Short-term property rentals have become increasingly popular among property investors in Australia with interest rates increasing 3.5% in the past 12 months now making a lot of investment properties provide negative cashflow.
These properties provide strong positive cashflow compared to long term rental options, flexibility for both the landlord and tenant, standard financing options and most importantly a low entry price point for investors.
Advantages of Short-term Property Rentals
Higher Rental Income Short-term rentals can provide investors with higher rental income compared to long-term rentals. According to data from Inside Airbnb, short-term rentals have an average occupancy rate of 60-70%, with potential gross yields of greater than 10%. This is because short-term rentals are usually charged on a nightly or weekly basis, allowing investors to charge a premium for their property during peak seasons or high-demand periods.
Flexibility Short-term rentals provide investors with greater flexibility in terms of managing their properties. Unlike long-term rentals, investors can adjust their rental rates and occupancy to suit the current market conditions such as charging higher rents during peak periods where there are very limited rental options. They can also block out periods for maintenance, which may not be possible with long-term rentals. Investors will also have the option to rent out their properties on a long term basis whenever they choose either on a fully furnished basis or not.
Short-term rentals also offer the benefit of personal use, allowing investors to enjoy their property for personal use while still generating income from it. This is particularly useful for investors who want to have a holiday home but cannot afford to maintain it without rental income.
Short term letting properties can be purchased with standard residential financing options however serviceability will be assessed on the basis of a long term rental appraisal. This will allow you to receive a commercial rent from a residential property increasing profits to investors with a lower deposit and interest rate.
With the rapid increase in property prices especially in 2021, the ability to purchase a property around $500,000 in a blue chip location has become increasingly difficult. However with the ability to rent out a 1 bed unit on a short term basis, this now changed the game for investors.
Target Market for Short-term Rentals
The target market for short-term rentals includes tourists, business travelers, and people attending sporting events. These types of tenants often require short-term accommodation and are willing to pay a premium for convenience and location.
Regulations and Legal Considerations
Investors need to be aware of the relevant regulations and legal considerations when operating short-term rentals. In Australia, short-term rentals are governed by state and territory laws, which can vary depending on the location. In some areas, investors may need to obtain a permit or license to operate short-term rentals. They may also need to comply with certain safety standards, including fire and emergency evacuation procedures. In addition, investors need to consider insurance coverage. Short-term rentals require different types of insurance compared to long-term rentals. For example, short-term rentals may require public liability insurance to protect against accidents or injuries that occur on the property.
Short-term rentals offer a flexible, high cashflow solution in an increasing interest rate economy combined with a low entry point and easy access to finance. While short-term rentals offer many advantages, investors need to be aware of the relevant regulations and legal considerations to avoid potential legal and financial risks. By carefully considering these factors, investors can maximise the benefits of short-term property rental properties.
The Property Room offers short term rental properties as part of its Positive Cashflow Program. We have partnered with one of Australia's best short term rental managers who has developed an adaptive pricing model to get a higher net return for property investors between 10% and 20%.
Book a 15 minute Positive Cashflow strategy call to learn more.