If you’re in the market for an investment property or already have one, you may have been wondering whether it’s worth leasing out your property as a short term holiday rental on sites like AirBNB and Stayz.

There are a number of things to consider when comparing this to a long term rental and it can largely depend on what type of investor you are and what investment goals you have. Another really important point to consider is the location of the property.

Location Is Important For A Short Term Rental Property

If you plan on buying an inner city apartment in any of Australia’s major capital cities, especially Sydney, Melbourne and Perth then leasing your property on AirBNB may well be particularly lucrative when compared to a long term rental.

The reason for this is because properties in these areas can have an occupancy rate of up to 80% as reported in a recent global index study conducted by Nested, a London online real estate agent.

Inner city areas tend to be less reliant on seasonal changes and attract visitors year round. This means that your investment property will have less chance of sitting idle for certain months of the year.

Short Term Rentals Can Yield A Much Higher Return

In an analysis conducted by finder.com.au, the average weekly rent for a 2 bedroom unit rented through AirBNB was $1,357. Compare this to the average long term capital city rental price in late 2017 of $447 for a 2 bedroom unit according to SQM Research, and you can see that your short term rental property could have a much higher rental yield.

The rental yield is the ratio calculated as the annual rent which can be expected from a property compared to the total property value.

The chart below shows the average rental yield for various cities around Australia and compares long term rentals to short term holiday rentals through AirBNB:

As you can see, a short term rental property in a sought after location can yield a much better return than a long term permanent rental however, there are other things to consider before you decide that an AirBNB investment property is right for you.

With this type of rental return, you’ll find that you can pay off your investment property much quicker than you could if it was permanently rented on a six or twelve month lease.

Major Things To Consider Before Buying An AirBNB Investment Property

As mentioned above, purchasing a short term rental investment property requires additional considerations before you decide if it’s the right strategy for you. These include:

1.  Property Preparation

An AirBNB property needs to be fully furnished with working appliances and other items that you would expect to find in a holiday rental. These include linen, crockery, cutlery, cooking utensils and consumables such as toilet paper, soap and some kitchen cleaning products.

2.  Higher Management Fees

If you have the time and the inclination, you can take over the management of the property yourself and save on management fees but for most people, having a property manager to look after the property is usually considered a much better choice.

3.  Cleaning Of The Property Between Rentals

As with all types of holiday rentals, your property will need to be cleaned between guests. You can manage this yourself or your property manager can arrange this for you. This is a cost that needs to be factored into the rental rate so that you are not out of pocket. On AirBNB you can charge a cleaning fee for your property as part of the rental cost.

4.  Adequate Insurance

It’s really important that you have adequate insurance to cover any damage to the property or loss of items. Due to the higher rental, you’ll find that most AirBNB renters are responsible and will take care of your property, however there is always the chance that some won’t so it pays to be protected.

Also check that your council doesn’t have any restrictions on short term holiday rentals as this can negate any insurance claims that you may make. It may also be worth investigating AirBNB’s Host Protection Insurance.

5.  Body Corporate Restrictions

If your investment property is part of a complex which is run by a body corporate, you need to ensure that there are no restrictions as far as short term rentals are concerned. There are various regulations in place in different states of Australia and each body corporate may have its own regulations as well.

6.  Be Mindful Of Neighbours

Ensure that you won’t have any problems with the neighbours of your property when you have a constant stream of strangers coming and going.

7.  The Possibility Of Fluctuating Occupancy Rates

Even if you purchase an investment property in the right location to achieve maximum occupancy, there may still be times where your property is vacant. You may also find that you get the occasional late cancellation which means a loss in rental revenue. You need to make sure that this will not affect your ability to furnish the mortgage and other expenses on your property.

Final Word

Purchasing an investment property and listing it as a short term holiday rental on AirBNb or Stayz can be quite lucrative in terms of rental returns but you really need to do your research well beforehand. Ensure you have a great location that will yield a high occupancy rate.

If you plan to manage the property yourself, make sure you have the time and understand exactly what is involved. You’ll need to take bookings, arrange for cleaning in between guests, organise to drop the keys off and sometimes handle late night phone calls.

On the plus side, if you have or are thinking of purchasing, a holiday home in a prime coastal location, renting it out on AirBNB while you’re not using it can be a great way to get some extra income and ensures that your property is not sitting idle for months on end.