Why AIRBNB is MUCH less efficient than long term rental

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As a real estate broker, I get requests almost every month from people wanting to buy an investment flat for use as an AIRBNB, or short term rental apartment.

In almost every case, it is far less effective as an investment tool, than simply renting as long term. Here’s why.

We at White Mountain do not offer Airbnb property management, not because we don’t want to, nor because it’s a ton of work for almost no return, but because they don’t make financial sense as investments for the owners except in a few specific cases, such as

  • the owner does the cleaning, check-in etc
  • the owner has multiple properties
  • the nightly income is unusually high and rental demand is extreme compared to norms.

For most of us, these are the realities below of a typical 1 bedroom apartment in say, central Bucharest.

  1. Typical occupancy of a busy downtown apartment is 200 nights per year assuming
  • 2 months at 25 occupied days
  • 2 months at 20 days
  • 4 months at 15 days
  • 4 months at 12 days

2. 200 nights at @45e/ night, gross income =9,000 euro
3. Cleaning every 2 days on average @25e is 2,500 euro, plus materials.
4. Fee for someone to manage, 25% of income, 2,250 euro (many charge 45%)
5. Utilities for the whole year, 1200 euro
6. Repairs, painting etc, 500 euro
7. Tax on income, 1000 euro
8. Bedding, major repairs etc 300 euro

If managed by someone else, profit per year, having hundreds of clients using your apartment each year, and the wear this brings, will result in just  1200 euro clear profit per year or 100 euro per month.

If the owner does all the work, profit per year, having hundreds of clients using your apartment each year, and the wear this brings, will result in just  6000 euro clear profit per year or 500 euro per month, but don’t forget you cleaned the whole apartment to immaculate conditions, 100 times per year, checked clients in and out at random hours, changed locks repeatedly, cut spare keys etc..

The same apartment that would rent for 45 euro per night, would rent for maybe 400e per month, almost no expenses, before 6% income tax. Profit is, therefore, 4k after tax. Even if a Property Management company such as us manage it, you still have around 3,400 euro clear profit, or somewhere between 300-335 per month with very little to zero input from the owner.

In summary, the only way to make Airbnb work is for the owner to A/ do it ALL themself, and B/have a few at least. Then it works. Otherwise, it’s just an expensive hobby for many people.

This is an example of an apartment I once owned in pita Sftului Brasov, a gorgeous flat in an amazing location, perfect for AIRBNB and in one of the best tourist locations in Romania. The above calculation exactly conforms to the above profit analysis.

Note, taking a super-optimistic case of 90% occupancy, meaning 328 nights rental, meaning only 1 empty nights per month, the income per year after costs if managed by someone at 25% fee (the norm is 45%!), after-tax, cleaning every 2 days, utility bills, small repairs is

  • 328 x 45 euro = 14760 euro
  • cleaning every 2 days, 164 days at 25 euro = 4100e
  • Property management fee at 25% = 3700 euro
  • Utilities for the whole year, 1200 euro
  • Repairs, painting etc, 500 euro
  • Tax on income, 2360 euro
  • Bedding, major repairs etc 400 euro

Annual profit is 2500 euro or 208 euro per month. Still, with such intense occupancy, massive wear, you are less well off than renting put long term and paying a property manager to handle everything.

 

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