When done right, Airbnb or short term rentals can actually be more profitable than traditional leasing, so it definitely makes financial sense. However, for those of you folks out there thinking of buying properties in KL to capitalize on this home-sharing craze, there are some important insider tips. factors and considerations you need to look into:
1) Location: Central Vs Suburban
Location is even more crucial on Airbnb than traditional investing because tourists are looking to stay in the most popular places to see the best of the best. Understandably, they want to be near to tourist hotspots and where connectivity is seamless. As such, if your property is near landmarks such KLCC, huge malls like Mid valley or popular food streets like Petaling Street, Jalan Alor and Changkat Bukit Bintang, then the chances of your property to perform well is higher. Also, some guest and business travelers prefer to cook themselves and eat out less often. Is there a supermarket or grocery store nearby the property? Are they near to any convention centers? Your target short term tenants cold be business travelers as well.
Proximity to public transportation and the general connectivity of the location is another very important consideration. Ideally, they should be within walking distance. Take transportation hub KL Sentral. For example, according to airbnb, Brickfields is one of the city neighborhoodsi n the world that experienced the biggest boom in interest from travelers in 2015 – a whopping 1200%!
Also, do your
research on upcoming developments as well as you would want to invest for the
future. With
the KL 118 tower, Bukit Bintang City Centre, Tun Razak Exchange, the centre of
gravity is very likely to shift from KLCC to the Bukit Bintang/Pudu belt as
years go by. The iconic projects will undoubtedly draw massive amounts of
tourists and business travellers there in the future. Therefore, you might want to look into investing
into secondary properties or new launches around that vicinity at current
prices, given the potential upside when the area matures as those iconic projects
are completed in the coming years. Bandar Malaysia and HSR is expected
have big impact on surrounding areas like Old Klang Road and Bangsar South as
well. Other considerations include the
redevelopment of Kampung Baru with the upcoming M101 Skywheel and the future
MRT lines 1, 2 and 3.
2) Managing Yourself vs Letting Others Do It
Short-term
rental industry is potentially a lucrative investment/business. However, you
need to take into account that like any business, professionalism and prompt
service is absolutely crucial. First of all, you need to decide whether you
want to manage your property(s) hands on or let management agencies to do it
for you.
Just
so you have better idea, if you intend to do it yourself, expect to spend a
significant amount of your time managing reservations, and ensuring that things
are prepared for your guest. You need to ensure having towels washed, the
property cleaned, someone present to open the door and possibly a welcome
basket ready. Communication with guests
is vital and you need to be responsive when they have questions.
Also,
unexpected issues may arise eg: guests may lock themselves out or lost their
keys, air conditioning and certain bathroom facilities not working. Also,
occasionally you might come across guest(s) who is a little difficult and
fussy, but yet you have to be courteous at all times and try to fulfill their
requests (within reason of course), else you risk an unfavorable review from
them on your listings.
It
might seem pretty manageable if you only have 1 unit. However, once you start
to have 3 or more units, things aren’t that fun anymore. It’s going to feel
like you’re the hotel business. Thankfully, there are a number of companies
that support Airbnb hosts in managing the property if you want to free yourself
from all the hassles.
These
guys can handle everything
from checking in and checking out your guests, property listing, cleaning, linen and keys management, communication with
guest or standalone services. They are like your all in one solution for short term rental biz They include Guest Ready (who just started operations in Malaysia in August 2016, as one of the 1st 6 countries globally,
proving that homesharing is definitely thriving in KL), RoomFilla and Lazy Host.
Most importantly, they help you to
maximize the exposure of your property not just on airbnb but also other
similar sites like HomeAway, Flipkey, Wimdu and Booking.com and coordinate bookings of all those sites for you. It is also
in their interest to maximize returns
for you since they take a percentage cut
of your rental income (if you decide to take that package). Guess what? It
would be wise for you to choose to buy properties in good areas too as they
only cover prime and selected areas for now.
3) Facilities: Any Wow Factor?
This alone can
sometimes be the tipping point that tilts your guests in deciding on whether to
rent you or your competitor’s loft, even when the location of your property is
not actually as strategic or tourist destinations are not exactly within
walking distance.
Verve Suites Mount Kiara by BKP is one prime example. It is
renowned for its award winning man made man roof top beach with its outdoor
infinity pool. Aside from the fact that
Mount Kiara is a distinguished and tourist-friendly neighborhood, it is still somewhat of a drive away from
major landmarks and tourists hotspots. Also, there are so many condos/service
residences in Mount Kiara that are vying for guests. However, its luxurious
facilities make all the difference. I understand that many guests return again
because they enjoyed their stay in Verve Suites immensely.
Another case in
point is Regalia Residence in Sultan Ismail, it’s not exactly in the
1st tier of KLCC area, in fact I don’t consider it as KLCC area at
all, yet its infinity pool with its spectacular view of the KLCC+ KL Tower skyline
is a mega game changer. Regalia has
become a resounding success for many of its airbnb hosts and it can be largely
attributed to this reason.
Therefore, before
investing in any properties whether in the subsale market or buying directly
from the developer, it would be wise to see if the residence offers any unique facilities
and features not so commonly found in other properties, giving you that extra
edge over your competitors.
4) Legality : Important!
In USA, cities like New York and San Francisco (where airbnb was founded), current laws in those cities only allow a permanent resident to sublet their property for less than 30 days and 90 days respectively, and then only if they're still residing at the property.
Closer to home in Singapore, it is currently illegal for private and public home-owners to lease their properties for less than six months (unless the owners stay there as well) else those who break the rules can be fined up to $200,000 and jailed for up to a year.
At the time of
writing of this article, the short term rental industry has not yet been regulated
in Malaysia, airbnb is still allowed in KL, unlike Penang, where authorities
seems to be stricter over there. However, some resistance is starting to
surface. Bodies like Malaysia Budget Hotel Association are aggressively calling on the government to
regulate short term rental business. I personally feel when this happens it’s
actually a good thing. The regulations will actually serve to increase the
exposure of airbnb and other short term rental sites among Malaysians, many who
travel within the country for business, leisure and wedding party trips.
If you want to be
really safe, it could be a better bet to buy a property under commercial title
for the purpose of your short term rental business. This would definitely minimize any risk of
future restrictions that may be imposed once regulations do actually come into
place, as more restrictions would most likely be placed on residential titled
buildings and less on commercial titled buildings. Moreover, many commercial
titled service residences these days are protected by Housing Development Act (HDA), which means that owners pay utility
bills and yearly assessment fees at residential rates instead of commercial
rates. Also, some residential condos have their own rules & regulations and
may not allow airbnb, so it’s best to do your own homework and due diligence
before taking the leap.
Nonetheless, I feel that going
forward, it’s not in the interest of the government to impose regulations
that are too stringent on residential titled buildings as it helps to stimulate
our economy and ease the burden of many owners by having their otherwise vacant
property by generate income from visitors and tourists. This is especially so
for KLCC area where the rental market has been very challenging for the last
couple of years. Airbnb is almost Godsent for these owners. Aside from that,
it’s a boost for the tourism industry too as tourists have more choices when it
comes to selecting their accommodations.
5) Costs: Watch Your Bottomline!
If you purchase a condo/service residence today based on current market prices in Klang Valley, you can count yourselves fortunate if you could even cover your mortgage payments + management fees, let alone attaining positive cash flow. But when it comes
to Airbnb investment property, positive cash-flow is of utmost priority. This is
more like hospitality business instead of a passive property investment that
relies on conventional rental. As such, you need
to take into consideration all the potential costs, from furnishings right down
to an internet connection.
Typical monthly investment costs include: mortgage payment, property tax, maintenance fees and wifi. Other costs include Airbnb 3% Host Service Fee, tax (you might want to incorporate your business if you want to run multiple units), property management fees, cleaning fees (you can charge these fees on guests upon booking, and can profit from the difference if you want!), utilities, and guest amenities (toiletries, welcome baskets etc)
The expenses and costs might seem daunting. However, if you or the management agency you appoint do a good job in serving your guests, they can definitely be offset and you’ll achieve a good positive nett cash flow from your properties. This is especially so when you get many good reviews for your listings due to the positive experiences you have given to your guests. I’ve seen that good reviews have allowed some hosts to price their listings higher than other units within the same condo/service residence and their occupancy rate is still as good as before.
So there you go, these are some of the important considerations you have to take into account when purchasing your property for homesharing purposes. Your properties do not necessarily have to fulfill every single requirement and consideration that has been discussed. So as long as the property long fulfill some of the aspects especially costs, location and connectivity, then the property could be good to go!
Please visit www.propertythinktank.my for more real estate content.
To stay updated on Malaysian real estate affairs, do follow me on my fb page here!
Typical monthly investment costs include: mortgage payment, property tax, maintenance fees and wifi. Other costs include Airbnb 3% Host Service Fee, tax (you might want to incorporate your business if you want to run multiple units), property management fees, cleaning fees (you can charge these fees on guests upon booking, and can profit from the difference if you want!), utilities, and guest amenities (toiletries, welcome baskets etc)
The expenses and costs might seem daunting. However, if you or the management agency you appoint do a good job in serving your guests, they can definitely be offset and you’ll achieve a good positive nett cash flow from your properties. This is especially so when you get many good reviews for your listings due to the positive experiences you have given to your guests. I’ve seen that good reviews have allowed some hosts to price their listings higher than other units within the same condo/service residence and their occupancy rate is still as good as before.
So there you go, these are some of the important considerations you have to take into account when purchasing your property for homesharing purposes. Your properties do not necessarily have to fulfill every single requirement and consideration that has been discussed. So as long as the property long fulfill some of the aspects especially costs, location and connectivity, then the property could be good to go!
Please visit www.propertythinktank.my for more real estate content.
To stay updated on Malaysian real estate affairs, do follow me on my fb page here!
Chris Seah is a real estate consultant who
helps buyers and sellers in and around Kuala Lumpur, Malaysia. He is also very much involved in new projects in Klang Valley where he markets new developments ranging from public listed developers to smaller but
branded boutique developers. He can be contacted at 0197818878
