Short Term Rentals – A Bad Idea for Successful Investors

Short Term Rentals – A Bad Idea for Successful Investors

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The Internet has opened up opportunities for thought-leaders across a variety of industries. In the property industry, we’ve recently experienced an influx of short-term accommodation platforms making budget accommodation options far more accessible to tourists (and home-owners).

The upside – tourists have more affordable options and landlords have the opportunity to make a few extra dollars. The downside – the disruption to life and the risks associated with the lack of established rules and regulation.

Is this an opportunity for property owners?

It’s certainly true that the rise of short-term rental platforms in Melbourne, Sydney and Brisbane have presented an interesting opportunity for property owners.

According to Airdna, there are more than 70,000 Australian houses and apartments listed on the Airbnb site, which is a huge increase from the 40,000 from last year. With a growing tourist industry, Airbnb Australia have recognised just how attractive short-term rentals may seem to property owners. They provide an innovative way for homeowners to use rentals to generate a passive income, helping them to pay off their debts faster.

But what are the repercussions of these short term rentals and how are they affecting the current property market?

The Legislation and Local Effect

While this all sounds good in theory, there are some complications that arise from these online platforms. First of all, no one knows what the rules and laws are exactly.  Airbnb is much like the Uber of property rental market – unregulated and heavily debated.

 Hotels, strata bodies and local councils are among the many concerned by the rise of short-term rentals. The current legal treatment of Airbnb and other platforms like it, is varying from state to state and even council to council.

What the rental industry is experiencing at the moment is a term now coined as the “Airbnb effect.” Rental availability and pricing is an issue that has been on the rise in major cities like Sydney, Melbourne and Brisbane. The property industry and state legislators are trying to figure out how best to monitor short-term rentals, particularly in unit and apartment developments.

The main concern is that when flats are converted into unlicensed short-stay accommodation, where the number of people living in these establishments far exceeds the permitted occupancy level. This poses a huge safety risk when you have eight people crammed into a two-bedroom home. This also poses a problems not only for the occupants of the dwelling but any surrounding ones as well in the case of an emergency evacuation.

Other than the obvious safety risks, short-term accommodation is also pushing up the price of real estate as regular families and local city-dwellers cannot keep up with the increasing cost of these short-term rental rates. As long-term tenants looking for a home are pushed out of the inner city suburbs, what does this mean for these neighbourhoods?

Increased noise and disruptive behaviour are just some of the expected outcomes to areas affected by the increasingly lucrative market. When it comes time to sell, are potential buyers going to want to live in a street or apartment block inhabited by partying travellers?

It’s close to impossible to regulate this market due to the online-nature of the platform. No addresses are handed out until the guests book the property so it’s difficult for authorities to track what  is really going on. Furthermore, there’s very little involvement from the short-term rental companies themselves, leaving no governing authority to enforce the rules to keep people safe.

 

What are the risks of short-term rentals?

 Your personal safety is at risk. Short-term accommodation platforms simply do not have a filter process for potential tenants. The result of this is that you are essentially allowing complete strangers into your home. While you should communicate with potential guests before meeting them face-to-face, there are no safeguards in place to ensure all users will be honest about their identity and intentions.

Your financial expectations of short-term rentals might not match the reality of the income. While short-term accommodation can often be advertised for much higher rates per day compared to the traditional method of long-term rentals, you need to consider vacancy periods.

If you only have tenants living in your property for varying lengths of time, most likely you’ll find that the property won’t be booked back to back. Furthermore you need to consider the seasons and high periods for tourists. If the busy period only spans across three months of the year you might be looking at no revenue for three quarters of the year.

You could be missing out on maximum profits. There’s the risk with any investment property, whether long or short-term, that the property will be vacant for a certain period of time. But when you choose long-term rentals, you’re far more likely to find reliable tenants that will stick around and pay rent for their 12-month lease.

Reassessing the market is fundamental to any rental, but when it comes to rental properties you’ll need to assess your position far more often. Price your property too low and you’re missing out, but price it higher than other listings and you could face high vacancy periods. Are you willing to keep up to date with the market news as it changes week on week?

Short term rentals will cost you time. When it comes to traditional long-term rentals, you have a property manager taking care of the listings and advertising. With short-term rentals, you’ve got to do it all yourself. Take photos of the house, write up a listing and market the attractiveness of your accommodation. Once the listing is up you need to consider taking the time to communicate with potential renters, make sure your house is ready for them and hand over the keys whenever someone new comes to stay.

You’ll also need to be available and flexible for contact from these guests in case of emergency during their stay. Even once the guests have left you need to organise professional cleaners to make sure the house is ready for your next lot of paying customers. At the end of the day, you need to consider how much money your time is worth.

The disruption to your neighbours. Whether you’re an investor or a renter, you have neighbours and let’s be honest, they don’t love being woken up at 3am in the morning by carefree party-goers. How are they going to react to having new strangers living next door every week? If they’re unhappy, there’s nothing stopping them going to your local council and petitioning to ban or restrict short-term rentals in your area. Even worse than your slightly disgruntled neighbours, is the risk of damage to their property, or themselves, from your guests. As the home-owner, this is an offence you’ll be liable for.

So what’s the solution?

While it can be tempting to rent out your property short-term for a bit of extra revenue, is it really worth the headaches?

Opting for longer rental periods means that you can find reliable tenants as well as a secure source of income to help pay off your mortgage. Extra help and services are far more readily available for long term rentals than they are for short-term. Enlisting the services of a professional property manager means that you don’t have to worry about communicating with your tenants or keeping track of the rental market. Property managers can also manage your entire portfolio as it grows.

Navigating through property investment can be daunting for both beginning and seasoned investors. Image Property Management have been helping home-owners manage their property for years. We understand how important your investment properties are so we only select 5 star tenants.

If you’re interested in getting the most out of your property, contact us for a complimentary property appraisal.