Buy-to-let landlords turn to Airbnb-style lets for higher yields

A growing number of buy-to-let landlords are turning to Airbnb-style short-term lets as they hunt for higher yields amongst slow rental growth in UK residential property.

The potential yield from Airbnb-style letting is considerable. Current data from Zoopla shows that the average rent for a one-bed flat in London is £1,618 a month, while a single private room on Air BnB can bring in around £100 per night.

Sizeable rents from Air BnB-style lets look even more attractive as average rents across the UK began to shrink for the first time in five years towards the end of 2017.

Short-term letting through online platforms also enable landlords to be flexible in choosing how long they rent properties for – it can be as little as one night. This hyper-flexible letting can easily fit around a landlord’s lifestyle.

Many landlords are looking to tap into this market by obtaining funding to increase their current property portfolio or convert existing assets. Research from the Residential Landlord Association (RLA) shows that the number of buy-to-let investors renting on Airbnb saw a 54% increase between February 2016 and March 2017.

Airbnb reported 5.9m people using its UK site in 2016-17, and its popularity shows no sign of abating.

Many people now choose short-term lets over hotels because of the choice on offer in terms of location. Properties can be in the midst of a tourist hotspot, off the beaten track, or closer to other attractions like family. In some cases, obscure locations are actually beneficial for potential landlords as they can offer a service in locations other businesses cannot reach.

However, some buy-to-let landlords are finding it difficult to obtain the funding they need to benefit from the higher yields on offer. This is because traditional mortgage providers see lending for Air BnB-style letting as a far riskier choice than more traditional buy-to-let. The cash flow from short-term letting is often irregular and more seasonal in nature, which stands in stark contrast to the security provided by a rental agreement which last for one or two years.

This is where alternative finance providers can step in and fill the funding gap. These providers can work more closely with potential clients than mainstream lenders and can therefore ascertain whether a landlord has the appropriate experience and a good enough business plan to be considered for a loan.

As we begin 2018, buy-to-let investors face a highly competitive market and slowing rental prices. As a result, many are turning to more short-term lets for better returns.

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