The growth of Airbnb & obtaining finance

Originally launched in August 2008 by two San Francisco based flatmates, Airbnb operates an online marketplace which allows its members (aka landlords) to let out spare rooms or households to tourists or short-term lodgers.

Since its formation it has been what can only be described as a global phenomenon covering 81,000 cities and 91 different countries. There are an estimated 2.9 million hosts, 150 million users and around 2 million related bookings for every night. These statistics are huge and as this gets bigger the entrepreneurial spirit of UK landlords will rise as they see this model as a viable business opportunity post-tax changes in the buy to let market.

So why did these tax changes for buy to let landlords spike an interest in the Airbnb market?

The tax changes for individuals who own buy to let properties has certainly reduced the profit margin and in some cases has led to losses. The more entrepreneurial landlords have started looking at ways to increase their yield through other rental avenues and this has seen a huge increase in properties being rented out on short-term lets such as Airbnb.  

Airbnb – the potential benefits to landlords:

  • Airbnb allows the landlord to offer a flexible pricing structure, unlike the standard Assured Shorthold Tenancy (AST) contract. For example, a one-bedroom flat in Cheltenham could be rented on AST basis of £700pcm working out at £162 a week. This in comparison to a busy season like Cheltenham Gold Cup where a similar flat would be booked out for an average of £210 per night on Airbnb. The same example can used in other areas from costal towns over summer holidays to city centres near events e.g. Dorset, Wimbledon, Greater London, etc.

  • Another great benefit for property owners is the enhanced day to day control they have of the property. Renters who don’t pay are no longer a long-term problem and with payments made up front your stress of lengthy legal battles and non-payment can be a thing of the past.

  • Owners tell us the main benefit they get through Airbnb is the increased yields. If the property is bought in the right location they can make significant gains albeit with more hands-on management.

  • Specialist tax advice is always worth investigating as some tax breaks on furnished lets may still be possible where they have disappeared from tradition Buy to Let properties.

With all investments there are risks that need to be carefully considered when looking at the short-term let market.  There is the level of uncertainty this model provides the property owner. The slow seasons and periods of unoccupancy will no doubt reduce the profitability.

There are other costs that need to be factored in such as furnishings and management time. It is the owners’ responsibility to ensure the property is ready for the next guest and all furnishings are well maintained. Airbnb works well with great customer feedback, so there’s work to be done to maintain a positive user experience. The time spent on achieving good feedback is essential and cannot be ignored if the business is to succeed.

The growth in the Airbnb market is still relatively new and many investors will struggle with obtaining finance on these investments from the high-street banks and lending institutions. However  the specialist lenders who fully understand the property investment market have stepped up with a range of innovative products to help airbnb landlords where the high street banks currently say no.

Complete FS has been operating in the specialist sector since 1993 and in that time, have worked with a selected panel of innovative specialist lenders which has seen the rise of many great offerings to the intermediary market and their clients.

Some of these innovations are now seen as the norm across the high street. Airbnb mortgages is one of those areas where a panel of lenders is breaking the mould with more lenders entering the market and a greater understanding of the circumstances giving landlords a greater offering and providing better value for money.

One such lender is Foundation Home Loans who have been offering short-term let products to landlords for some time and can see how the popularity of this type of investment is growing. Their short-term let products start at 3.09%, while five-year pricing starts at 3.64%.

The growing trend for ‘staycationing’ plus more demand for property stays away from the traditional hotel or B&B, means that Airbnb-type ‘tenancies’ are growing and Foundation is able to provide finance for those landlords looking to add such properties to their portfolios.

Complete FS has other lenders who will lend to Airbnb landlords as this market continues to increase.

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