I have an acquaintance who calls himself a ‘property investment strategist’. One day he insisted on having a catch-up session as he was dying to share his secret property ‘investment strategy’. As usual I reluctantly complied with his request and we met last week. Here is my story.
He started with an opening statement – “If you are a landlord who owns an apartment in the heart of Sydney, forget about having a long-term tenant. Let’s triple your return by converting your apartment for a short-term holiday place for travellers via Airbnb……….”
Under normal circumstances, I would have played along. Just throwing him off by asking him a few mathematical questions and watching him struggle to compute arithmetic in his head, can be quite entertaining time to time. However, unfortunately, not this time. Hence I decided to throw him a few questions that he had not contemplated. Here is how my retaliation began.
“With all due respect, I understand that you are a big fan of Airbnb and I respect that. The substance of your property investment strategy is instead of having a long term tenant, facilitating short-term ‘holidayers’ (only if such word exists) would result in better financial return. While the strategy seems sound, there are several factors that I strongly advise you to take into consideration.”
1. Who will be liable if the guest suffers injuries? Injuries caused to your Airbnb guests may be covered under your buildings strata insurance. Should the landlord take out another insurance policy for this?
2. Who will be liable for property damage and loss? Damages caused to your property will be covered under your landlord insurance? Does your policy cover short-term lettings? If not, what is the additional premium that you must pay?
3. Some building management will NOT allow short term letting of 3 months or less. Causing extra traffic of guests in the building may be disruptive to the peace and quiet enjoyment of neighbouring residents. Some travellers may host unruly parties with excessive noise causing nuisance and leaving communal facilities such as the pool area in complete disarray.
4. Does your local government allow for homes and apartments to be let for short-term accommodation? Some councils explicitly prohibits from doing this.
5. What if you are not a landlord but also a tenant? You decide to sublet a room to travellers and what if your tenancy agreement does not permit subletting? What if you get evicted due to the breach?
As soon as he called me a ‘cynic’ I decided to abruptly end the conversation by saying “Let me tell you this. I have known you for more than 4 years. To date I have been listening to you because I value our partnership, despite the fact that your investment strategies seem hardly credible. As far as I am concerned, I would be more convinced if you actually have one investment property first at least. I say we are done here.”