While it might seem like a no-brainer investment decision — making thousands of dollars a week versus simply hundreds, the reality isn’t quite that simple.
Even though taking the short-term route can be profitable, savvy investors need to crunch the numbers to determine whether the figures add up. Just like any investment, there are tax implications with short-term rentals, as well as other possible hurdles including strata by-laws, council restrictions, heavy competition and seasonal impacts.
So, here are some tips to help work out the best property path.
Why are you investing in property?
Alternatively, if your plan is purely to realise capital gain in the long run, and you’re able to absorb potential losses (also known as negative gearing), ensure you are aware of your out-of-pocket expenses each financial year to know where you stand. While you’ll get a tax break for these outgoings, will the short-term gain be worth the long-term pain?
Taking the short-term path
Real estate in some sought-after holiday locations has also made great capital gains over the last decade, so the strategy could prove to be fruitful for investors willing to play the long game.
Choosing the long-term option
The truth about short-term letting
Here are several facts potential short-term landlords need to understand before taking the plunge;
Consider booking frequency
The average Australian occupancy on Airbnb is just 53%, which means your investment could be sitting empty for almost half the year, with some markets already saturated with short-term rentals.
Councils are changing the heart
Some local governments are realising just how many homes are vacant during a national housing crisis and are starting to restrict short-term rentals, with some limiting letting to just 90 or 180 days in a calendar year.
Stratas aren’t always supportive
Owner’s corporations can refuse short-term rentals altogether so it pays to determine whether it will be allowed in your building.
Holiday hotspots can cool down
Depending on where your short-term rental is located, demand for it could ebb and flow considerably. You’ll need to be sure the months it’s earning will cover those down days.
Beware of hidden costs and taxes
Holiday lets incur additional costs which aren’t usually associated with long-term rentals, including; increased maintenance through greater wear and tear, cleaning, furnishings, higher management costs and insurance. There are also tax implications such as annual income tax and capital gains upon sale to consider.