29 March 2017

AirBnB – Dollars and Sense

Does AirBnB spell cashflow heaven or horror for homeowners?


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On billboards, TV, the back of the bus – happy, smiling hosts are renting out their spare room on AirBnB - for extra income, dream holidays and home repairs.

Having hosted over 800 people through AirBnB, radio host Sheldon Brown knows more about the service than most. He has had 260 reviews and at least 80% have been for 5 stars, so he now qualifies as an AirBnB Superhost.

Sheldon says 99% of his experiences of AirBnB have been good. The positive side is the wonderful sharing with international people. “They have an obvious awareness of what’s happening in the world. Hosting is about enhancing their experience of travelling. It balances my life to the extent that I have interesting things to talk about to my friends.”

With kids gone, I too succumbed, giving little thought to consequences. Download the app. Take some snaps. Write a profile. For a 3% service fee for each reservation, I was part of the massive online community marketplace that connects people in 192 countries worldwide renting out their unused space to travellers looking for accommodation. Surely you can’t go wrong because the app supplies you with reviews about travellers and hosts rate them to keep them honest – just like Uber.

Then something registered. Having complete strangers stay in my home might not be so smart, even if they have good reviews. And if I was going to do it, I should do it properly; stage the room; get professional photos, market myself competitively. And price the room to make decent dollars. After all, it’s expensive to live in city fringe Mt Eden.

Auckland tourism is experiencing massive demand and we simply don’t have enough accommodation to cope. As an Uber advocate I was accustomed to soaring surge pricing, often 3X the usual cost. So I cheerfully set the app to ‘on demand’. Let the market decide.

Bookings started to roll in. I wasn’t ready and had to defer guests. AirBnB reprimanded me, giving a 50% commitment rate on the review page noting: “You've cancelled 1 reservation in the past 365 days. This is below Airbnb's hosting standards, and your listings might be suspended.” So, I turned off the app and thought I was done.

Not so. Turned out the app and my desk computer didn’t sync. Jim from Massachussetts had booked the room – for $60 a night for four nights. Sheldon explains demand pricing on AirBnB is usually at least $20 less than the average rent.

So much for the surge! Mine was possibly the cheapest room in central Auckland.

Then Jim emailed saying he was looking forward to meeting me. I wasn’t so sure about Jim. Nor was I happy about letting out my expensive real estate for just $60 a night.

Then Jim knocked at the door.

He was nice in a kind of quiet, small-town, acrylic plaid shirt-wearing sort of way. Though you never can tell with p-smokers, rapists and axe murderers. Fortunately his visit coincided with friends who had to vacate their house because they were having their floors renovated. They came to stay so if Jim did turn out to be an axe murderer, at least I wouldn’t be on my own.

Jim ate the muesli and fruit before a kip then wandered along to catch a bus to the CBD. He returned just as my friends and I were sharing a pre-dinner wine. We offered Jim a glass – or two. And as we sat down for a beautiful dinner, it would have been churlish not to invite him to share that as well.  

Breakfast, accommodation, wine and dinner for just $60 a night? Yes, it was my own stupidity for not setting the terms on the website. I put this one down to experience.

Next day, I ran into a mate, Gavin, who owns a two bedroom home in Parnell. He’d just rented it out to a successful Sydney businessman for $360 a night through AirBnB to earn $3600, which did mean the inconvenience of vacating to stay with a friend for 10 days. To be honest, I felt a fool.

 

Anyway, Jim turned out to be a perfectly affable if not benign, non-axe-wielding house guest. We hardly saw him as he ventured to Devonport, Hobbiton and the Bay of Islands. When he left, he gave me a 5.0 star review.

My fortunate friend Gavin was not so lucky. The next day, he received an irate call from the businessman's partner complaining about the extortionate price. She ranted and raved about similar places on the site charging less.

The site clearly states the price and terms when making the booking and paying upfront by credit card. To argue after the fact was moronic.

Though she had made out it was to be a business trip, she had actually booked it for the man’s errant son whose domestic habits were far from tame. From the look of receipts scattered throughout the house, he spent most of his time in Auckland at the casino and had returned to my friend’s house to party.

When his time was up, Gavin arrived home, all curtains and blinds drawn. He was met with a blast of wet heat – even though it was summer – heaters were on and the clothes drier churning. Both beds were unmade when there was only supposed to be one person staying. The house was messy. He discovered furniture trashed, buttons and switches forced and plugs ripped out of his expensive Jukebox. Obvious rage had also been levelled at the washing machine and a valuable aluminium trunk bedside cabinet.

Various other things appeared odd including the sacrificial burning of an iPad in the barbecue, and a hangman’s noose tied in the wardrobe.

With around $2500 in damages, Gavin is investigating insurance options and won’t be rushing into his next AirBnB host experience.

Then Helen who was at a ladies’ mid-week birthday celebration in a leafy lined Mt Eden Street one night. At mid-night, the AirBnB guest burst in with her small baby and asked: “Is the party going to stop soon?” It was a Wednesday, party night in Mt Eden. The women were less than impressed.

Another friend was introduced to an international conman through AirBnB. She made the mistake of negotiating the terms of the rental outside the safety net of AirBnB. Unwittingly, she became a landlord burdened with a long-term tenancy she didn’t bargain for. It turned out the tenant was deferring court proceedings and was bailed to her home so she could not move him out to return home. It was a gut-wrenching saga, resolved only by an expensive bailiff.

So the moral of the story is, don’t venture lightly into a AirBnB hosting experience. There are risks. Know what you’re getting into and how to avoid issues.

What You Need To Know

AirBnB is free to set up. As a host, the money looks easy. It’s better than simply having a tenant. You get to meet people from all over the world. But there are strings attached so, know what you’re letting yourself in for. And make sure you’re protected if anything dodgy happens.

Unlike a standard rental, a host has to prepare the room or spaces, have rooms cleaned, wash the sheets, towels and windows for guests. You’re encouraged to give them breakfast and engage with them and that takes time and effort.

Guests don’t pay for utilities as they do in a normal rental situation, so in winter, they’ll crank up the heating. And though AirBnB has a rating system, travellers can close down their account if they get a bad review and open a new one which doesn’t show their history.

But perhaps the biggest concern for hosts is their property can get damaged. The popular service has its fair share of home-rental horror stories on US websites. Entire houses have been trashed by party-goers when the hosts thought they were renting to a quiet family. Or hosts have come home to find their property has been damaged, items stolen and the place littered with meth pipes.

AirBnB offers a certain amount of cover through their Host Guarantee programme which provides protection for up to $1,000,000 in damages to covered property in ‘eligible countries’. To claim, you must visit the site’s Resolution Centre and select Compensation for Damages, choose the relevant reservation that caused the damage and submit details. They say, make sure you do so before the next guest arrives. If your guest doesn’t respond within 72 hours, click Involve Airbnb in your Resolution Centre case. They advise they will make sure you and your guest are represented fairly.

However, Gavin (whose house in Parnell was damaged by 'the Sydney Businessman's' errant son) has experienced the frustration of trying to go through this process. He followed the recommended process to try to get the guest to admit liability on the website. Despite trying for several days, then weeks, the guest would not engage. Then the whole process broke down completely. Maybe he was outside his time limit. He doesn’t know.

Efforts to contact AirBnB by phone (04 4880 888) also failed because they never answered the phone. And because he didn’t advise his insurer that he was an AirBnB host, he couldn’t make a claim.  

Shanna Parsons of One50Group says if you’re letting your home out on AirBnB, your normal house or contents policies will cover you for any accidental damage.

“However, malicious or deliberate damage by invited guests isn’t covered by standard house and contents policies so there is a risk associated with taking people into your home."

“There are landlord or rental policies on the market that cover malicious damage by tenants, but because there are usually conditions or obligations associated with those in terms of reference checks on tenants and inspections that couldn’t be satisfied, then these policies may not provide cover either.” Prevention is the best form of protection, she says. “Take care of your belongings by securing or removing all valuables or taking a security bond to cover minor damage.”

Tips for keeping safe:

  1. Store personal valuables elsewhere
  2. Follow your gut feeling and make a police check if concerned
  3. If you are hosting in an apartment, check with the body corp that it’s legal

Insurance consultant Stuart Thompson has a friend who lived in a big Victorian mansion he rented in Ponsonby. He planned to hire a manager for free board and have them let it out and handle all the AirBnB business for him while he travelled. “It seemed a good idea. Except the landlord said he could only do it if he was in the house. “Sub-letting was not allowed under his lease. Insurance-wise a tenant could find themselves without liability cover if the activity is not disclosed to insurers.”

Graham York of Meth Detection Ltd in Tauranga hasn’t heard any stories about AirBnB hosts in New Zealand having problems, “But that doesn’t discount that this won’t be an issue. We’ve come across short term rentals with alarming levels of methamphetamine. At the moment, we’re experiencing high levels of contamination not just from manufacturing but also recreational use. There are electronic means of detection but I don’t advocate these. If it’s electronic, it can be tampered with. Physical testing is the only effective means.

“It is hard to detect as it doesn’t have a distinct smell in vapour form. And it’s hard to be selective about the kind of people who are using it. You have no idea if there is someone staying in your home who is using it. There’s potential for something serious to go wrong. There’s the possibility they may destroy your house. The insurance is usually capped at $25,000 but that would just pay for cleaning. And the meth may not be the problem, it’s the people using it.”

Hosts should also be aware they are subject to rental income taxes. AirBnB collects taxpayer information from hosts so they can provide an account of their earnings each year. Leicester Gouwland, director of accountancy firm William Buck Christmas Gouwland says, look at everything related to providing the accommodation – all house costs as a portion of the rooms available for use of the guest. “There are some exclusive areas and others not. The exclusive part is easy. For the non-exclusive you need to apportion on a reasonable basis and that may depend on how many other people are in the house. Look at all related costs.”

Treat the space like having a home office where you apportion the rent, insurance, repairs, interest, and so on. Also look at other direct costs such as food and groceries provided, transport if you’ve used your car to take guests places, Sky TV or Netflix, magazine subscriptions, accommodation membership. They all need to be apportioned on a reasonable basis.

“How often is it available for someone to use. If it’s constantly available, it may make a difference. Mixed asset rules refer to assets used for different purposes and relates to holiday homes where people claim a reasonable portion."

“You only have to earn $1 to start declaring your AirBnB income. Penalties apply for avoiding income tax and you will also incur interest on late payment of taxes."

"Anyone not declaring is not smart. Income from AirBnB is very traceable.”

GST applies if you earn over the $60,000 threshhold. If under, don’t worry.  “Chat with your accountant about how to present information so it’s not shambles. Accountants charge by the hour so save yourself some money.”

In a way, says Leicester, it’s no different to renting out a house, apart from the GST. The home office is the best way of comparing it. It’s a matter of having really good records, allocating costs and keeping track of income and expenditure. Set up a separate bank account and record your expenses and income.

Short-term leasing has become a popular option for property owners since the likes of Airbnb have started to take over world-wide. Auckland is doing extraordinarily well in the market. If you own property in central Auckland, you are likely to double the amount of your rental income. Whether you’re considering switching your property over to short term rental or already have your listing up and running; our team can help you with every aspect of managing your property for you. Renting out your second home shouldn’t have to be a second job.

 

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