If you own an investment property, you may have faced or are currently facing the decision between renting it out to long-term tenants and hosting it on a short-term holiday rental platform. With the phenomenal growth of platforms such as Airbnb making it easy to turn your property into a short-term holiday rental, you wouldn’t be alone in considering whether or not it’s worth it.
Pros of long-term rentals
First of all, what exactly is considered a long-term rental? Being a long-term rental landlord typically involves looking for a tenant that will stay in your property for an extended period of time. Traditionally, this has been one of the most popular routes to take for property investors.
1. Consistent cash flow
One of the most obvious benefits of long-term rentals is the consistent cash flow. You can rest assured that tenants will continue providing the same amount of money regularly at least until their contract ends. If they break the contract, you can typically enforce some sort of fee as a cushion while you look for new tenants.
2. Less effort
Even if you manage your property on your own, the process can be quite breezy once you’ve laid the groundwork. You also have the option of hiring a property manager to take care of all the administrative tasks such as taking care of repairs and late payments. Though you have to give them a percentage of your rental income, it makes long-term rentals a set and forget investment.
Cons of long-term rentals
3. Less rental returns
When comparing how much a property could make when occupied all of the time in a long-term rental compared to a short-term holiday rental, the difference can be quite large. You could be making significantly less on your rental returns with long-term tenants compared to with multiple short-term tenants.
Pros of short-term holiday rentals
A property is typically considered a short-term rental when its rented out for any time between a day and eight months. Short-term rentals for holiday purposes have become particularly popular but short-term rentals for business purposes are also common. Platforms such as Airbnb and Stayz have made short-term holiday rentals more mainstream.
1. More flexibility
If you have a holiday home or a spare room that you need for personal use during the year, short-term holiday rental is the perfect option. You get to choose when to make your space available and when to keep it for your own use. For instance, you might have a son or daughter that’s only home during breaks from school or you use a holiday home during the Christmas season.
2. Potential for higher returns
If your short-term holiday rental were to have a high occupancy rate, rentals would almost definitely be higher compared to having long-term tenants. People expect to pay more for per night for a short-term holiday rental. In many areas of Australia such as in Hobart, you could be making around $3000 a month with a successful Airbnb listing, pretty much a full time income.
Cons of short-term holiday rentals
3. More effort
Constantly having new tenants can come with a lot of maintenance. For example, having to clean and set up the property or room between each tenant. There is also a tonne of communication and planning involved. However, with the rising popularity, you can also find property managers who specialise in short-term holiday rentals specifically.
4. Less security
Short-term holiday rentals come with less security both in terms of finances and in terms of tenants. You can’t always guarantee occupancy, especially with different holiday seasons, meaning your returns might not be consistent. Furthermore, with many new tenants, it’s hard to properly screen every single one and you run a higher risk of delinquent tenants.
Ultimately, the weight of each pro and con will differ depending on your situation and the goals you have for your investment property. When looking at the pros and cons that are unique to each option, long-term rentals do seem to be the safer option. However, if you’re willing to put in more time and to take on more risk for higher returns, a short-term holiday rental might be more suitable for you.
What would you choose? Do you think the rising trend in short-term holiday rentals will continue?
Guest author: James Pointon is a Commercial Manager at OpenAgent.com.au, an online agent comparison website helping Australians to sell, buy and own property.