For a while now, we have been investing in short-term Airbnb rentals originated by Brickstarter and figured that we should give a more detailed explanation of this type of investment. If you are planning your next holidays in Spain and don’t have a place to stay, why don’t you stay in one of your investments? Reading along, you'll find listings that have already been financed on EvoEstate and can be traded in the secondary market with Airbnb links to them.
So how does it work?
Let’s take an example of this property in Sevilla. This project was financed at the beginning of July by 80 investors. Before it ended up here, Brickstarter found it, analysed it and signed a preliminary contract for the purchase. Then when they began doing the crowdfunding process, while we did a due-diligence and helped them finance the acquisition of the property. Once it was acquired it was mildly renovated. Usually, the renovation process is not longer than 2 months.
After that the next step is to apply for Airbnb licence at the local municipality, therefore we always prefer to invest into a property which already holds the Airbnb licence, because the cities in Spain with each day are being more reluctant to give out new licences.
If the licence is already is in place, the property is being listed on Booking.com and Airbnb websites and when people stay there, the earnings are being distributed back to the crowdfunding investors. The process does vary in time, therefore while investing you can expect 3-4 months delay of the first interest payment.
What are the benefits of short-term rental investments?
Doing due diligence is rather easy- you can highly accurately evaluate the expected rental yield, using AirDNA. Also, because there will not be much of the renovation works needed, you can also compare it to the neighbouring listings.
Another important aspect is that through the economic recession, the biggest drop in tourism in Spain was recorded at -13%. Which is rather not as high as the top tier coastal cities centres did not experience such an impact. Additionally, rentals originated by Brickstarter are rather cheap- ranging 40-100 Euros per night, which is a much more price-competitive alternative to any hotel.
It’s also very important to understand that you don’t only participate in the rental income gain, but also when the property is sold in 3-5 years you also earn your part from capital appreciation, which is expected to range 3-5% annually. However, if the Spanish cities will continue with limiting the count of Airbnb licences issues, it’s a valid assumption that the properties which already had Airbnb licence will be valued for a higher price compared to the alternatives. The total expected annual returns combined with capital growth should be around 8.5-10%.
What are the drawbacks of short-term rentals?
Short-term rentals have high management fees, which reduces the actual rental income from around 10% annually to only 5%. 5% annual returns, is not entirely bad, but some can find it as a problem that they have high seasons in Summer and low seasons in Winter, therefore you can’t plan a stable cash-flow from your investments.
If the property prior to acquisition does not have Airbnb licence it can have challenges trying to obtain one, due for previously mentioned reasons.
Why is there no buy to let exit date?
-Most of the originators don’t provide exact dates when the property will be sold, as they want to maximise the returns. However, the expected investment term should be shorter than 5 years.
When is the capital growth paid out?
-Capital growth is paid out only when the property is sold, therefore you’ll be earning it either by keeping the project to its maturity or acquiring it close to the maturity date through Secondary Market.
Why my rental yield is lower with short-term rentals?
-With short-term rentals especially in Spain you should understand that winter is the low season, when the rent demand is lower. To get accurate estimations you have to look into annualised results after 12months.