"The first lender that treats this income seriously will have the entire broking network at its door"
Short-term rental properties like Airbnb have flourished in recent years, yet lenders still struggle to accept them as a valid income stream for borrowers.
Cairns Mortgage Brokers director Roger Ward feels that lenders think such properties are merely “a casual-type income, when in reality they’re used in different ways in the short-term rental community”.
Ward told MPA there’s a large portion of the Airbnb income stream that comes from full-time short-term rental opportunities, with years of figures to look back at.
“This group has a minimum of two years of fully documented rental income, which in my books should be considered because the property looks more like a commercial property,” Ward said. “Banks just don’t seem to recognise this as a serious business. I have a client who generates over $300,000 per annum from four properties.”
Ward recognises the great returns brokers can get from Airbnb properties. But he reminds them that, as in any sales environment, the client’s needs should be considered first. Brokers can suggest their clients invest in tourism areas, where Airbnb properties seem to particularly thrive — especially areas located near transport systems with a high standard of accommodation. Many online forums can help clients market the property, Ward added.
From a lending point of view, brokers need “to make the lending stack up on a permanent rental basis”. Ward tells brokers to brief borrowers who are looking to leverage their fantastic returns that banks will not assess all their income; at best, the assessment will be restricted to a 6% return on the asset value.
He also advises brokers to source banks that will best utilise a client’s income to achieve his or her goals. For him, banks that disregard such income do so at their own peril, and those with policies that recognise the billion-dollar industry will benefit from it. However, if a borrower has a two-year income history, the bank should take either the full net income or the discounted net income, which can be 80% of its value.
Ward has been educating lenders via their BDMs about the strong income that comes from clients with Airbnb properties. He said that while everybody knows how slow credit policy moves, “banks are missing out on high quality borrowers with investment properties consistently returning 10-15% per annum”.
“History is full of missed opportunities, and simply put, the Airbnb genie is out of the bottle and isn’t going anywhere,” Ward said. “The first lender that treats this income seriously will have the entire broking network at its door.”