Why more homeowners are opting for an Airbnb listing over renting

In Goa, Bhavya G (see grfx), had her first brush with Airbnb nine months ago when she listed her leased apartment on the platform. Bhavya, along with her husband, had leased the apartment when they moved to Goa from Mumbai in 2020. The couple shifted to a Portuguese villa soon but Bhavya decided to keep the apartment to try her luck with Airbnb. “Everyone in Goa was doing it, so I decided to try it for myself," said Bhavya, who is a designer and also runs a kids online clothing brand.

She now lists her villa also on Airbnb whenever the couple is out travelling. And barely eight months into the business, Bhavya‘s entrepreneurship skills have come to the fore. “I’m in the process of leasing two more apartments in Goa and one villa in Bali in partnership with two others," she said.

In distant Delhi, 29-year-old Sahil Arora (see grfx) will soon be hosting six flats on Airbnb. Arora started with just one listing seven months back, while the rest were rented out to regular tenants. “My first experience was great. The earnings from this was higher than the rental yield. I also had more control over my property and it saved me the hassle of dealing with tenants. Now, I’m gradually turning all my six properties into Airbnb listings," said the 29-year-old.

Airbnb hosting is now Arora’s bread and butter–he positions himself as a professional host. “I have an under construction project in Gurgaon, which, on completion, will be let out on the Airbnb platform," he said. His next investment destination for an Airbnb is either Goa or Dehradun.

Bhavya and Arora are not isolated cases. Several people are investing in real estate properties in popular vacation cities, like Goa, Dehradun, Coorg, Ooty, etc,that have a high tourist influx for the purpose of running them as BnBs. The reason: a handsome monthly income stream that is significantly higher than a standard rental yield and also allows you to own a holiday home for yourself. Remote work opportunities have also prompted some to realize their dream of moving to these cities permanently, which makes it easier to manage the BnB business.

Ritu Mehdiratta (see grfx) is a case in point. After she and her husband moved from Bengaluru to Goa, they leased one 1-bhk apartment and listed it on Airbnb, ‘just to test the waters’. It was an instant success with 80% occupancy in the first month. Over the next few months, they leased one more apartment and bought one Portuguese condominium near the beach. The condominium was bought on loan. “I easily earn 50% of the lease amount as profit during the peak season. During the off-season, I managed to break even but the surplus was not much. As for the condo, the yield covers the home loan EMI, but the earning is not secondary in this case as I’ve also built myself a beach home," she said.

Leasing properties to run them as BnBs is not uncommon. It is a good option for those who do not have upfront capital to purchase a property and those who don’t prefer to take on the hassle of property ownership.

The alternative

Bnb model is also proving to be a more economically feasible option over renting. Shreya Chandola (see grfx) in Dehradun has been listing the first floor of her two-storey house in Dehradun for two years. Her average monthly earning is 50% (net of expenses) higher than what she would have earned from regular rental. She has never rented the house before, so the estimate is based on rental yields of similar properties in nearby areas. Listing the house as a BnB also allows the Chandola family to use the house for their personal reasons whenever they want, an option that is not available with long term rentals.

“This was my parents‘ retirement home. After my mother died, we thought of renting it out but decided not to as the house also has great emotional value for us and we wanted to keep using it. I have travelled worldwide and stayed in Airbnbs, and hence, decided to test it out for our home," she said.

Chandola is very happy with her decision and is in the process of constructing a property in Pauri, Garwhal, and list it as BnB. “Pauri has a huge tourist footfall so it will be a good business proposition. We are looking at buying land and building a cottage," she said.

Arora, too, believes the BnB model has far greater value than renting. “Tenants don’t care about the upkeep of your house. With short-term rentals, you are in better control of your property," he said.

Income from BnBs is also treated as rental income for taxation. Airbnb also effects tax deduction at source (TDS) before paying the final amount to the hosts. It also issues TDS certificates.

What to expect

The duration to break even and thereafter start making profits depends on a host of factors: occupancy rate, upfront costs to set up the place, premium services that are provided, and pricing. For Bhavya, Julywas the first month that she booked a profit. She says that occupancy rate of 20-60% in her case is modest for a tourist hub like Goa, but she has maintained that on purpose. “I let out the villa only when my husband and I are travelling out of town. Even with the apartment, I don’t chase higher occupancy as my priority is to provide a good experience to my guests," she said.

Despite the low occupancy, Bhavya is now a superhost in just eight months. Her current profit is about 15% of the lease she pays on both the properties. “That’s not what one earns on Airbnbs in Goa," she laughed. “I aim to increase my profit to 25% by the first quarter next year."

In any case, hosts can expect to break even in under six months after starting operations. Chandola started making profits within two months because the house didn’t require too much capital initially for setting up. As she occupies the house herself, she doesn’t pay extra on housekeeping either.

Take note that these economics may not work in places that don’t witness high tourist footfalls as the occupancy rates will be low. When the occupancy rate is below 30-50%, you will manage to just break even and not make any profits. Shreya pointed out that she had just two bookings in August given the flooding situation in Uttarakhand. Similarly, during the off-season in Goa, Ritu just manages to break even and doesn’t earn much surplus.

As for maintenance costs (see grfx), utility bills, laundry and cleaning services are fixed costs for everyone. You will need to keep a full-time caretaker if you don’t occupy the listed property. Arora says the economics of keeping full time caretakers make sense only when you have more than two units as the costs get spread out.

Beyond these, the costs depend on the premium services you want to provide. For instance, Ritu is particular about stocking premium quality soaps and linens for her guests. Arora, on the other hand, sticks to basics. “My b&Bs are priced lower and, accordingly, I stock basic items. Given the modest pricing, guests too don’t expect premium services," he said.

Sticking to moderately priced items also helps cut down the replacement cost of linens, crockeries and electrical appliances if these get damaged. Bhavya said that she has decorated her villa with antiques that she has handpicked during her vacations and uses luxury crockery. But the damage done to these items has started to hurt, she said. “Most guests don’t value such things. It’s not just a financial but also emotional loss."

Airbnb charges a flat 3% service fee from hosts. For guests, the subtotal is at least 14% higher than the listing price as the platform charges service fee and taxes to guests. The final amount may be higher if there’s a cleaning fee. Even then, staying in Airbnb is 10-30% cheaper for guests compared to a hotel offering similar services, especially when booked for a longer duration of over a week as the platform gives incentives for longer bookings.