How do banks assess the revenue from an Airbnb property in Australia?

When banks in Australia assess the revenue from an Airbnb property, they typically follow a systematic process to evaluate its consistency and reliability as a source of income, especially when considering it for a mortgage or loan application. Here's how they generally assess Airbnb revenue:

1. Income Verification

To assess Airbnb revenue, the bank needs to verify your rental income. This can be done in several ways:

Tax Returns

• What banks look for: Banks may request your personal or business tax returns, which should include rental income earned from short-term letting platforms like Airbnb.

• Why it’s important: Your tax return provides an official record of your earnings, and banks use this as a reliable source of income data.

Airbnb Payout Statements

• What banks look for: Some banks may request your Airbnb payout history or bank statements showing Airbnb payments deposited into your account.

• Why it’s important: The payout history from Airbnb provides a breakdown of your earnings over a specified period, usually covering monthly or quarterly payouts.

Bank Statements

• What banks look for: Banks might ask for recent bank statements showing deposits from Airbnb earnings.

• Why it’s important: Bank statements allow the bank to directly observe the consistency and size of Airbnb payouts over time.

Property Management or Rental Reports

• What banks look for: If you use a property manager to handle your Airbnb property, they may provide reports detailing rental income, occupancy rates, and other relevant details.

• Why it’s important: This helps establish a history of rental income, demonstrating whether the property is generating consistent revenue.

2. Consideration of Income Stability

Banks typically assess whether Airbnb revenue is stable and sustainable. This involves analyzing how consistent the revenue is and whether it is a reliable income source. Because Airbnb income can fluctuate due to factors like seasonality, local demand, or market trends, banks often apply a conservative approach.

• Occupancy rates: Banks will consider how frequently your property is rented out on Airbnb. A higher occupancy rate generally indicates more stable income.

• Revenue consistency: If your income is highly seasonal or inconsistent, banks may factor in only a portion of that income when assessing your loan application.

3. Discounting the Revenue

Given the variability and uncertainty associated with short-term rental income, banks often apply a "discount" to Airbnb revenue when assessing its contribution to your overall income. This means the bank may not count 100% of your Airbnb income.

• How the discount works: Banks may consider anywhere from 70% to 90% of your Airbnb revenue, depending on how stable and predictable they believe it to be. The discount compensates for potential vacancy periods, maintenance costs, or other risks.

• Example: If your Airbnb property generates $3,000 per month, the bank might count only $2,100 to $2,700 (70-90%) of that income toward your loan serviceability.

4. Property Valuation

The bank may also assess the market value of your Airbnb property to determine how much they’re willing to lend you. The potential rental income (both long-term and short-term) could be factored into the property’s valuation, especially if it is located in a high-demand area for short-term rentals.

• What banks look for: Banks may look at your property’s location, condition, and the likelihood that it will remain a profitable Airbnb listing in the future.

• Why it matters: If the bank believes the property can continue to generate good short-term rental income, it could impact their decision on how much they’re willing to lend you.

5. Debt Serviceability Assessment

Banks assess your debt serviceability by determining whether your total income (including Airbnb revenue) is enough to cover your existing debts, including any new mortgage payments. They typically perform a "serviceability" test to ensure you can manage your loan repayments.

• Incorporating Airbnb revenue: If Airbnb income is a significant part of your overall income, the bank will assess how that contributes to your ability to meet repayments. Some banks may use a higher proportion of this income if it's documented to be consistent and sustainable.

6. Operating Expenses and Costs

Banks will also consider the costs associated with running an Airbnb business. These can include:

• Cleaning and maintenance costs: Banks will recognise that managing an Airbnb property involves ongoing cleaning fees, repairs, and property upkeep.

• Airbnb fees: Airbnb charges host fees (usually around 3% for each booking), and banks may consider this when calculating the adequate income from the property.

• Property management fees: If you use a property manager, the fees (typically around 10-20% of your earnings) will be subtracted from your rental income.

The bank will typically use these operating expenses to assess how much of the Airbnb income is "net" and available to service a loan.

7. Risk Assessment and the Length of Airbnb Operations

Banks will generally be more willing to accept Airbnb income if:

• You have a long history of hosting: Banks will often look for at least 12 to 24 months of documented Airbnb earnings to ensure that the revenue is consistent.

• Your Airbnb business has been stable: If your property has a history of strong occupancy rates and solid revenue, the bank is more likely to consider your Airbnb income positively.

8. Local Regulatory Environment

Banks might also consider local regulations and zoning laws around short-term rentals. Some areas have stricter rules, such as limitations on the number of days a property can be rented out or requirements for permits or licenses. If local restrictions could impact your ability to rent out the property via Airbnb, banks might be more cautious in assessing your income.

In Summary:

Banks in Australia assess the revenue from an Airbnb property by:

• Verifying the income through tax returns, Airbnb payout statements, and bank statements.

• Considering the stability and consistency of the income, a potential discount is applied due to the fluctuating nature of short-term rental income.

• Factoring in operational costs and occupancy rates.

• Considering the overall property valuation and debt serviceability, especially if Airbnb income is a significant portion of your financial profile.

• Reviewing the history and longevity of your Airbnb business, as well as any local regulatory restrictions that might affect your ability to continue generating income.

If the bank determines that your Airbnb income is stable, reliable, and sufficient to cover the loan repayments, it may use this income to support your loan application. However, banks often remain conservative in their assessments due to the unpredictable nature of short-term rental markets.

If you’d like to learn more, why not book a complimentary discovery call with Shona, our Airbnb Specialist? Or phone her on +61 417 693 281