The biggest assumption that we made here – further to the others used so far – was the assumption of a 5% annual increase in the revenue generated from the property (both Airbnb and “traditional”), along with the same 5% annual increase in costs.
Since most people want to know the difference between the potential Airbnb and “traditional” profit we’ve jumped straight to looking at this variance. As you can see from the graph below this analysis shows a $485k (32%) increase in profit when using Airbnb. Again, since this is the variance, the $485k in profit is on top of the $1.5m that would be achieved through “traditional” renting, giving a total of $2m profit after 25 years using Airbnb.
Conclusion and a few points to consider
If you’ve made it this far, well done, there’s quite a bit of data to get through. If you’re still hungry for more, particularly data for a property with a different number of rooms, then please get in touch, we’d be happy to help.
Extra revenue and profit: As you can see, the potential financial benefits of renting and listing using Airbnb are pretty impressive. In the first 12 months alone our modelling and analysis shows a profit of $41,814 for the Airbnb rented property, compared to $31,621 for the “traditional”, an increase of 32%. This extra profit continues to grow over a typical mortgage life of 25 years.
Extra flexibility: The added bonus you get with using Airbnb is the flexibility to use the property. Since the Airbnb revenue data uses historical revenue achieved by hosts (not guess work), the data already factors in the properties not being 100% occupied due to days where the property couldn’t be booked and days where the owner will have decided to not rent the property, i.e. to use it for themselves.
- Earlier repayment of mortgage. If profits are higher for Airbnb rentals, more of your mortgage could be paid off each month/year, further reducing costs and therefore increasing your potential profits, which haven’t been factored in here.
Extra cash for holiday makers. These benefits aren’t just for investment property owners, they’re for everyone! If you just want to rent out your property whilst you go on holiday or away on business you can still enjoy this extra flexibility and cash. See how we can help.
- Airbnb top performers and Professional Management. In this blog we used the top performing Airbnb listings and to achieve this level of performance, the listing and property would need to be managed very effectively. This is where professional management can really provide a lot of value, maximizing the nightly rates and occupancy rates. A host with little time to manage the overall process (communications, meeting guests, regularly ensuring pricing is competitive and optimized, etc) will really struggle to achieve these types of results. See blog “How to rank higher in Airbnb search results” for an overview of some of the things it takes to effectively manage a property on Airbnb. As per below, we also factored in the cost of professional management. If you’d like to know more about our services, we’d love to hear from you.
Assumptions, data sources and definitions
As mentioned throughout this blog we had to use a number of assumptions and here we highlight these, along with our data sources, as it’s really important to us that we’re as transparent as possible. All items, costs, etc, are monthly.
Costs
There are a number of costs associated with listing and renting a property through Airbnb that don’t exist with “traditional” lettings so it’s really important to understand what these are. For example, Wi-Fi is a must, along with paying for the utilities, Airbnb Service Fee and a higher management fee when compared to “traditional” letting since the work involved with managing an Airbnb property is so much greater.
Costs – Airbnb
Wi-Fi, $60 | Electricity and Gas, $75 | Management Fee (Citysleepz), 20% revenue | Service Fee (Airbnb), 3% revenue.
Costs – “traditional”
Management Fee, 10% revenue.
Costs – excluded
Strata payments | Landlord insurance | Mortgage payments | Water costs | Furniture and refurbishments | Maintenance and repairs | Tax payments (or deductions).
Revenue and related items
"traditional" rental data
Here we used data from Housing NSW and used the median weekly rents for postcode 2026 (Ben Buckler, Bondi, Bondi Beach, North Bondi, Tamarama). http://www.housing.nsw.gov.au/about-us/reports-plans-and-papers/rent-and-sales-reports/
Airbnb revenue data
Here we used the combined report for Bondi, Tamarama and Bronte from the leading Airbnb data provider, Airdna (http://www.airdna.co.). We used the 83rd Airbnb percentile revenue which means that the Airbnb revenue is the average revenue for the top 17% performing listings.
“traditional”
This is where a property is rented through a traditional real estate agent.
Occupancy rate
This is the rate at which the property is rented out. We used 95% for "traditional" (not rented for 18 days each year) and this is not applicable for the Airbnb data since the data (from Airdna) is historical revenue achieved by hosts and therefore already accounts for nightly rate and occupancy.
Annual revenue and cost growth
5%. This estimated figure has been used to illustrate a potential annual increase in revenues, costs and profits. Using a leading provider in accurate housing information (http://www.residex.com.au/) the Median Rental Value Growth was 7% over the past 10 years for Bondi so using 5% is a conservative estimate for the increase in rental returns.
Average and Median
This combines data from both houses and apartments so it’s important to consider this when thinking about your own property.
Caveat
We also thought it would be prudent to highlight the following caveat. We’ve tried to be as factual and transparent as possible but as with any modelling, analysis and forecasting, the actual results are dependent on individual circumstances and market performance. The purpose of this blog is to provide awareness as to the potential results for both short term (Airbnb) and long term (“traditional”) letting performance based upon data from the period of February 2015 to January 2016.
We hope that you found this blog useful. If you have any questions at all or want more information, then please do get in touch since we’d love to hear from you.
