Airbnb first broke into the market with a simple concept: to be an online marketplace that lets people rent out their properties or spare rooms to guests in order to earn money from short term rentals. At the time, it seemed like an ingenious idea that could garner just enough interest and eventually fade into the background like the likes of K-FIT, but no one expected it to turn into the giant that it is today. Within just six years of the website’s launch, Airbnb has shifted the lay of the land of property investment and disrupted the hospitality industry. Property investors saw it as an opportunity to monetize their investment in a creative way.
Over the years, its clientele has grown from budget-conscious couch surfers to wanderlusts and business travellers. But of course, as it gets increasingly popular and made plenty of money for its hosts., it has opened up doors to all kinds of risks and challenges. Even Andrew Tan, the founder of Luxury Boutique Accommodation, a company that professionally manages Airbnb listings who is now a Property Entrepreneur and Venture Capital, has had his fair share of failures and successes running the business. “Without a doubt Airbnb is a very good business model, however investors should be aware of the risks that come with it,” he says.
1. The price wars
Due to the unpredictable nature of online businesses, it has also become increasingly difficult to regulate prices. When you run an Airbnb fulltime, it’ll take about 10 days to break even and to cover one month’s rental, and the additional of two to three days to cover up your utility bills, which means you need to rent out your property for a total of 20 to 22 days to make profit. The large discrepancy in prices happens when hosts who do not depend on the earning from the Airbnb rental to make a living undercut the average market price, which affects those who run Airbnb full time.
“There are cases where the homeowner allows their relative (niece/ nephew) to live in his property for free. And this relative would lease this property on Airbnb, and rent it out way below the price of other owners and if it gets booked over the weekend, he would pack up his luggage and move out for the weekend, so this would skew the competition,” shares Tan. “Another challenge is, if your property is priced higher due to the furnishing you have installed and the comfort you offer, it still may not appeal to those who don’t look beyond the price tag and that supresses the price. But of course, there are those who appreciate better facilities and still come to us.”
2. Attracting the wrong crowd
While keeping the price low can be an advantage as you attract the wrong group of people. There are those who abuse the property by throwing rave parties and leave damages and stains behind as they leave. When such neglect happens, even if they are willing to pay for the cost of cleaning and repairs, the time spent to get it back in shape again will cost you the opportunity to rent it out. Not forgetting the noise disturbances they cause to the neighbours and the safety risk it puts the other homeowners under.
“These people would throw a rave party and collect cover charge, and basically disrupt the peace of your neighbours. As since drugs are so accessible here, there were cases where they were doing drugs at the party and got raided by the police,” says Tan. “They usually look very decent when they check in at about 2 or 3 o’clock. I have even had one of my units rented for two months and turned into a cannabis farm. He seemed decent and he was willing to pay upfront for the whole two months that he was renting. He was only found out when neighbours started noticing the stench emanating from that unit.”
3. Operation of illegal business activities
With the tighter security employed by hotels lately, it has become increasingly difficult for those offering sex-based services to operate their business. The short-term nature of Airbnb has made it the perfect platform to operate such illegal activity.
“They rented the property for two weeks and pay upfront and then the residents started noticing that there were different visitors coming in day in day out. They were only discovered after they have checked out. Believe it or not, they rented another property within the same area.”
4. Becoming a scam victim
Declaring your information on Airbnb will make you vulnerable to scammers. When a property is being booked online, the bookee gains the full access of the owners’ personal information such as contact details, house address and etc. Scammer would use this tactic to gain access to the country. Once they reached the immigration, they will claim that you are their guarantor by providing all of your personal details.
“I work closely with joint management body and I have started noticing that there is a breach of security where some of the operators would duplicate the access cards for their convenience and allow strangers to use the facilities of the building.”
5. False booking and robbery
These culprits will book your property between 11:30pm and 1 am, around the time the banks do their clearance and system maintenance. Once the booking is done they will then call the owner to inform that the property has been booked and that they’d like to check in which can be done immediately because most of our properties are digitalised. By the time the bank calls you in the morning and tell you that they have detected a suspicious activity and by the time you check your property you would have already been robbed clean.