There has been a 46% reduction in long term rentals in Australia in the last 12 months, with a shift towards Airbnb and short term rentals. But is this the right strategy for investors?
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Transcript:
Welcome! Now on this week’s Bush Bite. I want to ask you a question, is short term accommodation short sighted?
What do I ask that? Well, according to the latest CoreLogic stats, there’s been a 46 percent reduction in the number of properties for long term rental over the last 12 months and with the consequent boom in domestic tourism that’s happening right around the country, there’s also been a correlated big increase in the number of short term Airbnb style properties that are now currently being converted.
Now, if this is you, or you’re considering doing it, then I want to open your eyes to some of the risks that might be associated with it. And the first of those is around income consistency, because while four hundred dollars a night sounds very attractive compared to four hundred dollars a week. You may be very disappointed with the level of occupancy rates that you actually achieved, given the amount of competition and how aggressively you need to market that property.
Now, I say that because my wife and I used to own a property management business where we managed 70 very high quality beachside properties in a beautiful coastal location. And of those 70, only two were profitable. Why? Well, unfortunately, in the peak times when those properties earn their highest income, quite often landlords wanted to use them. So Christmas, Easter school holidays were generally the times the landlords wanted to block out. They are also the times when most people want to take advantage of those properties, and what that meant was you’d only get the occasional booking and therefore the rental income was a long way short of where expectations were. Secondly, and if you’re going to do this, you need to be very proactive in your advertising and you also need to be extremely responsive in relation to responding to any enquiries. When people are looking, they’re making a decision. If you’re not there to do it and you’re just doing this part time as something to do on the side, you’re probably going to be very sadly disappointed.
Also, you need to take account of the massive expectations that people have when they secure an Airbnb property. They’re still thinking they’re booking a hotel room, and unless your property looks like something out of a resort, then you’re likely to incur not only a lot of disappointment, a lot of complaints, a lot of headaches and heartaches but you will also incur significantly increased expenses around maintenance, around cleaning of the properties and around general disruption to your life when you have to drop everything to sort something out or to clean a property and have it ready for occupancy at very short notice. So, it’s not everything it’s cracked up to be.
The other thing that you need to take into consideration is that a lot of investors we’ve seen had the assumption that even if they are successful in getting increased income, that that income is going to help them in relation to their future borrowings if they’re looking to add properties or to refinance, etc.. Now, unfortunately, because of the short term nature of that income and the inconsistency and unreliability of the bank’s view is, well, we discount it and will only apply the current long term market rent and then generally say that by 80 per cent. So you’re going to be quite disappointed in relation to its impact, even if you are successful at creating a profitable short term accommodation opportunity. So unless you’re going to run it as a business and it becomes a serious second job and you’re going to put the time, effort and money into it, I would seriously question whether you’re going to be better off having a property as a short term versus having a consistent long term tenant guaranteeing the income and then making sure that you’re not putting yourself at risk financially.
That’s the food for thought for this week.
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