When you’re investing, is it better to lease your property as a holiday rental or on a six-month, or longer, contract?
With the growing popularity of Airbnb listings in Australia, letting out your holiday home as an investment property is becoming easier. But are changes in the rental market making short-term leasing arrangements more attractive if you’re investing in property?
Rents are falling
According to the latest from RP Data Core Logic, rental yields are continuing to fall across Australia, with a 0.3 per cent drop in August, following on from another 0.3 per cent fall in July. The average weekly rental rate across the 8 capital cities is now $481, which is the lowest it’s been since November 2014.
In their Annual Investor Report published in June 2016, Core Logic found that the highest levels of investor activity are in the inner capital city apartment markets, with investors owning 57.8 per cent and 49.6 per cent of apartments in Sydney and Melbourne respectively.
So it seems that apartment-owning investors could be looking at falling returns from their tenants. Is it a good time for these investors to stock up on Ikea furniture and kit out their apartments to join the ranks of Airbnb listings?
Higher rental rates, higher overheads
If you’re renting a hotel for the night or a holiday let, you’d expect to be paying more per week than you would for renting your home. If you secure a fairly high occupancy for your short-term holiday rental, you might end up ahead on the income you’ll earn compared with leasing to a tenant.
But there are extra overheads too. You’ll need to pay for cleaning and other costs associated with people using the property – such as linen. And if there’s a property manager involved, to provide keys and handle issues, their fees can also take a big chunk from rental earnings.
Airbnb hot spots
According to Inside Airbnb, which offers independent data and information about Airbnb, the latest figure for total Airbnb listings in Melbourne is 8,633 and 15,648 for Sydney. Looking at the average rate per night for each city, it’s currently $137 for Melbourne and $196 for Sydney, which certainly compares well with the current average weekly rents of $458 and $593.
But what about occupancy? For Melbourne it’s 20.2 per cent, giving an average monthly income of $782, with equivalent figures of 16.3 per cent and $759 for Sydney. Of course, this is for all listings, and some may only be available for a few weeks of the year. By choosing the right property in a location in demand with Airbnb users, you could be looking at a much better level of income overall.
Regulation and restrictions
Whether you’re renting out via Airbnb or through a property manager, it’s important to be aware of council, fire authority or strata restrictions that limit how you use the property and how many people can stay there. And there could soon be a whole new regulatory approach to short-term letting. With public inquiries in both NSW and VIC reviewing the impact on local neighbourhoods and tourism, there may be changes to the way Airbnb and other accommodation services are used in Australia.
Are you getting ready to buy an investment property? Share your thoughts in the comments below.