According to Domain.com.au, Melbourne city’s rental picture looks like: rents are at record highs and rising faster than incomes, the number of properties available for rent is shrinking and properties defined as “affordable” to those on low incomes are disappearing, therefore leaving properties empty. One and two bedroom apartments geared towards investors, do not get to the rental market for the above reason as well as owing to the facts that they are kept empty by foreign owners or are leased through accommodation sites like Airbnb.
So, properties that sit vacant can be leased through Airbnb and other accommodation sites to create income for owners and agencies, which oversee properties. Seeing that this is time consuming for the agency, handing over bookings and management to a third party is ideal.
Contrary to popular belief, holiday rentals often experience less wear and tear than long-term rentals. Before a guest comes in, the property is cleaned. When the guest checks out, it is cleaned again. Most likely your service provider is doing a good job maintaining cleanliness and keeping an eye out for marks and scratches or any breakages. If you are attracting the right guests for your property, your property will remain well looked after.
The benefits of renting a property as a holiday home come at a cost. Rental returns are higher but so are operating costs. These costs are reflected on the attached spreadsheet.
Furthermore, this type of strategy is generally not as ‘set and forget’ as a traditional tenancy. There’s a need to be aware of the distinct risks that holiday homes attract. These can include:
The risks of cyclical income exist with holiday home rentals, but they can be offset by cash flow planning through the year.
Guest screening, security deposits and solid terms and conditions can mitigate damage to the property. Insurance is even more important.
These can arise with any property investment, but specific risks apply to holiday homes. Adopting the Holiday and Short Term Rental Code of Conduct can help to minimise any disruption to residential amenity.
Ensure that there is the appropriate permission and meet the local regulations of holiday rentals to avoid compliance action by councils.
This can impact cash flow. If there is the right risk profile, and the type of keen budgeting and money management skills to ensure cash flow is sufficient year-round, a holiday rental could help generate thousands of extra dollars in rental returns. This general income comparison of a holiday rental versus traditional rental paints a picture of what could be:
Double the profit with an executive lease
Short-term rentals don’t just refer to holiday lettings; they can also include corporate or executive rentals, which can add a serious premium to weekly asking price. It can be lucrative, depending on where your property is located. The main thing investors need to keep in mind is that they have to be realistic and understand what their average rental income will be over the year, because not all listings will attract a tenant year-round.
Generally, executive or corporate leases range from three months up to 12 months, depending on the location and size of the property. An executive with a family may stay for a longer period, whereas an inner-city apartment suitable for one or two occupants is more likely to attract shorter leases.
That latter category is usually the more sought-after property type for executive leases, and will need to be fully furnished. The owner/investor can make around 20–30% above regular rent.
Insurance risks: What short-term landlords need to know…
There are certain traps for the unwary investor when using non-traditional property strategies, and insurance has the potential to be one of them. Specialist short-term landlord insurance is available, but it costs more than the standard product because risks tend to be higher. Regular landlord insurance policies also don’t generally cover property investors who rent by the room, an important consideration for those contemplating an Airbnb, short stay accommodation strategy.
It’s up to you, but to me it makes sense. Double your income or lose!