Airbnb Rental Advice

Ubaka

Hi All,
Just seeking some high level advice. We are planning on speaking to a financial advisor on this but wanted to get a bit more of a feel. We are planning on renting out our flat on Airbnb/other holiday let's platforms. We pay no mortgage and it's it's owned outright. The flat is very central in London only 20 mins from the square mile and city and Shoreditch. We are both higher earners so will be taxed quite high on profitssprofits wanted to understand how we can maximize income from renting. We plan to have it manager by an agent as we won't have time with work. Is there any advice for new landlords pursuing this route. 

Thanks

letsbetfair

Why are you starting this business as opposed to investing the money somewhere else? You'll have Airbnb and then your agent both taking a cut, and then face high tax. You'll be competing against people with more experience, lower costs and organised in a more tax efficient way. London may also regulate this type of let more tightly.
I'm sure there's still £s in this type of let, but why is this the right business for you?

eddddy

Being a flat, I guess it's leasehold. Does your lease allow you to do Airbnb rentals, and therefore, does the freeholder's buildings insurance cover Airbnb rentals?

If the lease doesn't allow it, but you take the risk anyway, might your neighbours be annoyed and quiz your guests on why they are there etc?  As well as report you to the freeholder.

Ubaka

We are fortunate to own the property with no mortgage so want it to work for us. We are also fortunate enough to be able to save for a 2nd property in London so, we plan to buy a new property and rent out this one. 
We are also planning on starting a family and the flat is not suited for raising kids and we want to upscale.
This business will form partopart our investment portfolio moving forward and revenue from this will be invested into other soft (in terms of assets) investment schemes. 
We can either Airbnb or privately rent it out but the Airbnb market in London will present a better yield (albeit not volatile) and by virtue of paying no mortgage we figure that we can afford to let it be managed by an agent for ease. 
That's my thoughts anyways from a high level perspective. 

Ubaka

eddddy said:

Being a flat, I guess it's leasehold. Does your lease allow you to do Airbnb rentals, and therefore, does the freeholder's buildings insurance cover Airbnb rentals?

If the lease doesn't allow it, but you take the risk anyway, might your neighbours be annoyed and quiz your guests on why they are there etc?  As well as report you to the freeholder.

Our  neighbor recently renovated her flat and rented out her flat on Airbnb. It is leasehold and there seems to be nothing that exempts us from this plus, 2 other flats in the complex are Airbnb rentals. 
The neighbors may be an issue but vetting will be stipulated for any potential tenants. I don't know how to get around this issue you are right but it is London, in a nice neighborhood close to big nightlife and the city so goes with the territory.... No?

letsbetfair

Don't assume that - because a neighbor is doing Airbnb - the lease allows it: people often ignore this. You'll need to check the lease. Also bear in mind that vetting Airbnb renters is challenging, and lots of agents working in this field aren't great...
Be careful not to fall into something similar to the sunk costs fallacy. If you didn't already own this flat, would you be buying it to Airbnb or put your money elsewhere?
If you own outright and have high incomes you can clearly afford to take risks here. One question to discuss with your financial advisor is how renting this flat compares with the various other things you could do with the money if you sell.

Ubaka

letsbetfair said:

Don't assume that - because a neighbor is doing Airbnb - the lease allows it: people often ignore this. You'll need to check the lease. Also bear in mind that vetting Airbnb renters is challenging, and lots of agents working in this field aren't great...
Be careful not to fall into something similar to the sunk costs fallacy. If you didn't already own this flat, would you be buying it to Airbnb or put your money elsewhere?
If you own outright and have high incomes you can clearly afford to take risks here. One question to discuss with your financial advisor is how renting this flat compares with the various other things you could do with the money if you sell.

We don't want to sell the asset and I think there is still some appreciation left in the property.  We plan to have some other investments but contrary to your comment, are pretty risk adverse so will not be taking huge amounts of risk and plan to build our investment portfolio slowly and steadily. So if we release equity, plan to pay that back as quickly as possible.

letsbetfair

There is a significant risk in investing in a central London flat as an Airbnb business - in terms of the movement of property prices in London (estimates vary significantly) and in terms of the level of return (who knows how fast the sector will pick up in London, and there's always the chance someone will trash your flat). If an agent is selling this as a low risk way to make money, run in the other direction!

Ubaka

I don't doubt there is an element of risk. Private renting long term is less risky but we are thinking we will start with Airbnb and reflect on the pros and cons. If revenue is good and we can structure income from it so we are not taxed out if all of it then it could be a quicker way to build up our lot after we buy our 2nd property. I would aim for 5 years from buying to have our deposit back for reinvestment into another investment stream.  I suppose it's just trying to weigh out our options and understand how we can maximize income from renting.  

eddddy

Ubaka said:

Our  neighbor recently renovated her flat and rented out her flat on Airbnb. It is leasehold and there seems to be nothing that exempts us from this plus, 2 other flats in the complex are Airbnb rentals. 

So you've read your lease to check?

• It doesn't help that 3 other leaseholders are doing it - in fact it might increase the risk.  With each new flat that does it, the 'regular' owner/occupiers might get angrier and angrier that the complex is turning into a holiday resort, so decide to report you all to the freeholder.

• Also if the lease doesn't allow it, the building insurance won't cover it. So if a guest accidentally lets the bath overflow, or leaves a candle unattended which starts a fire - you could face a claim for thousands (or tens of thousands) of pounds of uninsured damage.

• Plus in London, you need planning consent for change of use, if you want to rent it out on Airbnb for more than 90 days a year.

NeilCr

Worth a read

https://www.forsters.co.uk/news/blog/case-update-airbnb-lettings-finally-put-bed