Airbnb Investment Failure? Real Estate Investing Advice for 2024

This article summarizes and analyzes a real-world property investment scenario presented in the E-Hung podcast. Mr. Core, a 34-year-old investor, seeks advice on his current portfolio and future investment strategies.

Mr. Core's Property Portfolio Overview

Mr. Core owns three properties: two studio units for investment and one landed property for his own residence. The investment units are located in Salon Suites by Axim at Bukit Salon.

Investment Unit Details

• Location: Bukit Salon

• Project: Salon Suites by Axim

• Size: 411 sq ft per unit

• Title: Commercial, Leasehold

• Purchase Price: Approximately RM 578,000 per unit

• Monthly Installment: Approximately RM 3,500 per unit (RM 7,000 total for both units)

• Maintenance Fee: Approximately RM 300 per month per unit

• Year of Purchase: 2017

• Original Strategy: Generate rental income through Airbnb

Initial Investment Strategy Rationale

Mr. Core's initial strategy was based on several factors:

1. Tourism in KL: Kuala Lumpur was a top tourist destination.
2. Potential Rental Income: Expected rental rates of RM 250-300 per night suggested good monthly income.
3. Commercial Title Advantage: Commercial title offered fewer restrictions on Airbnb compared to residential properties.
4. Strategic Location: Proximity to KL Eco Park and popular tourist spots (Changkat, Jalan Alor, Bukit Bintang, KL Tower, Masjid Jamek) was considered ideal.
5. Exit Strategy: Prime location should attract local and foreign buyers.
6. Rental Audience: Nearby offices offered potential long-term tenants.

Challenges and Current Situation

The project completed in 2020, coinciding with the COVID-19 pandemic, which significantly impacted tourism.

• Tourism Collapse: The pandemic made Airbnb unsustainable.

• Shift to Long-Term Rentals: Due to cash flow issues, Mr. Core switched to long-term rentals.

• Rental Income: One unit is rented long-term for RM 2,300 per month.

• Airbnb Management: The second unit is managed by a property management company with a profit-sharing arrangement (80% owner, 20% manager).

• Disappointing Airbnb Results: In 2024, average monthly gross income was RM 2,800, but net income after costs was only about RM 1,000.

• Annual Net Income (after sharing): RM 25,000

Mr. Core's Questions

Mr. Core poses several key questions regarding his investment:

1. Failed Investment?: Is this considered a failed investment?
2. Stuck Goal?: His goal is to own five income-generating properties, but these units are "bleeding cash."
3. Sell One Unit?: Should he sell one unit to reduce the burden, considering weak asking prices and auction listings?
4. Property Bull Run?: He wonders if a property bull run will materialize, as the property hasn't appreciated significantly. Bank valuations are between RM 600,000 and RM 650,000 (barely 10% gain in 7 years).
5. Desperation: Feels stuck and uncertain about retirement plans.

Analysis and Advice

The podcast hosts offer insights and advice to Mr. Core.

Is it a Failed Investment?

It's argued that it's not a complete failure, considering the unforeseen circumstances of the COVID-19 pandemic. Buying the property at approximately RM 580,000 and potentially selling it for RM 600,000 allows him to break even, or lose a little which isnt the worst thing that could happen. He has been able to hold onto the properties during a tourism drought.

Lessons Learned and Mistakes

One key point is the reliance on a single rental option (Airbnb). A good investment should have multiple rental options to cover installments. Projects heavily marketed on Airbnb income might not be viable for long-term rentals. The risk of Airbnb regulations is also highlighted.

Addressing the Five-Property Goal

The podcast hosts challenge the arbitrary goal of owning five properties. The focus should be on generating sufficient cash flow to achieve financial freedom and a desired lifestyle, rather than simply accumulating units. He should also consider the timing of purchasing the properties, during a market high right before COVID.

Should He Sell?

Selling one or both units is recommended, especially considering the projected influx of new units in the area, making his older units less attractive to renters. The goal is to exit the investment and work on new deals before he turns 40. He should get more data such as the bank valuations, actual asking price and the actual price people are buying at the auction.

Market Conditions and Future Outlook

While a property bull run is anticipated due to infrastructure developments and cost pressures, only good projects will perform well. Stigmatized properties with auction history might not benefit. Infrastructure wise LRT3 is going to start. MRT3 plans are drawn. Banda Malaysia is going to happen. Then Joo has RTSA, ART, and HSR. For Pinang the LRT tenders are being rolled out.

Focus on Financial Freedom, Not Unit Count

The hosts encourage Mr. Core to focus on maximizing rental income and capital appreciation to achieve financial freedom, rather than fixating on the number of properties owned. Tying net worth and identity to property count is discouraged.