How landlords can use AirBnB to beef up their second property income

02/02/2020 06:32

As profit margins on AirBnB rentals are higher than with longer term lets, many landlords are becoming interested in replacing standard letting arrangements with a series of AirBnB rentals on buy-to-let properties.

Given the recency of this trend, mortgage providers and legislators have not set out clear guidelines about what landlords are and are not allowed to do when it comes to using AirBnB to generate a significant amount of their rental income. This means that some strategies are extremely lucrative without breaking any laws or mortgage agreements, whereas some landlords are unknowingly falling foul of the law and getting punished for it. 

To clear things up, here are the best ways that landlords can use AirBnB to maximise their rental income on second properties, as well as some practices to avoid in order to remain legal and within the terms or your mortgage agreement.

Mortgages and short term lets

The dream of being able to fill your property with short term leases on AirBnB is put to waste by the fact that very few buy-to-let mortgage providers (in the UK at least) allow for leases of less than 6 months.

There are a couple of exceptions to this, however, with MetroBank and Nationwide being two major mortgage providers who allow landlords to rent out second properties on a short term basis anywhere from 90-120 days each year.

Leasing a second property for 120 days a year, even at an inflated price, will unlikely be a profitable endeavour. Therefore, the only way that a landlord profit from using AirBnB in their second property is if they can arrange a shorthold tenancy of 8-11 months (9 months is the most common) through a lettings agency and then top it up with AirBnB rentals for the remaining unoccupied months.

9 month tenancies are particularly popular among students who want to live close to their university during semesters and then stay in their home town during summer. Luckily in most northern countries the summer months are the most popular times for AirBnB rentals, so this model is possible if your property is in a city that has a high number of students and is popular among holiday makers.

Of course you will require a mortgage that allows for short term leases in order to do this.

The law and short term lets

The legal restrictions imposed on short term lets are governed by both your leasehold agreement and your local council.

If the second property that you own is a leasehold, meaning that you own the property but not the land that it sits on, then it may be the case that short term lets are not allowed no matter what your mortgage agreement is. This is particularly common among newer builds and apartments. You should always check with your freeholder what the rules are regarding short term lets before you sign up to AirBnB.

Although local laws on short-term rentals varies from area to area, the most common rules are that owned properties can be rented out on a short term basis for up to 90 days of the year. Again in these instances a “short term basis” is defined as less than 6 months.

Therefore if you are interested in buying a second property with the view to renting it out on AirBnB a freehold may be a better option.

Tax and insurance for AirBnB second properties

Buying a second property and renting it out on AirBnB is classed as a business activity, so therefore you will pay capital gains tax on any profit over £1,000. It also means that payments made on maintaining your property, getting it up to standard for guests and promoting your property are tax deductible.

In the UK AirBnB offers basic insurance coverage for damage to your property by guests. This coverage is less comprehensive than most home insurance packages. Many home insurance packages do not cover short term lets including AirBnB rentals, with those that do being far more expensive.

You will therefore need to make a decision on whether to take out more expensive insurance or whether to have a vetting process for potential tenants from AirBnB to minimize the risk of expensive damage to your property and its contents.

 

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