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As property managers, we are often asked about whether we do Airbnb or holiday letting – or whether we think the returns are worth it.
It’s a good question – and there are a lot of things to consider if you’re thinking this way.
Effectively, these are two very different business models. Traditional property management is well understood with a long-term tenant, a committed agency managing the income receipts, attending the property regularly, traversing challenges as they arise, and keeping on top of maintenance. There are patterns of consistency, the projected estimated income and expenses are realistic to expect and work to, and generally, there is the property manager, owner and tenant involved in the majority of negotiations.
Holiday letting is very different. There are constant time-critical decisions to be made, there is an urgency in any trade (such as cleaners) required, the owner is taking constant risks in allowing people to stay in their investment, and it is difficult to know how often the property will be occupied.
Additionally, as people are on holiday when they are staying in your property, they expect a certain standard, and it is not uncommon for them to message the manager constantly and expect immediate answers. This high workload comes at a financial cost, and any agency offering the service will be rightly needing a high commission to cover their time, plus the trades engaged may charge a higher rate to make the properties a high-priority service job.
From a tax deductibility perspective, there are also a different set of rules, especially if you regularly use the property to vacation yourself.
Both models have their benefits, but it is often misunderstood how different they really are and what would make one more successful than the other.
1. Location – this is absolutely critical. Particularly within metropolitan areas, rental properties are generally in strong demand and will attract a quality long-term tenant. Of course there are many elements to a tenancy, however securing that income is hurdle number one. This gives people the peace of mind to budget within a reasonable margin.
For short-term rentals, location can determine whether the property is profitable or a massive drain on finances. If your property is right in the action of a bustling CBD or popular beachside suburb, however 1 kilometre away from where people really want to stay, will make all the difference.
Demand and current options (including from hotels) need to be assessed, and then a realistic occupancy rate estimated. It is not uncommon for properties to return to the long-term market, with owners reporting they had less than 10 days of occupancy over the last 12-month period.
2. Access to contractors – with longer-term rentals, the agency will have trusted trades who have negotiated fair rates for work performed on their properties. The urgency is typically not there either, and the tradie attending in 48 hours is reasonable.
With short-term rentals, occupants will demand the air conditioner is fixed immediately, there is no time on cleaning the property between occupants, and every single let is a new chapter. These factors attract higher costs, and you need access to people who can work with you.
3. Dealing with inquiries – once a long-term tenancy is let, there is no anxiety around income and when it’s expected, and the inquiries stop once the property is leased. With short-term accommodation, prospective occupants will message multiple properties, at all times of the day and night, and their expectation is a quick answer.
A short-term rental manager recently said that less than 10 per cent of properties result in a booking. Who will perform that role and what are the service standards around it? Are you, or is the holiday rental agent able to facilitate a quick turn around to assist in the conversion?
4. The final important question relates to finances. Can you afford to carry a property which lies vacant, or is receiving income critical for you to hold the property?
With Airbnb, you must be able to meet financial commitments for often months at a time without income, and when income arrives, it needs to be cash-flowed carefully. A traditional management will give you a much higher certainty of what to expect in amounts, when you will receive it, and how regular bills can be covered.
For some investors, short-term rentals are a great solution, but as with any financial decision, thinking carefully about every step is important to make the right decision.
Emma Slape is CEO of Turner Real Estate.
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