In a recent Homely article, Lauren Jones assesses the benefits and pitfalls of purchasing a short-term rental.
Read the original text here. Alternatively, enjoy this excerpt:
“The idea of converting your home into a short-term or holiday rental can be enticing, especially when you hear success stories of homeowners earning significant income. Some of the positive stories sound inspiring, but it is crucial you make this decision while being fully informed of the risks too.
Lauren Jones, from LJBA buyer’s agency in Brisbane, says, “Many investors approach me with the intention of buying a short-term rental for dual purposes—investment and personal holiday use. I generally discourage this approach, as it is more important to focus on capital growth and broader financial goals when property investing.” However there are benefits, challenges, and critical considerations to help you determine whether this move is right for you, which it very well might be. Take a look.
The Benefits of Short-Term Rentals
- Increased Income Potential
Short-term rentals often generate higher income compared to traditional long-term leasing. If your property is in a high-demand tourist destination or a major urban area, you could see substantial earnings, particularly during peak seasons. - Flexibility
Unlike long-term leases, short-term rentals allow you to decide when to rent out your property. You retain the freedom to use your home when needed or block out dates to suit your schedule. - Tax Advantages
Running a short-term rental may qualify you for certain tax deductions. Costs like maintenance, utilities, cleaning, and even some renovations might be written off as business expenses. Consult a tax professional to maximise these benefits. - Higher Returns
The nightly or weekly rates for short-term rentals can often exceed the monthly income from a long-term lease, particularly if your property offers unique features or experiences that attract guests.
The Challenges to Consider
- Local Regulations
Laws surrounding short-term rentals vary widely. Some cities require permits, enforce strict zoning laws, or even ban short-term rentals entirely. Ensure you thoroughly research your local regulations before listing your property. - Initial and Ongoing Costs
Preparing your property for short-term guests often requires an upfront investment in furnishings, décor, and amenities. Additionally, ongoing costs for cleaning, repairs, and utilities can add up quickly. - Unpredictable Demand
Unlike long-term leases with steady income, short-term rentals are subject to seasonal fluctuations and market trends. A slow off-season could impact your earnings. Lauren Jones advises, “A common pitfall is the appeal of high-rise apartments in popular holiday destinations, which often come with just as high body corporate fees.” - Time and Effort
Managing a short-term rental involves handling bookings, communicating with guests, cleaning, and maintaining the property. If you lack the time to manage these tasks, hiring a property manager may be necessary but will reduce your profits. - Insurance Costs
Standard homeowner’s insurance policies often don’t cover short-term rental activities. You may need a specialised policy, which can be more expensive.
Key Questions to Ask Yourself
Before converting your home into a short-term rental, consider the following:
- Is Your Property in a Desirable Location?
Homes near popular tourist attractions, business hubs, or scenic areas are more likely to succeed as short-term rentals. - Do You Have the Time or Resources to Manage It?
Short-term rentals require significant effort. If you’re unable to manage bookings, cleaning, and guest communication, consider using a property management service. - Are You Financially Prepared for Vacancies?
Be ready for periods of low occupancy or unexpected costs. Having a financial cushion is essential. - Will It Impact Neighbourhood Relationships?
Short-term rentals can create tension with neighbours over issues like noise, parking, and security. Consider whether this could affect your community dynamics.
Steps to Successfully Transition Your Home
If you’ve decided to move forward, follow these steps to set yourself up for success:
- Research Your Market
Analyse demand, competition, and pricing in your area. This will help you determine whether short-term renting is financially viable. - Prepare Your Property
Ensure your home is guest-ready with appealing furnishings, high-quality linens, and amenities like Wi-Fi, toiletries, and safety features. - Choose the Right Platform
Platforms like Airbnb, Stayz, and Vrbo are popular for listing short-term rentals. Select one that aligns with your property’s unique features and target audience. - Market Your Listing
Use professional photos, detailed descriptions, and competitive pricing to attract guests. Highlight unique aspects of your property that set it apart. Look for a local real estate agent expert on Homely here. - Stay Compliant
Obtain the necessary permits, register your property if required, and pay applicable taxes. Staying within the law will prevent potential fines and disruptions.
Final Thoughts
Converting your home into a short-term rental can be a rewarding venture if approached with careful planning and preparation. While it offers flexibility and potential for higher earnings, the challenges, in Lauren Jones’ eyes, include “prolonged vacancy periods and the potential for shifting government and council regulations,” which should not be overlooked.
Whether you’re looking to maximise your property’s income potential or explore a new business opportunity, short-term rentals can be a profitable and enjoyable endeavour when done right.
Lauren Jones’s conclusion is, “If you are considering this approach, ensure you conduct thorough due diligence and carefully weigh the risks,” as it’s important to take the time to create a strategy that aligns with your financial goals and lifestyle.
Having explored the advantages and risks of short-term rentals, could this be a strategy worth considering for your property?”