Don’t neglect maintenance of appreciating assets

Originally Posted in The Village News.

When times are tough and the economy is pinching the consumer from all sides, we often have to balance the budget to attend to priorities like home maintenance and the servicing of vehicles and operating equipment. Yet, how strange is it that so often we throw money at depreciating assets and ignore the ones that over time will give us growth way beyond that of a savings or investment account.

We happily (or not) respond to our vehicle’s need for regular servicing and maintenance and as much of a “grudge buy” as it is, we do it. Yet we leave our homes, particular second or holiday homes, to fall into a state of disrepair to such an extent that when one is forced to do something about it, the costs seem so exorbitant that we resist, complain (even if it is just to ourselves) and find reasons to do nothing.

The reality of the property market is that the better the state of your home, the better the investment growth and selling price when you put it on the market. If you are a long-term investor, then you know that over time your property value will grow incrementally. Maintaining it on a regular basis will keep it high in the value stakes.

The better maintained the property has been over the years, the less of an expense it will be to prepare the property when the time comes to sell. Living at the coast presents its own challenges when it comes to choosing materials to use for external applications, all of which come with a lifetime maintenance cost. It becomes a fight between what’s aesthetically pleasing and what’s practical and low maintenance. One’s personal taste will more often than not win over practicality and become the tick in the box for lots of maintenance in the years ahead.

The ideal scenario is to have a home-maintenance plan that addresses maintenance issues as they arise. You won’t hesitate to take your vehicle in for a service when it is due, so why not apply the same mind-set to what is likely to be one of your biggest lifetime investments. That way you spread the overall cost over a longer period of time, rather than having to take a big hit with one massive maintenance project that will no doubt leave you seething at the unexpected hole left in your wallet.

We often forget that depreciating assets, as much as they are needed, are just that and when quantifying the potential return from appreciating assets, it should be a no-brainer as to where we should be planning our spend. The challenge of having to do last-minute fixes inevitably means not having enough time to get comparative quotations from a selection of service providers and thereby making the mistake of selecting the wrong one, often based purely on price.

The Afrikaans adage “goedkoop is duurkoop” (loosely translated to “paying cheap prices will prove the be more expensive in the long run”) is indeed 100% accurate. More often than not, a cheap repair results in an even more expensive re-work, which negates the value of the “cheap” repair from the outset and can more than double the cost of having done it right the first time. Crisis management may solve a short-term problem but could very well result in excessive costs when the problem recurs.

In the same way as we plan maintenance on depreciating assets, so we should ensure that we do the same with those assets that will give as a real return on the related investment.

Hermanus residential rental market is misfiring

One need only to look at various social media pages and websites like Property24 to see that there is something amiss in the Hermanus short- and long-term residential rental markets. As confirmed by a number of local rental agents, there has been a noticeable increase in the number of properties available for long-term rentals and an ever-increasing growth in holiday rental properties.

Hermanus rental

There is such an oversupply of holiday rental properties that it has reached a point where nightly rentals are being significantly reduced because of the relative lack of demand, particularly outside of the peak season. More and more properties listed for long-term rental are also showing ‘Reduced’ banners on their listings. Visitors are spoilt for choice to the point of confusion and many people who thought listing their properties on Airbnb and similar websites would make a killing, are  disillusioned, irrespective of whether their expectations were realistic or not.

Some agents say that they have more unlet properties on their books than ever before, many properties are on the books of multiple agents and the price point for many of them is way above the affordability level of most long-term rental seekers. Whilst the majority of properties available are in the R12 000 p/m and above bracket, the biggest demand is in the R4 000 to R 10 000 p/m bracket.

The greatest shortages are in 1- or 2-bedroom flats or cottages and accommodation for singles, young couples or elderly people, and this is in direct proportion to the lower salaries (or pensions) earned by many in the Overstrand. Agents generally feel quite helpless as there is nothing available for this demographic, including pensioners living on small budgets.

Many home owners who are seeking extra income to counter general economic challenges are clearly not taking price and reality-check recommendations from agents; this was confirmed by all we spoke to. The expectations are largely unrealistic and the net result is that properties remain unlet for long periods of time. Eventually, it is at a point of desperation that the owners drop their rental prices or they place the properties on the market for sale. The fact that there has recently been a spike in the number of properties for sale is a clear indicator of this trend.

Whilst there isn’t much demand for furnished accommodation, the big deterrent for most home owners is tenants with pets, even though they themselves may have pets on the property. There is also an indication that many home owners letting their properties want the best of both worlds by aiming for the highest rental, trying to restrict the rental contract to only 9 months of the year so that they have access to the property in season, yet are so prescriptive regarding tenant criteria that they end up having an unlet property.

In contrast, when existing leases come up for renewal, some landlords are being more flexible and agreeing to lower annual increases in order to keep good tenants, rather than lose them and risk ending up with no tenant or new ones that do not look after the property in the same way.

The general consensus is that buying, selling or rental decisions by property owners are up in the air until after the elections. Thereafter, there could well be a correction in the rental market, bringing everything back to some sense of reality, with all cylinders firing in unison.

What is very evident, though, is that for a community-focused property developer, there is a massive opportunity to produce housing at the right price for the largest percentage of rental tenants, be it apartments, container housing, or similar initiatives, which would go a long way towards addressing market needs.

Airbnb hosting: To be or not to be?

In today’s short-term letting market one cannot rest on one’s laurels when planning a listing on Airbnb or its industry competitors like Booking.com and the rest of the field. There are traditionally two reasons why people list their accommodations: one is to generate extra income and the other stems from a desire to become passionately involved in the tourism and hospitality industry and satisfy a personal need for more than just the income.

The reality is that in most cases it is more about the income and less about anything else. And therein lies the source of the problem that leads to a lot of disappointment with aspirant hosts: their expectations are not always in line with market realities.

In the past few months more and more holiday home owners have begun considering listing their properties for short-term letting. The focus seems to be more about the potential income rather than the potential business opportunity that hosting can offer. There is also an unrealistic expectation of what is involved and in most cases it has proven to be a sobering experience for the aspirant host.

Whilst there are plenty of highly capable people, many of them retirees, who have the ability and necessary talents to be successful hosts, often their properties are not at the level of maintenance and comfort that guests would consider acceptable for the price asked. All hosts-in-waiting should take a business view of this opportunity and consider the following, before embarking on this challenge:

  • Are you prepared to make an investment in bringing the accommodation up to a standard that is appropriate for guests?
  • Have you considered the implications of sharing your property (not necessarily your home) with guests, and the impact it will have on your lifestyle and privacy?
  • Are you adequately prepared to handle the demands of difficult guests?
  • Are you operating within the legal compliance requirements of the municipality and, if you are not the property owner, the agreement under which you will be subletting the accommodation?

The first point is probably the most critical in determining the success of your attempt at attracting regular guests. For anyone who has travelled, there is nothing worse than arriving at your destination and finding that what you saw advertised is nothing like the reality facing you. So, as a host, you need to ensure that what you show in pictures is what your guests will actually get. The use of wide angle lenses is always risky as they misrepresent the size of rooms and amenities and that is never a good place to start. Any visible signs of dust, cobwebs and damp, peeling paint, rust and dirt should be eliminated at all costs. Cleanliness is one of the top elements rated by guests and if that doesn’t pass muster, it will be reflected in reviews and over time, reduce your ranking in searches.

Tasteful furnishings and decor are other important factors to consider. In all cases, this has a direct influence on the rental you can ask. It does not take a huge investment to kit out accommodation with taste and style; the critical focus should be on linen, towels and basic amenities. Too often one finds linen that is well past its sell-by date, towels as hard as brushes and amenities that are simply off-putting to guests.

If you are going to venture down this road, do it realistically and with attention to detail, and you won’t be disappointed.

Minimum standards for short-term letting

Whether you talk Airbnb, Booking.com, Lekkeslaap or any of the plethora of online portals for short-term rentals, one aspect that should never be compromised is the minimum standards of hosting, accommodation and amenities.

This needs to be the starting point for anyone considering short-term letting and particularly if you intend to build up a track record of repeat bookings and top score reviews and ratings. Many people who list their properties are not even aware of the standards expected from the likes of Airbnb and seek purely to earn an income for the least amount of effort and expense. They are also not aware of the importance of the rating/review system and the potential impact thereof.

Serious hosts will ensure that everything from their responsiveness, communications and pre-arrival actions are impeccable and that the entire guest experience from arrival to departure is one which the guests will remember and recommend to future guests. Many ‘super’ hosts in the Overstrand can proudly boast regular repeat bookings, whilst in many cases with ‘occasional’ hosts it will be a once-off booking. In trying to reach out to international tourists, these standards need to be right up there with their expectations from previous global travel experiences.

Whilst each online booking website has its own recommended standards, these are based on a wide range of factors such as price, value for money, cleanliness, communication, quality of furnishings, amenities and many more. So it’s not just a case of putting your accommodation online without having taken a serious look at why you are doing this and what efforts may be needed to attract guests to it.

Accommodation should, at a minimum, be clean, uncluttered and attractive, with tasteful and comfortable furnishings. It need not be a hugely expensive exercise to meet these minimum requirements and the more attractive and comfortable the décor, the better the response will be over time. Amenities are a key factor in attracting guests and if the basics are not in place it could be detrimental to future bookings. Toilet paper, soap, sheets, and at least one towel and pillow per booked guest are a minimum; free Wi-Fi is a given, next to amenities like a private entrance, cable TV (DSTV) and in warmer climates, air-conditioning or a fan.

Sea or mountain views are a major drawcard and if it is self-catering accommodation, fully-functioning and clean cooking facilities are a must; in all cases, the basics like a ‘coffee station’ should be in place. The list is endless, but it is ultimately up to the host to decide what extras to include in order to obtain the best reviews possible. Some hosts personalise the experience to such a degree that guests receive ‘starter kits’ to meet their refreshment needs upon arrival.

One thing is certain – hosting guests booking via online websites is more than just a key-exchange and property run-through. Some people have become totally passionate about their role as hosts and as a result constantly get good reviews, repeat bookings and an income stream that warrants all the little extras that make an impression. These are hosts who see themselves as active in the tourism and hospitality industry and are geared towards providing a superb level of service.

The personal touch cannot be underestimated and if you are in the slightest doubt as to whether your listed accommodation and amenities are up to scratch then you need to seek advice on how to take full advantage of the potential that exists. Remember, what a host deems acceptable and stylish is not necessarily what guests expect and that can lead to disappointment and inconsistent bookings.

Airbnb compliance – the journey ahead

Following up on The Village NEWS’ recent article about municipal compliance requirements for short-term letting, our research has revealed how lengthy the process may be, as well as the fact that the potential costs will not be light on the wallet.

It is a complex and time-consuming process, the essence of which is that you are applying for the rezoning of your property, and in doing so, will need to supply a myriad of supporting documents.

The involvement of experts may be necessary, as the intricacies of providing the correct information and documentation as well as distinguishing between the various options may be too daunting for the lay person to navigate.

As for the timeframes, expect at least six to eight months before compliance is confirmed. If there are any objections to your application, the process could take up to 10 months.

And then, of course, there is the cost factor, starting at R4 798 for a 150m₂ to 400m₂ erf and R6 688 for an erf of 400m₂ to 5 000m₂. Add to that the professional fees and you can expect to be at least R 8 000 to R 12 000 out of pocket. On the other hand, considering that the municipality is seeking to introduce ‘discipline’ and ‘control’ into the short-term letting market, can you afford not to comply?

From discussions with various Airbnb hosts or those using similar online portals, there appears to be a three-way divide on the view of compliance. The more established properties with a solid track record of repeat bookings and top-quality reviews are willing to go through the process as they see themselves as on a par with the registered and compliant guest houses and B&B establishments and are, anyway, fully-fledged tourist accommodations.

People who are using the online booking platforms as, first and foremost, an easy way to earn an income rather than establishing a proper tourism business are less inclined to comply with the regulations as they see it purely as a money-making initiative by the municipality.

Then there is the group that emphatically refuses to consider submitting an application as they do not believe that any action will be taken, based on previous unsuccessful attempts to enforce these regulations. They await the legal process of fines and penalties with a sense of glee and are clearly prepared to test the system.

Only time will tell how these applications are dealt with and how the monitoring and control will be implemented. When all is said and done, there are many concerned people who could potentially lose the income they rely on from their short-term rentals. Whether this is any cause for concern for the powers that be remains to be seen.

Airbnb by Numbers

Dec 2017
Available 1 725
Booked 1 491
ADR R2 409
Occupancy 55%

Dec 2018
Available 2 262
Booked 1 935
ADR R2 285
Occupancy 54%

 

Definitions:

■ Available Listings – The count of Airbnb listings that were advertised
for rent during the month or had a booked day in the month.
■ Booked Listings – The count of Airbnb listings that had at least one
booked day in the month.
■ ADR – The Average Daily Rate charged for the entire establishment
listing booked. ADR includes cleaning fees but not other Airbnb service
fees or taxes. The average USD/Rand exchange rate for the month is
used.
■ Occupancy – Booked Listing Nights divided by Available Listing
Nights.

Data courtesy of www.airdna.co