5 Things to Consider Before Purchasing an Airbnb Investment Property in KL

Homestay, or short term rental business on home-sharing sites like Airbnb and iBilik, has been on rapid rise in Malaysia for the past 2 years. Short term rental is a popular choice not only to foreign tourist but among Malaysians as well, be it for business, leisure or even special events among friends. Not surprisingly, KL ranks as one of the spots in Malaysia for tourists arrivals and many have ride on the bandwagon of converting their properties into vacation friendly homes to serve their guests, given the fact that the real estate market is not in the best of times and rental yield has been declining or stagnant for the most part.

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

As the old adage goes: location location, location: the backbone, soul and core of any property investment. This couldn't be truer when it comes to short term rental property.

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 1^st 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! 

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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