How to invest in airbnb properties? Don’t start “buy to let” if… 🏘

Short-term or long-term rental? Airbnb or not? Investor crossroad.

Reading time: 3 min.

AIRBNB PROPERTY INVESTING IS ONE OF THE MOST COMMON METHODS AMONG ORDINARY PEOPLE WHO WANT TO START THE CLIMB TO FINANCIAL FREEDOM OR JUST GET AN ADDITIONAL CASH FLOW


Are vacation rental a good investment?

Is “buy to let” always profitable?

AIRBNB HAS MADE SHORT-TERM RENTING A MUCH SAFER BUSINESS THAN IN THE PAST, BUT IT IS NOT A DREAM

IS BUYING REAL ESTATE AND RENTING ON SHORT TERM A VIABLE BUSINESS?

INVESTING IN “BUY TO LET” IS NOT REALLY “PASSIVE”, CONSIDERING THE EFFORT AND SKILLS REQUIRED TO SELECT, BUY, ENHANCE AND MANAGE THE PROPERTY

Buy to let: Are you ready? (to lose money in 2019)

[Total: 3    Average: 5/5]

Investing in apartments to rent is a widespread practice at all levels. In Europe, this is done by both companies and entrepreneurs, but most of all, individuals and families.

So, if buying for rent is the best property investment ever, why doesn’t everyone do it? Click To Tweet

Nice question.

BTW…I’ve never liked people who say: “nice question”… (NDA)

You’re about to know if and when it makes sense to do it. Keep reading and maybe you’ll find out that you didn’t know a few things.


Things to know before buying a property to rent out

Let’s start with one thing. In fact, “the main thing”.

Actually, there are two key values that you absolutely need to know BEFORE applying for a mortgage (to let the property you buy on AirBnB)

I will talk about the second value you absolutely need to know later on.

Now, let’s start with a question!

If you’re here you’re very likely wondering if you should start a “buy-to-let” on AirBnB, right? You are smart aren’t you?

Get ready for the answer.


What is the gross rental yield in your city?


I really hope that you have an answer close to reality.

This is the fundamental number on which few non-experts dwell.

ACCORDING TO AN AUTHORITATIVE ENGLISH STUDY (WORLDFIRST)

THE AVERAGE RETURN ON A RENTAL PROPERTY IN CENTRAL EUROPE IS ABOUT 4% PER YEAR Click To Tweet

In some towns where property prices are very high this percentage can be even lower.

Keys and cash to pay for the rent. airbnb vs long term rental
Rental yield in Europe is low

Now that we know the expected return, there are a few things we absolutely must know before embarking on the “buy to let” adventure. The thing that should concern you the most is how to finance the operation in a convenient way.

Expenses to face when buying a property

The expenses that you to face buying a property are quickly summarized here:

  • Notary, lawyer and advisoring to transfer the property are variable expenses, but normally they amount to a few thousand euros. A notary alone costs about 2/4% of the price.

  • The RE agency that acted as an intermediary will collect from 1% to 5% commission on the final value. This value is also negotiable (beforehand, not after).

  • Taxes, mortgage, land registry.

  • The costs of taking out a mortgage, technical documents, a life insurance policy (…if we don’t pay, because we die) and a policy on the property (…if we burn or destroy the property).

  • Possible outstanding expenses from the previous owner.

  • Furniture. Renting a furnished house can be much more profitable. Renting through AirBnB can be very convenient in some cities, but of course furniture, bills and laundry and commissions we will pay them all.

The sum of these amounts is normally added up to 10% of the purchase price.


After the purchase, we still have to pay:

  • The mortgage installments. It could be floating. Lately, everyone has been choosing variable rates. However, no one has the perception of how much mortgage rates could rise in the future, and few do this terrible calculation. Few people know that everything is negotiable in the bank, especially when you want a mortgage that will make the bank earn a few thousands euros.

  • The condominium common charges. The maintenance of the facade, pools and the elevators can be very costly, so it’s good to collect information on the last time that they needed maintenance.

  • Tax. In some countries, the taxes on the house can be really high, and you should consider this carefully in case its your second or third home. In the UK a few things have changed recently.

  • Renovations. Typically every 15/20 years.

Most of the tax breaks are related to how you will use the property. Also, a mortgage can be an issue, and the bank can prevent you from renting it out for at least 6 months (this happens in the UK with some banks). Keep in mind that laws change, and the discounts and rebates you have enjoyed at the time you buy the property could disappear, compromising your business plan.


It is clear that some people who start a “buying to rent” business do not consider all these factors, and, therefore, may naively jeopardize the success of the operation.

Today, I’ll try to put together everything you need to know before you start generating an automatic annuity from a rented property.

Logically, to make a “buy to let” work, it is essential that expenses are lower than income after taxes.

In doing so, the property is paying for itself thanks to a virtuous circle that I have triggered. This concept is so trivial that a lot of people stumble upon it.

 Printing money (money printer)
Printing money through renting properties have never been easy.

Before buying a property, you will, therefore, have to make these calculations with very little optimism.

When renting on AirBnB or other similar portals, commissions apply. Actually, charges are quite low with AirBnB, but it offers somehow less than other portals. You will then have to deduct taxes from the amount cleared of commissions, and as if that was not enough, you will have to pay the bills, which are usually higher than average. Laundry and immediate maintenance will always be your responsibility. Also, don’t forget the time to manage the property and cleaning at the end of the stay.


I am one of the first European members of AirBnB as a traveler, and I am a rather demanding guest (translate: fussy), and I know that it is not easy to handle guest requests. You exchange many emails before getting to agreements and it’s not always a fluid process.

To make your flat desirable you also need great reviews which you collect by offering:

  1. Great service with smile

  2. Convenient location

  3. Charming and/or well kept accommodation

  4. Possibly all of the above

AirBnB travelers are not looking for a hotel. These people want a local experience, meet locals who give advice, and maybe they want you to remember their names. I still meet some of the new friends that I have made thanks to AirBnB during my travelling life. Those who do not know how these platforms work are better off staying away or learn the true spirit behind it first.


 Buy to rent wallpaper
It’s not that easy…

The wrong AirBnB investment calculator

“if I rent a house on the internet to tourists at 100 € per day at the end of the month is 3000 €” is crap

It is much safer to collect some fresh data before starting any short-term investment operation.

Powerful online resources can be found at AllTheRooms and Numbeo.com


Pros and cons of short term rental

Let’s summarize the advantages of AirBnB for short term rentals:

  1. Efficient, reliable platform.

  2. “Host guarantee” insurance covers property damage.

  3. “Host Insurance protection” is active to cover third-party claims.

  4. Price per day is much higher than what’s achievable with a long rent.

    You can pick your guests, refuse those who you don’t trust by chatting and seeing their profile, photos and reviews. Yes, also prospective guests have reviews.

Disadvantages:

  1. Charges. Both parties pay.

  2. Managing houses is a job; it is nowhere near a passive income.

  3. Normally there are higher taxes to pay compared to long rental ones.

  4. Frequent repairs to the property that always fall on the owner.

  5. Slim margins if you want an agency or someone else to manage the property for you.

So, you see that a simple idea like buying a house for short term rentals is not a safe deal if some conditions are not met beforehand.


If you want to be quite sure that your “buy to let” deal is successful, you need to:

  1. Cash in about 125% of your costs each month.

  2. Do not ask for a mortgage that exceeds 70% of the cost.

  3. Allocate an emergency deposit of 20% of the cost.

Not being able to figure out all these variable figures can be daunting. It can be a good idea to ask for the advice of an expert in the “Airbnbing business”. Obviously, this also has a cost that you will need to subtract from the final result, but it may be worth it.


A middle ground between very short web rental and long term rentals is to provide student housing.

Students routinely pay more per square meter but bring other problems. One is that they are lively and often the neighbors do not appreciate liveliness. Another is that they don’t stay for long, leaving you with the perennial problem of searching for new tenants.


The return that real estate generates is of two types:

  1. Rental cash flow

  2. The (likely) revaluation of the property at the time of sale

However, recent studies report that it is difficult to have a property that generates a high rent in an area that is revalued quite constantly. A rather widespread omission among those who say they bought and then sold some properties at higher prices is not to mention taxes paid on capital gain and transaction costs.


Another question we often avoid asking ourselves before starting a “purchase for rent” business is whether the property should be close to where we live or not.

In most cases, the best answer is yes, but some elements should be taken into account.

For example, if your goal is to achieve a high return (quite common as a wish, isn’t it?):

  1. The purchase price will need to be reasonable
  2. The rental yield should be (at least potentially) high

Let’s be honest, the chances of meeting these two conditions exactly in your neighborhood are low

It will be normal, by doing some research, to discover that in other cities and other neighborhoods (or even towns), you can earn much more for the same investment.

What I am writing here is the result of extensive research and in-depth analysis. Sharing it with smart people like you is a beautiful thing and for me, it’s a source of pride and satisfaction.


In real estate, perfection is when we buy the best moment before prices start to climb Click To Tweet

That’s easy to say, and it’s very easy to make reckless predictions.

Since this is impossible to predict this accurately, I rely on common sense:

  • The neighborhoods adjacent to areas where prices have risen a lot in recent periods are indicative candidates to follow the same trend

  • Areas where new transport lines or shopping centres are being built may also become more attractive if they are not already so

Best cities for Airbnb investment 2019

 

THE SECOND CRUCIAL QUESTION I HAVE TO ASK AS AN INVESTOR IN RENTED HOUSES IS THE TIME TO GET BACK FROM THE INVESTMENT (break-even)


When I have capital to invest, I will be boring, but I always search for the the same boring things.

I want to diversify and get the best return with the least risk.

Whenever possible, I want the capital not to be immobilised for too long or not immobilised at all.

Investing in real estate to make profit never meets the last condition.


I always wonder what the impact would be if I wanted to recoup the investment before schedule.

Normally, this is disastrous since the greatest benefits from real estate often come after many years of waiting/work.

Paris Vs. Berlin investing

According to the evaluations of a curious English agency, the time needed to recoup an investment when buying a house in Paris and Berlin and finally renting it out is very long.

Here they are:

✅ Paris:

  • Average four-room apartment, approximate price >1.100.000€

  • Ordinary rent about 2200€/month – Estimated return time 42 years(!)

  • Web rental like AirBnB about 5200€/month – Estimated return time 18 years

 

✅ Berlin:

  • Medium four-room apartment, approximate price >400.000€

  • Ordinary rent about 1200€/month – estimated time of return 30 years(!)

  • Web rental like AirBnB about 4400€/month – estimated return time 8 years

 

Data: 2017 Nested

buy a property to let in Paris or in Berlin infografic
It is better to buy a property to let in Paris or in Berlin? Things to know about the two cities. Data:ReasonWhyBerlin

Is better to buy a property to let in Paris or in Berlin? Things to know about the two cities. Data:ReasonWhyBerlin


I note that we are talking about a very useful comparison, but if I look better the (Nested) comparison just can’t be done. It is like comparing apples and oranges!

In fact, managing short rents, as we said, is a job and also has costs. Managing properties in the traditional way with long-term rents is much less tiring and less expensive. Click To Tweet

The calculation methodology used in the first comparison is not known.


In my opinion, yields generated by the web rents shown in the table could be optimistic compared to reality. Let’s not forget that many cities around the world severely restrict and regulate the activity of sites such as AirBnB. This should be reported in your business plan as an exogenous variable.

 Rental-property-statistics. (Wikipedia)
Data: Wikipedia UK

Investing in real estate when you have all the data in hand is much wiser. There will always be a number of variables out of your control, but if you take inspiration from the examples mentioned, you could try to make fewer mistakes and achieve the performance goal in time (a little ‘less in)certain.

 

If you found what I wrote useful, please thank me by sharing this article now. WhatsApp, Facebook and Twitter are the most used means.

 


Let’s sum it up:

For many people, a house is the most important investment of their lives. I hope these evaluations of mine will help you to think.


Web opportunities for property investors

Recently I started keeping an eye on new opportunities coming from the web about real estate

They are methods on how to enter the market and begin to understand how it works by investing only a fraction of what it would cost to do it “live” and alone. One of the most famous website in Europe is Housers, one less famous but that I prefer (as an investor myself) is EstateGuru.

 

When I want to diversify geographically, I look at a giant of “buy to let” which is a British agency that “buys to rent”. These are specialized in buying properties for rent, the website is Property Partners. Sometimes, they build buildings to rent it out to students. As soon as the operation is completed, they split up the investments and make it available to the public.

Basically, I can invest in rented properties (which I choose on their website), even with only 250 pounds sterling, about 300€. A less demanding way than the one made in “real life”mentioned above.

The average yields so far have exceeded 7% per year, which is nothing to call home about, but at least (in my humble opinion) is realistic to achieve.

The risks may be similar to those who invest in houses to rent, but an advantage is being able to diversify in many real properties, and also to be able to invest even small amounts.

How safe is online RE crowdfunding

Is this way of investing a safer option?

I can’t say yet, but in fact it can limit the mistakes I could make as a non-professional real estate investor (yet) and it doesn’t freeze too much of my capital for too many years.

A good point is that renting yield, if I buy-to-let online, starts to flow from the very first month I take action. In real life if I buy a property to let I might have to wait months to earn the first money.

Investing online also allows to invest small amounts of money.


Do you have any questions? I am happy to answer everything I know.

Add this article to your favorites (CMD+D) as one day you will need it together with the new “how to invest money” essential guide for DIY investors.


IMPORTANT NOTE: The indications contained in this analysis are to be considered mere tools of information and are not intended to constitute financial advice in any way, solicitation to public savings, suggesting or promoting any form of investment. The ideas, concepts and everything I write about are simply my opinion based on what I have studied and almost always tried myself.

I am neither an investment advisor, nor do I aspire to be one.


[Total: 3    Average: 5/5]

6 thoughts on “How to invest in airbnb properties? Don’t start “buy to let” if… 🏘

  1. The Canny says:

    Great post and a very unbiased report of using short-term rentals as a ‘passive’ income stream. One thing I would add is the stress factor. Turnkey managed or not, owners will need to deal with unpredictable scenarios which will chip away at their yield and wellbeing.

    Coercion is the trick of the trade these days. Fortunately, I haven’t encountered this too much. However, some unscrupulous guests will take advantage of your 4-5* rating. Hence, I prefer using long term rentals over short-term rentals (as a type of investment) any day.

    • True says:

      Thank you for adding this point.
      The “review economy” is also generating distortions like the one you mention.
      AirBnB invites hosts to contact them when this happen, but this won’t reduce the stress caused by dealing with it.

  2. Mark says:

    Excellent post on STR. Makes many good points.

    I tried this for a while but it was just too much trouble for me. I can make the same return in passive investments without the headache.

    Good on ya if you can make it work!

    Nice blog. Enjoying reading.

    Cheers,

    Mark

  3. Peter K says:

    Excellent points made in this post. My personal experience with renting my summer vacation home is great but not for as an investment. My vacation home is on an island in Greece (not one of the fancy ones) and I usually get to rent it for about 2-3 weeks out of the year. I rent it for 370EUR which means I get about 5,100-7,770EUR pre year. If you deduct taxes for this at 15% there is about 4,400-6,600 left and that is usually enough to pay for upkeep (property taxes, maintenance, etc). That would make it a terrible investment but I love having a summer home and that way I can actually afford it.

  4. Reader says:

    I am renting out on AirBnB. I didn’t do all your calculations, but profit after tax is nothing to call home about…[write more on this subject]

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