Is This Airbnb Story Too Good to Be True?

A recent study claims that South African landlords can pay off property years quicker by using Airbnb instead of traditional letting. This is why the study is wrong.

It looks fantastic on paper, but recent headlines stating that homeowners in Durban who rent out rooms in their homes under the Airbnb banner can pay off their home loans faster than anywhere else in the world are somewhat misleading.

Don't get us wrong, we think Airbnb is a fantastic concept both for the people who use the facility and those who rent out rooms (or the entire property) in order to help pay the bills. The initiative was the brainchild of a couple of guys in the US struggling to pay their rent. The enterprising duo bought some air beds and rented out space on their lounge floor. There was, thanks to a huge conference being held in their hometown, a severe shortage of accommodation at the time and the offer was snapped up by those in desperate need of a bed. They went on to launch the Airbnb brand, a company that is now worth in excess of $25-billion. There are millions of property owners around the world who are now successfully renting out rooms in order to earn a little extra cash and millions of happy travellers and business people who are able to secure accommodation for a fraction of what it costs to stay in a hotel. It's a win-win situation for all (except, perhaps for the hotel owners, but that's another story).

Obviously what's on offer accommodation-wise is going to influence the amount charged and that's the beauty of this concept. There’s a massive variety of accommodation available ranging from extremely upmarket – a Californian property is billed at over R403 000 per night - while those working on a tight budget can book accommodation for as little as R2 300 per night for a property that sleeps five. All in all, it's a brilliant way to make some money, but homeowners need to keep things in perspective and understand that while there is relatively easy money to be made, it may not be the millions they envisage – despite what they read in the media.

According to a widely published study conducted by Nested, a British based online estate agency, it would take the owners of a typical Durban home 167 months to pay off their bond using traditional rental methods, while it would take only 18 months if they were to rent out the property using Airbnb. These calculations are based on a $94 343.00 (roughly R1.26-million) home. The report maintains the average monthly rental on such a property is $565 (approximately R7 560) while homes that are rented out via Airbnb will earn owners an average of $5 301 (approximately R70 000) per month.

Using their formula means that a R1.2-million property would need to be let out for 80% of the month, 12 months a year for around R3 500 per night if the owner has any chance of paying off his bond within an 18 month period.

There are at least two problems with this scenario. Firstly, it appears that properties which command this type of figure are upmarket homes in upmarket areas like Umhlanga Rocks, and secondly by the looks of things, they cost way more than the R1.2-million figure quoted in the study. According to Lightstone, over the past 12 months the average price of the majority of freehold property sold in Umhlanga Rocks was just over R6-million. Likewise, the largest number of sectional title homes sold for an average of around R5.3-million.

A search on the Airbnb website revealed that while there were homes in this area that commanded extremely high rentals, a large number were priced at way less than R3 500 a night and this was during the height of the December season. It's basically the same story in the rest of Durban and although there are properties in Morningside and surrounds which command high rentals (R3 500 and above) these are certainly not your average homes and would fall in to the upmarket bracket.

The other problem with the report is that the occupancy figures quoted don't allow for quieter periods of the year when homeowners may struggle to rent out the property. Likewise, rates generally change depending on the season and while they may well be able to charge top dollar during the height of the season, this figure could drop drastically during winter or at less favoured times of the year.

Don't be fooled into thinking that you’ll automatically make a mint. Think logically, factor in all the costs involved (including the cost to furnish the home to the right standard) and make an informed decision based on the facts.

Article courtesy of Private Property