© Brian Saffer, FT Graphics

Buy-to-let property investors have had a tough two years. Under what one housebuilder, Berkeley Group, called an “extraordinary attack” from the government, they have faced stamp duty surcharges, cuts to mortgage tax relief and a ban on letting fees to tenants that may end up adding more to landlords’ costs.

But until last week, another option was on the rise: letting out homes on the hosting site Airbnb, at what — if the many moving parts add up correctly — can be much higher yields. Henry Pryor, a London-based buying agent, says he noticed a marked change in what investors have been seeking as they turned to Airbnb instead of conventional lettings, and began seeing areas through the eyes of a tourist or business traveller rather than a tenant.

“They’re looking for something completely different from the normal requirements. Normal tenants want to live close to transport links but not necessarily right on top of them — they’re looking for parks and schools and more domestic things — but a traveller wants to be right in among it. Areas like Covent Garden and Holborn suddenly look much more interesting because you’re in the action.”

According to the property data company Propcision, rents for Airbnb properties in London are on average more than double the rents paid for long-term tenancies in the same areas, though this is before costs are taken into account. These tend to be greater for Airbnb properties, where owners cover the bills. In areas such as Camden and Southwark, gross returns from short-term lettings can be more than 2.5 times those from conventional longer-term lets, Propcision says.

Landlords have not been slow to catch on: according to research from the property advisers Colliers, more than half the listings in London — or 42,600 homes — are now from hosts offering more than one property, meaning they are likely to be investors rather than people letting out their own homes.

For London investors, however, the Airbnb dream was just the latest to be doused with a bucket of cold water. Last week, Airbnb announced it would help to enforce the so-called “90 day rule”, until now widely flouted, which prohibits short-term lettings of entire properties for more than 90 days in a given calendar year. The change followed a torrent of criticism over the removal of properties from the residential rental market as they switched to Airbnb — a hot-button political issue as London, the south-east and other major cities grapple with a housing shortage.

“We firmly believe this step will help build a better London for everyone and work is already under way to implement these measures, which will be in place by spring 2017,” the company said in a statement. “We want to be good partners to London and continue to lead our industry on this matter, and ensure home sharing grows responsibly and sustainably.”

While Airbnb’s new system is not yet in operation, it would appear to snuff out hopes of buy-to-letters who thought they could achieve high yields from constant short-term lets. However, the 90-day rule applies only in the capital, while some landlords have told the FT they intend to continue using Airbnb in London but for longer-term rentals. Here, we investigate the pros and cons of making a property you own part of the “gig economy”.

Far from risk-free

When Simon, a City-based director in professional services, decided to purchase a second property in north London as a place to host overseas family members on their frequent trips to the capital, he faced the problem of what to do with the place in the downtime.

Like many others, he turned to Airbnb to generate income to pay off his buy-to-let mortgage. Until recently, it had been going better than he could ever have expected. “It was let out all the time,” he says, at a rate of £130 a night for 25 to 30 nights a month.

The financial incentives for Airbnb buy-to-let were considerable: if he had opted for a conventional long-term tenancy deal, he says, he could have made between £1,000 and £2,000 a month for the unfurnished one-bed apartment. But by doing it up and installing luxury fittings throughout, he has been able to make at least £3,000 a month. From this, he subtracts about £600 a month for other costs, such as bills and the agency that greets guests and deals with cleaning.

“Even if you have people in for just 20 days, you’re still coming out better than a normal tenancy,” says Simon, whose name has been changed at his request.

Since the 90-day ban, Simon has adjusted the booking settings on his north London Airbnb rental to permit only tenants aiming to stay for a minimum of three months. One such period has been let early next year, but otherwise demand has dropped dramatically. “At the moment I’m waiting for business to come in.”

Is such a plan legal? Lawyers say the answer would vary by local authority, since they may take different views on what is regarded as a short let, a period not specified in the London-related legislation. But he can be reassured: the London Borough of Camden, where his flat is situated, told the FT a 90-day tenancy would fall outside its definition of a short let.

“If I can find three lets of three months and then fill the gaps with my 90-day limit, then I’m fine,” he says. “I’ll have to drop the price a bit for the longer periods, but I can still make a pretty good margin on it.” But he remains unsure whether there is sufficient demand out there for such lets. If not, he would do exactly as the borough authorities hope. “If it doesn’t work, I might look at putting it on to a normal long-term let.”

However, another London homeowner, Preston Benson, a property consultant, says he already rents out his property for longer periods on Airbnb. He set his minimum rental period on the site to 90 days to conform with local regulations and avoid annoying neighbours; in Shoreditch, the location of his property, he says demand for months-long stays is strong and he makes 20 to 30 per cent more than he would through a traditional rental.

“I get a lot of corporate business, especially from the US, and a lot of artists. People who come and stay in the east London area prefer to have a home — they get tired of living in a hotel after about a week. This is more similar to a serviced apartment. People can just chill out and tune out.”

Having said that, Mr Benson, who owns five properties in total, says that even before Airbnb adopted its new policy, he would not have relied on the hosting site as a sole source of income from a given house or apartment. “As a short-term fix, why not, but in the longer term I don’t think it’s a safe solution or a risk-free solution.”

While Airbnb is by far the largest home-sharing site, there are other options, such as the luxury alternative Onefinestay, though it told the FT it does not market landlord-owned or investment homes. Conventional estate agents such as Foxtons also offer short-term rental listings.

Locals enjoying Brighton Royal Pavilion lit up for the Brighton festival 2016 by Dr Blighty projections on the 25th of May 2016 in Brighton, United Kingdom.  A major outdoor event in the Royal Pavilion Garden inspired by the story of the thousands of Indian soldiers who were treated in the temporary military hospital housed in Brighton Pavilion. (photo by Andrew Aitchison / In pictures via Getty Images)

Brighton boom

In 2015, Brighton-based Amanda Sagar was looking for short-term, flexible work — but had no idea it would rapidly escalate into her running her own start-up employing eight people.

Ms Sagar answered an ad on the Gumtree website for someone to manage and clean a property nearby that was listed on Airbnb. As she accepted the job, she had a lightbulb moment: others must need this service. She placed her own ad offering Airbnb management and was deluged with inquiries.

“Quite by accident, I filled a void I didn’t even know existed. Within a week, I had to take someone else on. This summer, we tripled our turnover and now we’re up to a staff of eight,” she says.

The success of Ms Sagar’s business, Airhead, is a sign of the Airbnb boom in Brighton; while London has for obvious reasons been the UK’s Airbnb capital, the seaside town known for its gay scene is England’s second most popular destination for short-term lets, and so far has less regulation. While Airbnb management services, such as Hostmaker and Passthekeys, have proliferated in London, in Brighton she found an underserved market.

“We have professional Airbnb-ers with properties in London and Brighton, but also there has been a surge in Mr and Mrs Smith going away for two weeks and realising that putting their property on Airbnb could pay for their holiday,” Ms Sagar says. About 25 per cent of her customers let out their properties full-time, or close to it, she adds.

“Estate agents are now coming to me to ask if I know of any properties already trading as Airbnb properties that are for sale. They say ‘Find me one that has been trading successfully’,” Ms Sagar says. “If it’s a really good Airbnb property with a proven history of loads of bookings, [investors] can double their monthly turnover.

“Some of the owners put them on Airbnb for six months over the peak season and then when that tails off a bit, put it on a six-month [tenancy] contract.” Having said that, she adds, events and conferences do provide business in the off-season.

Like Mr Benson, Ms Sagar says that the success of a short-term rental property depends on a good relationship between the landlord and those living in nearby properties. “When people are thinking about doing Airbnb, I’ll always say to them, ‘How are the neighbours?’ Some are incredibly supportive, but others hate it, especially when they are in a building with shared access so they are exposed to strange people.”

Not surprisingly, Ms Sagar is a staunch defender of Airbnb’s role in her area. “Airbnb is fantastic for Brighton. It’s bringing more people into the city.”

Edinburgh and Glasgow are also popular Airbnb destinations, with 164,000 and 37,000 guest arrivals respectively from June to August this year, according to the site’s own figures. But while short-term lettings are an established part of the ecosystem surrounding events such as the Edinburgh Festival, housing groups in these cities are also warning that whole-property lettings risk displacing longer-term residents. This raises the spectre of limits on such lettings in the future.

Airbnb has agreed to enforce a 60-day annual letting limit in Amsterdam, while in Berlin, the city has taken matters into its own hands and banned short-term lets of entire properties. Airbnb has committed to “work with cities that have identified a shortage of long-term rental housing as a critical issue”; its new terms in London and Amsterdam are part of that commitment.

Some London owners may be tempted to get round the new rules by renting for the maximum 90 days on Airbnb before switching their property to other hosting sites for three months. This may allow them to beat the 90-day portcullis effect but anyone choosing this route should realise they are still breaking the law in London.

Buy-to-letters contemplating short-term lettings should also closely examine the terms of any mortgage and of their own lease if they are leaseholders. The Council of Mortgage Lenders has warned that some Airbnb hosts may be in breach of their mortgage contracts and could face a demand for repayment of the balance. Meanwhile, in September, a court ruling from the Upper Tribunal’s Land Chamber found that a leasehold flat owner was breaking the law by renting out her property on Airbnb, since the home’s leasehold contract specified that it was a “private residence only”.

Safe havens?

Zoe Vu, co-founder of Passthekeys — a London-based Airbnb management service — says that her key market is not full-time landlords, who make up only one in five of her customers, but people who travel frequently for work, such as bankers, fashion workers and consultants, and put their homes to work while they are away.

Among those who rent out their properties all or most of the time, Ms Vu says that some are overseas investors who view their properties as “safe havens to put their money in”. Ahead of the Airbnb changes, a two-bedroom flat in central London occupied 70 per cent of the time could make a gross yield of about 6 per cent, she estimated.

Others of her landlord clients want the flexibility to sell when markets look favourable — but, ironically, some are “people who have tried to sell their flats in the last six months but due to the change in stamp duty, have struggled to do so”.

“They don’t want to sell at any price, so they are listing it on Airbnb while they wait for the right buyer to come along,” she says.

Ms Vu says Passthekeys was looking at expanding into other UK and European cities and was confident of “healthy growth in the Airbnb industry”, but cautioned: “The industry will keep growing and, of course, there will be regulations that will grow with it.”

Simon, the landlord, is concerned about the future of his own property and says he would consider selling it as a last resort, in which case he would not return to the market. “If we were to sell we wouldn’t buy another place. To become a landlord on any level in London is now so difficult because of the stamp duty increase,” he says.

GD5G54 A man sits alone near to a suitcase with an Airbnb branded luggage tag in an otherwise empty apartment (Editorial use only).
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