A recent surge in the sharing economy has landlords weighing up the benefits of short-stay rentals versus long term lets, and with the number of homes and apartments listed on Airbnb shooting up by 54% now is a good time to ask: can the long-term yields of a traditional letting stand up to the per-night profits offered by Airbnb?
In a city that hosts upwards of 15 million tourists a year, the concept of short-stay rentals isn’t new. But, with the introduction and continued growth of online platforms like Airbnb, FlipKey, and HomeAway, there has been a sharp rise in the number of landlords taking their long term-lets off the market in favour of new ventures.
Between 2016 and 2017 in London, the number of homes and apartments listed on Airbnb increased by 54%, removing an estimated 12, 213 homes from the private rental market. While long-term renters provide landlords with consistent cashflow throughout the year, data suggests the lucrative potential of higher rates on shorter terms is a strategy that more buy-to-let landlords are starting to seriously consider.
The Rise of Short-Stay Accommodation
Driven by the capital’s appeal as a tourist destination, demand for short-term lets in London has always been high, and with a steady influx of landlords turning to short-lets, supply is growing rapidly. In fact, what was originally a way for homeowners to monetise extra space in their homes by turning a single room into a short-term let has become a portal for serious buy-to-let landlords and multi-listers to run fully-fledged businesses.
According to the CEO of Magnuson Hotels, if Airbnb were classed by the industry as a hotel chain, it would represent more than 22% of the UK hotel inventory. One extreme multi-lister example is a landlord with over 881 properties in London who made £11.9 million in one year on Airbnb.
For the average host, however, financial reasons and policy changes are two of the main motivating factors to get involved in short-term lets. In an online survey of landlords across the UK, 7% confirmed that they are planning on offering their properties as short-term lets rather than private rentals. That’s a move of 133,000 from the private rented sector to the short-term market. Of these, 36% reported that the decision was due to the changes in mortgage interest relief, which could see landlords face reduced profitability.
How do Private Rent Landlords Compare to the Average Host?
A 2017 profile of private UK landlords found that 62% owned a single rented property, with 7% owning five or more. Over 60% of these landlords were aged 55 and older, while one third reported an annual income of between £5000 and £10,000.
As the largest platform of its kind in the UK, most of the data on short-stay lets is from Airbnb, which reports that 76% of hosts rent out their primary home. Of this, 62% are female compared to 38% of men, with an average age of 44 across both. The average annual earnings for a typical host in the UK come in at around £3,000.
Of the 168, 000 active listings in the UK right now:
- 55% rent out the entire home
- 44% rent out a private room
- 1% rent out a shared room
How Much Can You Earn a Day?
In addition to bringing £3,46 billion to the UK economy between July 2016 and 2017, local households earned an estimated £657 million using Airbnb.
According to the RLA, the average price for a single night in a home listed on Airbnb in London is £137. Median rent in London was listed at £1,433 by Gov.UK in December 2017, equating to £48 a night for landlords in the long term rental market.
While numbers lean in favour of Airbnb when it comes to profit, an estimated occupancy rate of 24.5% in London and a saturated market present challenges to overall earning potential.
Factors to Consider
With limited housing already a contentious issue in London, and more landlords starting to offer their properties as short-term lets, speculation on the impact this may have on the private rental sector continues. There has been a call for stricter policies that support landlords and better regulate the short-term letting market.
While a short-term let at a higher daily rate may seem like a lucrative strategy, there are several factors to consider before you decide what’s right for your property. It is therefore essential to speak to an expert that can guide you through the various facets of each option.
The law: It is important to understand the laws and regulations that apply to short-term lets to avoid violations. Despite a 90-day restriction on the length of time that short-term accommodation can be offered, 2016 saw a 23% increase in the number of lettings which exceeded this. In addition, 15% of landlords have experienced issues with tenants sub-letting online, which can not only lead to eviction, but can increase maintenance costs for the landlord and even put his/her mortgage at risk.
Management: Short-term letting and hosting is a service business and needs to be treated as such. As a result, the time spent managing your own Airbnb is significantly higher than it would be managing a long-term rental. Cleaning, handling check-ins, restocking cupboards, general queries and issues, as well as maintenance of your home, can all be time consuming. With long-term lets, property management services provide the following benefits: Peace of mind, your own personal and very experienced property manager, no middle of the night emergencies, access to trusted, vetted contractors, regular property inspections, better tenant retention: longer tenancies, shorter void periods, deposit negotiations, better quality and corporate tenants.
Competitors: Hosts who simply list their homes to make extra money are likely to offer more competitive rates than hosts in the business to genuinely make a profit. In addition, multi-listers will not only be able to offer competitive rates, but in some cases a more streamlined service too, giving them a competitive edge. One major advantage is that rates for short-term lets are far more flexible than long-term prices, and can be adjusted easily according to season and demand.
Tax: Currently, government’s phased restriction to the basic rate of income tax for mortgage relief for landlords does not apply to short-term lets. With the Rent a Room Scheme, Airbnb landlords are able to rent out a furnished room in their home and collect up to £7,500 a year tax free in room rent. Traditional landlords are facing much stricter regulations and will no longer be able to claim tax relief on their mortgage interest payments, although this change is slowly being phased in over the next four years. It is highly recommended to seek the advice of tax specialists and we highly recommend WSM.
Whether you’re a homeowner looking to enter the short-term letting market or an experienced buy-to-let landlord, speak to D&G about a strategy that works for you. Our Property Management Service is designed to assist landlords with every detail to ensure a well-managed property and long-term tenant satisfaction.