If you own or intend to buy an investment property, you’ll need to decide if you’re going to cover the holding costs by listing it as a long term or short term rental.
Both options can pay off financially but both also have potential drawbacks. So which one should you choose?
Short term vs long term rental
Offering your investment property for rent using a platform like Airbnb or Stayz is one of your options to generate income and reduce holding costs. Most of the people who go down this road do so because they can charge considerably more on a night by night basis. However, there are downsides to short term rentals that can make the strategy a risky one.
For one thing, short term rentals need to be furnished, which will add to your budget. Every household item, including furniture, linen and appliances must be available if you want to get good reviews, and they all need to be good quality.
Listing your property as a short term rental is like operating a hotel (to an extent). You will have a revolving door of people coming and going, and you have to make sure that the palace is cleaned and prepared between each set of guests. While the property listing platforms allow you to review tenants and check their reviews before they arrive, if something does go wrong during the stay, short term tenants are much harder to hold accountable. This is especially the case if they are visiting from overseas.
If you offer your investment property as a short term rental, you’ll need to think about utility bills. You have to pay for the electricity and WiFi yourself, which is not the case with long term tenants.
Then there is the risk of negative reviews that can impact occupancy. Despite your best efforts, you will still get the occasional disheartening feedback thanks to a visitor who has unrealistic expectations.
The other thing to think about is cleaning the property and managing your guests. Having people checking in and out every few days can create a lot of work. One option is to pay a specialist property manager, the same as you would with a long term rental.
They will charge a small fee to take care of these tasks.
While listing your property for short term rentals can be lucrative during busy periods, local competition can put a dent in your profits. If there is a surplus of other short term stay options in your area, you might find your property is empty for longer periods than you hope for. This can offset the additional money you might make from charging more per night or being booked out at Christmas.
Finally, you need to check the rules in your building, local area or state. In NSW, for example, short term rental rules changed as of November 1. Owners are now required to register their property and pay a registration fee, and it’s possible that other states will begin to follow suit.
If your building has banned short term rentals, it is probably due to the problems caused by people constantly coming and going or inviting additional guests for loud parties. Review your by-laws! Breaching them could result in a fine.
Long term rental benefits
You can’t charge as much on a night by night basis but there are still advantages to having long term tenants over short term visitors.
Once your property is tenanted, you know you will receive a steady income for a set period of time. Your tenants will usually furnish the place themselves so you don’t need to buy furniture or worry about it being damaged. It is also their responsibility to keep the place clean and pay the utility bills.
A long term arrangement requires less effort on your part, particularly if you have a property manager who will take care of inspections and deal with maintenance requests. You won’t have the regular stress about vacancy and you won’t be impacted by an ever-changing tourism industry.
The potential drawback of having a long term tenant is ending up with tenants who are very demanding or unreliable. It can be difficult to know how to move them on if you don’t have a clear contract or a professional property manager to support you.
Which to choose?
When it comes to long term vs short term rentals, the choice is up to you. Depending on where your investment property is located, one strategy may make better financial sense over the other. Both options come with a set of responsibilities and requirements so work with an experienced property professional to ensure you’re staying compliant while maximising your investment property
income.
