Comparing Airbnb Property Investment vs. Long-Term Rental

The decision is yours to make: the reliable stability of long-term rentals vs. the potential income windfall of Airbnb. We're here to help you decide with an in-depth look on both!
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There are over seven million Airbnb listings in over 220 countries around the world. There were over 57,000 Airbnb properties in Malaysia alone, as of 2019. You could say the platform has become quite the success! 

The huge growth of Airbnb creates a fascinating opportunity to rent out your property. In some cases, that means actually adding to your income by homesharing, or renting out a room/area of your home to guests.

But what do you do if you’ve got a whole property to rent? Let’s take a look at the question of Airbnb vs. long-term lets.

 

Understanding Investment Property

The simple phrase ‘investment property’ covers so many different opportunities, but in the simplest terms, refers to purchasing a property with the intention of renting or selling it to earn a profit on the money you've invested.

This return on investment (ROI) is the foundation of a smart property investment, but there's actually no one-size-fits-all approach to success.

One investor might seek to make a profit from buying a bungalow in Bangsar that they then renovate and refurbish to sell at a profit.

The next investor might be more interested in purchasing beautiful condominium units in Batu Ferringhi in order to rent them to sun-seekers and holidaymakers through a Penang Airbnb.

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Quick Guide To Common Residential Property Investments

1) House flipping 

Buy a house cheap and sell on quickly for a profit

2) Renovation

Buy an older/rundown property and renovate to add value

3) Buy-to-let (short term)

Buy a property to rent it out using short-term lets such as Airbnb

4) Buy-to-let (long term)

Buy a property to rent out to a long-term tenant(s)

It goes without saying that buying investment property involves significant financial spending in the beginning. Since everyone’s financial standings are unique, that makes for a unique question of opportunity.

What’s true for all investors however is the need to plan, understand, and calculate the benefits and challenges of each type of investment opportunity. So, let’s start with Airbnb!

 

Pros And Cons Of Airbnb Investment Property

As mentioned above, there are tens of thousands of Airbnb units in Malaysia. That means from Airbnb in Sabah to Airbnb in KL, tens of thousands of Malaysians have trusted this platform to offer returns on their property investment. So is it the right choice for you?

Airbnb falls under the category of short-term rentals. That means that people rent this type of property for short periods of days or weeks, with tourism and business travellers being the majority of guests.

It's highly unlikely (if not impossible) to find a local family that spends their year hopping around between Airbnbs!

This frequent in-and-out of travellers presents some noteworthy challenges. Firstly, you have to understand that having a unit on this platform requires constant management.

You not only need to keep track of bookings through the platform, you also have to arrange for access to accommodation, fix any problems during a stay, and provide housekeeping services to ensure a property is fit for the next guests.

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If you really want to succeed on Airbnb you should even go the extra mile, giving guests your phone contact, being responsive to offer them local advice and a great holiday experience.

It’s an amazing opportunity for you to stand out and shine, so if you want to win those awesome five-star ratings, then you're going to have to commit.

Another challenge from Airbnb is the question of reputation and responsibility. Hundreds of travellers transitioning through your rental every year not only provides less certainty to how they will treat the property, but also raises questions about disturbing the neighbours.

That’s probably not so much a problem in a condo development with 800 units, but could cause issues in a townhouse for example.

So what about the benefits? Well let’s talk about money! The daily rate you receive for a short-term let like Airbnb is significantly higher than the average daily rate you would find for a long-term rental.

That means your return on investment can be far better for an Airbnb. However, the daily rate you can charge for your Airbnb investment property will vary by location and property type.

A penthouse apartment in downtown KLCC will enjoy a far higher daily rate than a compact apartment unit in Cheras. This handy guide from Airbnb gives you a rough estimate of how much your property might earn.

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Don’t forget to factor in your fees too! Hosts generally pay 3% of the rental price to Airbnb as a service charge for the platform.

You shouldn’t overlook other miscellaneous costs either. If you’re going to be an Airbnb host, your property is also your marketing platform.

You need to make it look as attractive as possible to guests (remember, you're competing with thousands of other hopeful hosts), and that can mean investing in new furniture, cool decorations, and even a better internet connection!

If you’re thinking "Maybe I’ll just pay someone to do all the annoying check-in and housekeeping", then you’re taking another bite out of that profit pie. Less pie for you!

On top of the potential financial benefits, Airbnb also offers really attractive flexibility. Maybe you want an investment property as a second home when you visit the city, or when you have relatives coming to visit you from overseas.

Airbnb doesn’t require the commitment that’s framed in the idea of a long-term rental agreement. So what’s the problem? Why aren’t we all rushing out to rent on Airbnb?

You see it’s not just a question of time and energy commitment, or worries about annoying your old neighbours… it’s also a question of stability.

Airbnb might offer a lucrative rental opportunity, but it is by no means guaranteed. The recent COVID-19 pandemic and ban on international tourism is an extreme example of how that investment can suddenly fall short, or dry up completely.

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Airbnb income relies solely on guests booking your accommodation, and if nobody wants to stay, nobody is going to pay.

If the return on your property investment is tight, for you to repay a home loan for example, then you might want to consider how that idea of stability vs. potential for higher returns balances out.

Pros And Cons of Airbnb Property Investment

Pros

Cons

High potential returns

No guarantee of income

Simple and easy to set-up

Requires commitment

Benefit from the world’s biggest short-term rental platform

Potential to cause friction with neighbours

Great flexibility

More people staying means less oversight of tenants

Can extend to a wider business opportunity

Potentially higher wear and tear

 

Pros And Cons Of A Long-Term Rental

The long-term rental market is the workhorse of Malaysia’s property rental industry. It’s just plodding along in the background, allowing people who can’t afford a property yet, to have a place to call 'home' for a while.

Now, if you’re looking for a property investment based on stability and a guaranteed income return for a year or more, then long-term rental is for you.

Unlike Airbnb, where you’re renting out to Jose from Barcelona one week only to be welcoming Michelle from New York the next, long-term rentals tend to provide tenancy agreements of 12 months or more.

That stability is at the heart of what makes long-term rental attractive for many, as long-term rentals allows you to more reliably plan your finances.

You’ve got a tenant for at least 12 months, and often tenants will renew a contract if you’re a good landlord. That gives you a clear timeframe where you understand the costs, and profit, of your investment property.

What you also get with this rental type is stability with the right tenant. This is assuming you’ve done all the proper checks, so you know who they are, what they do, and how long they’re staying.

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You’ve also got a rental deposit which makes it far easier to balance any potential damages at the end of the tenancy. A good tenancy agreement goes a long way to adding peace of mind.

Stability is a really valuable commodity in today’s market. COVID-19 is an extreme example we’ve already mentioned, but you also have to factor in wider economic pressures on house prices or travel, which a short-term rental is more exposed to.

Having a long-term rental with an agreed rental price brings in a steady flow of cash, at the same time as your property is (hopefully) increasing its capital value for when you eventually decide to sell it off.

So, what’s the trade off for this stability? Potential returns. Short-term rentals can potentially deliver far higher investment returns than long-term rentals – if they are rented out frequently enough. 

Costs for long-term rentals can’t be discounted either. At the start of the journey, that can mean a property agent's costs to find tenants for your apartment.

Don’t think that’s always easy, either! It can require hard work and potential flexibility on rental rates to ensure your property is occupied.

If you’re buying a new property as an investment to rent out, you also have to factor in the cost of basic furniture and fittings.

While there's some demand for unfurnished rental properties, the truth is that if you want to appeal to the wider rental market, you need to invest in suitable furnishings (like water heaters, fans, and other necessary appliances) to entice the tenants in.

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As time progresses, you’re also going to be liable for payments on things like repairs if the air-cond breaks down, or the property starts to show wear and tear from everyday use.

Paying RM500 for maintenance in a property rented for RM1,000 a month is a big bite out of your profit, especially if you’re also paying for a home loan on top.

Finally, long-term rentals do mean less flexibility for you as a homeowner, than a short-term rental.

You can’t just pop in to check how things are looking without appropriate notice, and you certainly can’t have your extended family stay when they’re visiting from overseas!

Pros And Cons of Long-Term Rental

Pros

Cons

Stable and reliable income

Lower potential return than short-term rental

More reliable relationship with tenants

Maintenance and upkeep costs can reduce profit

Easier to plan finances

Less flexibility

Less vulnerable to shocks

Stability relies on finding tenants

Potentially less wear and tear

Costs to initially furnish property

 

Comparing Airbnb Investment Property vs. Long-Term Rental

So the battle lines are drawn! It’s the reliable stability of long-term rentals vs. the potential income windfall of Airbnb property investment. Let’s do a quick roundup of what that looks like in practice.

Biggest selling point

Higher potential returns

Stability

Profit

Medium-high

Low-medium

Time commitment

High

Low-medium

Flexibility

High

Low

Wear and tear

High

Low

Reliability

Medium

High

Ultimately the question of property investment is down to your own unique circumstances. Airbnb might be a lucrative opportunity for many, but if it doesn’t fit your tight budget, then perhaps long-term rental is the best option. Stability vs. potential returns is a tough question to balance.

You also have to consider the social side of the local community, and whether you feel that a short-term rental option fits into that space.

That can be more of a concern if you’re renting out your old house in the community you grew up in; would your neighbours of the past 20+ years raise any serious objections?

Whichever option you decide on, PropertyGuru has thousands of properties for sale today for you to explore your property investment dreams!

 

Looking to find out more about short-term rental? Here’s our helpful guide on how to Repay Your Home Loan Faster, By Turning Your Property Into Income While You Live In It!

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