Short-Term Rentals Proving To Be An Investment Hit
he holiday home was once the extravagant domain of the ridiculously wealthy, who could afford to have a second property laying idle in between occasional weekend getaways or summer breaks from the board room.
Today, with property investors accounting for 30 per cent of the housing market in Australia (as opposed to the 70 per cent of owner occupiers), the holiday home has become an alternative investment that allows for some owner occupation and short-stay rental return.
A fully rented short-stay let property will likely return higher yields than a permanent rental, but there can be more ongoing work required and marketing costs associated with attracting regular stayers.
API Magazine spoke to Quirin Schwaighofer, Co-CEO & Co-Founder of Australia's sharing economy innovator MadeComfy, which helps investors to unlock value in their investment properties, managing short-term lets, handling guest bookings, maintenance, cleaning and marketing. This form of professional AirBNB management is providing investors with 40 per cent higher returns than properties leased long-term.
What is the most common motivation to buy a short-stay let investment or as a lifestyle embellishment?
This would depend on the location and market of the property. MadeComfy primarily operates in inner areas of major Australian cities as opposed to regional areas and smaller coastal towns. The interstate owners and investors we deal with, for example, someone in Sydney purchasing a holiday home in the Gold Coast, are primarily motivated as an investment purchase in the immediate term and are looking to maximise their rental yield instead of regularly using the property for their own enjoyment.
It's likely short-term lets in smaller towns and regional areas that generally earn significantly lower rental income than those in major cities would have less investment appeal and their purchase is more motivated for lifestyle reasons.
What proportion of such homes are left unoccupied outside their holiday usage, and what proportion are let out as short-stay accommodation?
Anecdotally, we see very little under-utilisation of these homes, as short-term rental has become so popular with property owners and remote management via professional companies has made it much easier to continue to earn income outside of holiday usage, even if the property owner is living in another state or country. This is particularly true for peak and shoulder seasons, while more homes will be left unoccupied during the quietest parts of the low season.
Is the short-term let market expanding due to the low-yield environment in other investment sectors?
The current low rental yield environment has prompted more investors to seek opportunities in the short-term rental and holiday home market. We've particularly seen this in areas of the short-term market where there has been a lot of new supply following the latest construction boom. Where landlords have struggled to find long-term tenants, their properties have turned out to be ideally suited to short-term and holiday rentals, as they are newly renovated and centrally located. Issues for long-term tenants, such as smaller property sizes, are less of a concern for holiday travellers who are only staying temporarily.
An article in The Australian quoted the following statistic from a 2017 report: more than 50 per cent of Stayz owners use their rental income to cover 75 per cent of their mortgage. Is that a reasonable conclusion?
That doesn't sound unreasonable. At current low-interest rates and with the right strategy and property, it is not difficult to be positively geared with short-term rentals.
Where are the most profitable locations are across Australia?
In general, the most profitable locations are those near the inner part of major cities, coastal hot spots and major transport hubs such as train stations and airports. We also find properties further away from the city centre but nearby universities and hospitals also do very well on the short-term market and can benefit from guests studying, working or visiting relatives who often require longer stays - often for a month or more in a furnished rental, but do not want the commitment of signing a formal lease.
One surprising market is Canberra, which has among the highest occupancy rates for short-term rental in Australia, as it is a hub for work-related trips associated with the government sector, as well as servicing accommodation requirements from two major universities and the Australian Defence Force Academy. There is a shortage of suitable short-term rentals as most property owners in the capital have yet to take advantage of the situation.
What impact is the short-stay market having on the wider property market?
The overall number of short-term rentals in the market remains just a small fraction of the wider property market so in aggregate there has been very minimal impact to house prices and long-term rental yields. If you drill down into certain specific markets, holiday and short-term rentals have a clearer impact on the regional area. Byron Bay is one example, as it is a relatively small market and has had very strong growth in tourism that has outpaced the supply of accommodation. However, the vast majority of available rental supply across Australia and the major cities is not in the short-term market.
The government of Western Australia has announced its intention to regulate short-stay accommodation players, such as Airbnb, across the state. Is the regulatory and tax environment evolving or affecting short-stay homeowners?
The regulatory environment has been evolving across Australia as well as internationally. Overall, better regulation is having a positive impact in addressing some of the issues associated with holiday rentals in the past, such as party houses, property damage and overcrowding. We're very welcoming of regulation that makes it harder for negligent hosts to operate without oversight or accountability, so for the most part responsible short-stay homeowners are not being negatively affected by new regulations, and benefit in the long-term from the success of the industry.
Tax rules have largely been consistent over time, and short-term rental income has always needed to be properly declared. The main shift that has occurred has been better enforcement to ensure all property owners are playing by the same rules, and most of the major platforms, such as Airbnb, now directly share income data with the ATO. This makes it impossible for property investors to escape their tax obligations.