Holiday rental vs long term lease

Holiday rental vs long term lease

In Tasmania but increasingly across Victoria, Queensland and Western Australia, tourism is on the rise with more and more families demanding family friendly accommodation within reach of beautiful beaches and tree lined streets that offer a real community experience. Thankfully there is a very refreshing solution in Airbnb which offers everything a hotel can’t – dog friendly, multiple rooms, kitchen and bathrooms - a home rather than a hotel is a very popular alternative for many families these days. 

This is precisely where astute investors step in. As a managing agent, I can attest to the high returns investors achieve through holiday and short term accommodation. The market of short term and holiday accommodation is relatively new and untapped and therefore provides an exciting prospect for many traditional and new investors.

Of course, there are many costs associated in setting up a property to meet the needs of guests, including fully furnishing the property complete with pots, pans and cutlery, but the cost outlay is minimal in the larger scheme.

Tasmania, Victoria and Western Australia have their peak periods during the months of October through to April. During this period in Tasmania for instance, the majority of holiday accommodation has a 94% occupancy rate (should the nightly rate be competitive). Long term, furnished properties in particular, (especially in the CBD) rent exceptionally well provided the rate is correctly seasonally adjusted. Investors therefore can increase revenue through renting at peak rates through the holiday period and then rent the property on a 6 month lease over the low period. Fully furnished properties are few and far between, so many corporate companies are waitlisted and the vacancy rates are extremely low. The added bonus is income is increased by an average $50 per week on a fully furnished property, so another win-win there.

Some figures on rental return for a long term investment of say - an unfurnished 2 bedroom apartment in the Hobart CBD is around $430 per week. Over a 12 month period with a 2 week vacancy your income is sitting at $21,500 pa, less management fees (if applicable). Fully furnishing the property brings an extra $50 per week to the table.

Putting it into perspective;

- A 6 month lease at the fully furnished rate would achieve $12,125 pa (with a one week vacancy).

- Short term accommodation is generally a minimum of two night stays and is rented at $280 per night

- At $560 for each two night booking you've covered your weekly rent (should you have rented your property on a long term lease). However note that during that 6 month peak period the vacancy is usually far lower than 5 nights per week.

- On average most properties are booked 5 nights per week and rake in $1,400 per week. That's 3 times the rent earned on a long term lease.

- Add together your 6 month lease of $12,125 and your holiday rental income of $36,400 and you've made $48,525 on the same investment with only having outlaid funds for furnishing the property, management fees (which are slightly higher for short term rentals), cleaning and linen hire.

You've doubled your income for the year compared to your long term lease

I personally can't see any negatives in this scenario. Yes, there is a lot of work involved with holiday accommodation in comparison to just renting on a long term agreement. There's no ‘set and forget’, unless you utilise an agent - the agent can manage all bookings, cleaning, linen hire, maintenance, and travel or tourist enquiry and check in/check outs.

In recent months, properties in some of the outer lying city suburbs utilising the short term theory have achieved excellent results. Obviously the nightly rate is lower, but then again the purchase price should also be substantially less.

This holiday rental phenomenon is definitely a positive, effective and lucrative form of investment which I believe will only increase and become more popular over the years to come. And now, our Property Management team of 7 will journey over to the Gold Coast for a real estate conference where we no longer need to be divided into small hotel rooms! We have secured ourselves a 4 bedroom home on the waterfront in Broadbeach at the same cost we would have paid for two hotel rooms over our stay. We've saved money and the owner has increased their income - we are all happy. Win-win!

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