Rental property: To Airbnb or not to be?

Sometimes the thought alone of getting into certain investment opportunities is so daunting that we talk ourselves out of the opportunity entirely. Rental property is often one such opportunity.

It often requires a great deal of preparation and research, finding the best locations to invest in, arranging the financing for the investment, potentially having to renovate and fix things, figuring out what a decent ROI (return on investment) looks like, the list goes on.

For as long as I can remember, property has been touted as the best investment one can make. Which makes it ironic that the first global financial crisis was led by the housing market. But is it still lucrative? Is there enough of an opportunity to pursue this as an investment?

Welcome to another instalment of “so you think you can invest”, which might be the name of a future podcast of mine.

Our current PPE, Post-Pandemic Experiences (relax), of inflation and elevated interest rates have created a rather interesting landscape in the property space.

On the one hand, penthouses are being sold for R75 million while on the other hand, middle-income households are being advised to consider downsizing and getting smaller mortgages. So how are we to make heads or tails of the property market with such contrasting information? Moreover, how do we know rental properties are worth investing in right now?

Obviously, moguls like Grant Cardone and McDonald’s are living proof that if you have a working formula, the rental game can be extremely lucrative. But where does one begin in this maze of information? In my tokenisation piece, I touched on the joys of fractional ownership. Perhaps a similar approach in thought can unlock the joys of fractional earnings?! If that is the case, then two distinct models emerge in the rental game, fractionalisation of space and that of time.

The first seems simple to do, subdivide a property and rent out each portion individually. This works even better if you’re able to zhuzh up the spaces with individual amenities and appliances. One rental very quickly turns into five or even 10.

Read: Am I calculating the ROI on my rental property correctly?

Airbnb’s concept on the other hand, of renting for as little time as you need, has revolutionised not only the way we view vacation rentals but also the way investment properties earn their owners rental in general.

Everything comes at a cost though. And the cost of these alternative approaches to rentals is the increased admin and maintenance required. It’s hard enough having to vet a single candidate, never mind having to do this daily or having to vet multiple candidates at a time.

For those reading this thinking this is way too much work, fear not – there are lazier options. For example, you could outsource the administrative responsibilities of maintaining your rentals to a property manager, for a fee of course.

Read/listen: Rental property vs listed equities: Which could make you rich?

This could even include your Airbnb investments. And if you wanted an even more passive solution that has a little diversification to it, you could explore investing in real estate investment trusts (Reits).

Reits are an inexpensive way to get exposure to rental returns. Companies like Emira offer exposure to real estate properties through a listed product. And the best part is that they have to pay at least 75% of their earnings as distributions.

These companies also offer an element of resilience, perhaps owing to the nature of the underlying asset.

Just look at the comeback Rebosis is trying to make.

No matter which seems most appealing to you, just remember to keep your tax advisor close when looking at all these options, as each one has a different outcome on how the South African Revenue Service asks for its cut.

The final takeaway seems to be that with greater risk comes the potential for greater reward, or so Justin Bieber was led to believe with his Bored Ape. Perhaps we should see how that turned out.

Read/Listen:
SA listed property still struggling
Mega malls up for sale in Rebosis business rescue