Friday, August 9, 2013

The Business of Short Term Lets

In this market glut, I have in the past 8 months experimented with short term lets. I've tried out 2 rental websites, airbnb and ibilik. I've had much success with airbnb compared with ibilik. Comparing the 2, airbnb has a much wider market, their website is much more user friendly and has many useable features and they charge much lower fees, 4% vs 10% charged by ibilik. Moreover, airbnb pays me on the day the guests check-in while I have to wait over a week for ibilik's payment. Airbnb also collects deposit from the guests on my behalf. With ibilik, it's a very messy business of trying to convince the guest to pay the deposit especially when they come from overseas and do not have the change in local currency. 



So, enough about the portal I've been using to promote my short-lets. It goes without saying, airbnb and I has formed a good partnership. In the past 8 months, I have collected over RM50k and have another RM20k in further bookings. This does not include over RM100k of overlapping bookings I had to reject. But is all this worthwhile?

To be honest, lately I have found all this to be extremely tiring and the compensation is not really that fantastic. Unlike the normal 1-year or more tenancy, besides a fully-furnished property, one has to provide linen, towels and absorb utility fees. Typically, guests who book their stay on these type of home-stay arrangements tend to look for value-for-money accommodation. So, they won't pay good money like in a hotel but they will use your utilities like they are staying in a hotel. Many of my guests will have the air-conditioning on throughout their stay. As a result, my utility bill goes up 200% to 400% above the average.

On average, the occupancy for a full time short-stay property i.e. a property that I allocate fully for this purpose is 30% to 40%, never exceeded 50%... With daily rate collection about 30% to 50% higher than the usual long term tenancy and added with the need to absorb high utility charges plus provide cleaning services, my properties end up grossing 10% to 20% lower than the usual long term income.

In the early days, I was fortunate to have some really nice and friendly guests to begin with which encouraged me to dive deeper into this business. But as I went on, I came across some very undesirable people. Some were very aggressive and even rude. Then I began to wonder if this is really worth doing.  The money isn't good to start with and it is also very tiring checking-in and checking-out guests and dealing with their demands.

The top most demand is WIFI. Surprisingly, some guests couldn't care less if the construction next door is noisy, the electricity got cut for half a day due to maintenance or the maid has forgotten to come in to do the cleaning. But if the Internet is down or slow, the whole world comes down, they'll call you to demand an immediate fix or a refund and they write a bad review! Once you get a bad review and especially it is about the WIFI, you see a sudden drop in bookings for the rest of the month...

But nothing prepared me for what happened last weekend. Due to a failed water pump, water polluted with high sediment contents flowed out of taps affecting the whole building of one of my properties. One of the guests decided she couldn't take it and she moved out. Then she demanded a refund from me. It is cases like this which made it so frustrating. I understand why the guest felt this way but at the same time, we charge more than 50% lower than market rate for a similar property. Certainly, we do not operate as a 5-star hotel nor do we aspire to be one. We have situations like this which is beyond our control and yet there is totally no tolerance from the guest.

Then I have a family from China who booked a 1-bedroom apartment for his family of 5. I told him that might be a bit challenging. Because I was trying to be nice, I said maybe I can upgrade them to a 2-bedroom apartment if it is available But as soon as they placed the booking, the 2-bedroom apartments all got booked up during the same period... So, I immediately wrote to him to tell him of this situation. He uttered his dismay and cancelled the booking. I was happy to authorize a full refund but unfortunately airbnb's policy is the admin fees from a cancelled booking is not refunded. Till this day he has been bugging me to pay him this admin fee.

I am giving it another 4 months to fulfill all the rest of my commitments to airbnb bookings then I'm going to close shop. We are going back to long term rentals from then on....



9 comments:

jackie said...

HI SL, thanks for the heads up. got introduced to airbnb by a friend and thought i could do the same here in KL. was toying aroung the idea and very clearly aware of the hassles of having to be on the ball all the time with guests checking in and out. Didn't think about the extra utilities like air cond and water consumption that could be many times more than a long term type of tenant, cos these short term tenants dont pay for it and they think they are paying you too much for the daily rate. After reading your post, I am not going ahead with my idea. cheers

john said...

But the rental market is weak. Can you able to rent out?

Charles said...

If you can install remotely controlled access card for keys, control cards for aircon systems, do you think it will be worthwhile to do short term rentals ? I am doing this for all my properties to ease my rental management now.

sinleong said...

what difference are they gonna make?

apex property investment said...

Come back to long term bro... cannot sustain doing short term unless you employ someone to do for you. HAVE at least 70% occupancy else not worth the efforts.

Haruki said...

Thanks Sin Leong for sharing your experience.

Patch said...

Dear Sin Leong,
You referring to market glut in the rental market in Bukit Ceylon area? What about other areas?
My own experience is rental market soft in PJ SS2, but still can rent out within 1-2 weeks.

NG said...

Hi Sin Leong, I really appreciate your effort for trying and sharing with us this experience of yours. Initially, I am also contemplating with this thought for my portfolio in KL. Cos in Singapore this is illegal, so I thought might be great to try out in KL. Now I got to rethink.

LegalWillsMalaysia said...

For this short term rental, it seems to feel like running a hotel/motel with a lot of work ie. guests to take care off. Though I haven't done something like this, being a hotel guest, I can imagine the work required on the opposite side of serving customers. Really not passive income.