Photo provided by MadeComfy
When Airbnb was launched in 2008, short-term rental was a way to make some extra money for vacation home owners and those who had guest rooms in their homes.
But with the unprecedented increase in demand for alternative accommodation to hotels and serviced apartments, real estate investors are increasingly wondering:
"Is the potentially high return on short-term rental compared to traditional long-term rental the best evolution towards a property with positive cash flow?"
Request for non-traditional accommodation
According to MadeComfy, a leading Australian management company Airbnb, short-term rentals represent around 12% of total tourist accommodation in Australia and according to their 2019 Australian short-term rental report, it is very likely that this trend will continue to develop in the new decade. The high demand for accommodation for visitors is confirmed by Tourism Australia statistics.
Figure 1. Arrivals ending in Australia and year-on-year% change.
Source: Tourism Australia, 2020
Definition of short-term and long-term rentals
The exact duration of short-term rentals varies, but in general, it is described as a furnished independent living space or property that can be rented for a day or up to a few months.
Long-term rentals mainly relate to the unfurnished rental market where properties are rented for at least six months or on annual fixed-term contracts.
Main advantages of short-term rental
1. Flexibility
Owners using short term rentals have the option of using their investment property for their personal use and can block availability for themselves, their friends and family.
In addition, even with proper filtering, tenants can still find themselves with delinquent tenants who don't pay rent on time, but with short-term rentals, this can be avoided because you're not tied to the same tenant.
It is also possible to switch back to the long term fairly quickly if necessary and investors have the option to sell their property without having to worry about being locked into a long term contract.
2. Higher rental rates
In general, a well-managed short-term rental property in a good location generates more revenue due to higher nightly rates.
The ability to adjust prices based on seasonality and special events is a key factor in taking advantage of peak demand, which is not possible on a long-term lease.
3. Less wear
Another advantage of short term rentals is more regular maintenance.
Properties are cleaned after each departure, keeping them in better condition for an extended period, and visually inspected for problems requiring repair before they can snowball into larger problems.
4. Tax relief
Purchases made to furnish an investment property, as well as items such as household appliances and white goods can be claimed as a tax deduction.
Short-term rental considerations
While short-term rentals have many advantages for real estate investors, this type of rental involves risks, as yields are subject to seasonal fluctuations and are not suitable for all property types and locations.
Higher costs associated with maintenance, cleaning and furnishing should be considered, but the overall annual returns from short-term rentals can be considerably higher than in the long term, if these costs are well managed.
Depending on the location, number of bedrooms and condition of the property, MadeComfy estimates that investors can earn 40% more returns with short-term professional rental management.
Photo provided by MadeComfy
Advantages of the long-term rental strategy
1. Stability
Security is the main reason why real estate investors opt for a long term rental strategy.
Long-term leases with a fixed date guarantee that money arrives at a constant rate and owners do not have to worry about off-season variations that could make it difficult to rent the property.
2. No payment for public services and furnishing costs
In a long-term rental, tenants are generally responsible for paying utility payments. As a result, homeowners face lower costs, especially since long-term rental properties don't have to be furnished or advertised regularly.
3. Simpler self-management
When it comes to management, long-term rentals are much simpler because fewer steps are involved, as owners don't have to worry about tedious tasks like helping clients Save, quit, etc. However, short-term long-term rental property management companies make it easier for owners to take advantage of high yields without having to lift a finger.
Where can I get an expert opinion on the rental strategy best suited to my property?
The leading management company Airbnb MadeComfy offers free real estate appraisals and income forecasts for short-term rental, based on available market data and current performance of properties listed nearby.
Get an instant estimate of the income potential of your property with their free short-term rental calculator.
Disclaimer: Although precautions are taken, the views expressed by contributors and / or paid content do not necessarily reflect the views of your investment property.
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