Holidays are here, how to invest in an Airbnb

With tourism back in full swing, more flights and hotels, guest houses and bed and breakfasts are basically booked out for the summer, it might be time to start thinking about how you can capitalise on the Airbnb craze.

After a challenging period during the Covid-19 pandemic, short-term landlords are once again looking forward to earning good returns on their investment this summer according to rental agents from the Seeff Property Group.

If you are thinking about investing in an Airbnb, the agents say it is important to understand that there is a big difference between residential rentals and Airbnb, or short-term rentals. Long-term rentals are usually a safer bet as it ensures a steady stream of income.

Long-term rentals are also not subject to seasonality which means you could find a tenant at any time of the year and there are always tenants looking for accommodation.

What type of property is best for Airbnb?
According to Airbnb, locations with tourist attractions tend to be the best, but take seasonality into account. With such a long coastline and fabulous weather, there are plenty of places where you could look at investing in an Airbnb unit.

Apartments are often more feasible and tend to be cheaper. That said, estates such as golf and vineyard estates are also popular. Coastal villas and beach houses are another popular choice.

You could also simply convert some rooms or an existing flat at your house for Airbnb purposes, but should ensure that they offer comfort and privacy for guests. You could also invest in a property with the view to renting it out via Airbnb or short-term rentals.

You can either invest on your own, or could consider purchasing with a partner or as a syndicate. You could even finance it by way of a mortgage loan with the rental income then going towards paying off the asset. It is best to do a feasibility check to ensure the area and property type would be suitable.

Setting up the property for Airbnb
Airbnb rentals tend to require more upfront funding because it will need to be furnished. It will also need to be equipped with basics such as a television, bedding and towels and kitchen equipment to enable guests to prepare their own meals.

There is usually already a stock of properties available on Airbnb, so you should ensure your property can compete with those in terms of how it appears, what it offers, and most importantly, how it is priced.

You will also need to set up the property on Airbnb and other booking platforms and manage guest enquiries. The maintenance costs are usually higher as guests come and go at a higher rate compared to long-term rentals. Regular cleaning, inventory management and preparation for guests also mean more hands-on administration.

Legal compliance and taxation
You will need to check up on your local municipal regulations pertaining to running any kind of guest house or bed and breakfast establishment from your home. In Cape Town for example, there are few restrictions as the City looks to promote tourism and small business growth.

The rental income is fully taxable. Certain deductions are, however, permissible. Check the SARS website for more information and speak to a tax consultant for a better understanding of the implications.

Certain sectional title complexes and estates may also have specific rules which govern short-term rentals and Airbnb properties. It is vital that you check those before purchasing or setting up your short-term rental.

Drawbacks of Airbnb and short-term rentals
Aside from being able to earn really good returns on your investment in the Airbnb and short-term rental market, you can also use the property for your own holiday purposes. That said, although the potential income is higher, the costs associated with this type of property is also higher.

Seasonality plays a big role as the tourism market is often the first to be affected by a declining economy, so ensure you are financially able to sustain the property. That said, as we have seen in the past, it is always possible to put longer term tenants into the property if need be, but bear in mind that they often prefer unfurnished units.