Investing in property is a smart strategy to build wealth, and you can offset the ownership costs by leasing it to tenants.

For the last ten years, many investors have relied on rental income by leasing their home on Airbnb, with visitors staying in it for a few nights or weeks at a time. The argument for this is that you can charge a higher rate and earn money without the place being occupied year-round. The strategy is especially popular in tourist destinations and big cities where hotels can be expensive.

However, Airbnb and holiday lets are believed to impact the availability of rental properties, making it hard for renters to find a place to live. Because of this, new legislation in some states and areas may make it more costly to lease your home as an Airbnb.

This article explains some of the changes that may impact your decision to go with a long-term or short-term lease arrangement in 2024.

Airbnb tax

There are developments in Victoria and Queensland that will see the owners of short-term rental properties using platforms like Airbnb and Stayz paying extra tax.

The Victorian government recently introduced a 7.5% levy on short-term rental properties with an eye to helping the struggling long-term rental market.

The plan is to use the proceeds of the levy to help fund Homes Victoria to build financially affordable housing, with a full 25 per cent of the proceeds going to regional Victoria.

While changes in Queensland have yet to come into effect, there is a proposal to implement a 1000 per cent council rates surcharge on short-term rental properties. This surcharge would only apply to entire properties used as short-term rentals and not to those who rent out individual rooms in their own homes.

Meanwhile, some councils are taking matters into their own hands. As reported in The Guardian, The Byron Shire Council in NSW has been given the green light by the state government to cap some short-stay rentals at 60 days, as a way to ease the housing shortage. Mayors of other popular NSW districts on the south coast and in the Blue Mountains have implied they may try to follow suit.

If you have property on the east coast, it might be worth catching up with your accountant to see how incoming taxes and caps may affect you.

Pros and cons of short term rental investments

New legislation aside, there are still upsides and downsides to both short-term and long-term rentals.

Short term

Benefits:

• Higher Yield: A short-term rental has the potential to earn you more because you can charge higher rates per night than the equivalent time as a long-term rental.

• Accessibility: With more time unoccupied and the ability to refuse bookings when you want to, you have easy access to your property to check on the conditions and make changes.

• Condition: With tenants only staying for short periods, the possibility of major damage and wear and tear is less. While you do hear stories of people hiring short-term rentals for huge parties and then trashing the place, these stories are far from the norm.

Drawbacks:

• Time: Running a short-term rental property takes a lot more time and effort than a long-term rental. You will either have to do this work yourself or outsource it to someone else, which can impact the money you earn.

• Expense: Along with the extra cost of managing your short-term rental, there is also the outlay of setting it up, fully furnishing it (which can cost thousands of dollars), and providing services like internet, tea and coffee.

• Unpredictable income: One risk with short-term rentals is the unreliability of tenancy. You may go long periods between guests, meaning your property is costing you money.

• Unpredictable tenants: Not all short term renters are reliable. You can wind up with the home being badly damaged and it is difficult to hold people accountable.

Long term

Benefits:

• Consistent income: By signing up long-term tenants, you know you will have regular rental income for that period.

• Less administration: Once your tenant is in, the paperwork is done and you can sit back and relax. You also have the option of hiring a property manager who will help manage your tenants for a reasonable price.

• Lower costs: Most rental properties don’t need to be furnished, so preparing a long-term rental property is far less expensive.

• Reliable residents: Your property manager can help you choose quality tenants who will treat the home as their own. You won’t constantly be dealing with new people who you don’t trust.

• Happy neighbours: A lot of strata properties and local streets don’t appreciate travellers coming and going. Leasing a home as an Airbnb can result in complaints from the people who live around it, particularly if guests cause a disturbance.

Drawbacks:

• Less flexible: Once your tenants are in, you’re locked into a solid time frame, and you have less opportunity to visit the property yourself.

• Less frequent inspections: Generally, you can only inspect or have your property manager inspect your property every three months. This means you have to put faith in your tenants that they are reporting issues properly. However, your property manager will help you manage this by checking in with your tenants regularly.

If you decide to go ahead with long term tenants, now is a good time. This is because rental returns remain high thanks to current property shortages. You will get the steady income and the peace of mind that your property manager and tenants are taking good care of the place.

Want help to find tenants for your investment property? Contact our rental team today on(07) 5501 4000.