Australian investors are increasingly shifting their attention to investing in short-term rentals.
These investments can be very lucrative, but the overall return that you enjoy on your investment will be affected by numerous factors.
If you are interested in investing in short-term rentals or if you are looking for a way to bolster income from a new investment property, put these helpful tips to use.
1. Pick a High Rental Yield Location
There are many fabulous vacation destinations throughout Australia that may draw travellers to different areas. Sydney is among the most popular vacation destinations, but Alice Springs, Cairns, Melbourne, and others rank high on the list of hot vacation areas as well.
When you choose a popular vacation area, you will enjoy the benefit of having more people view your online listing for a short-term rental and potentially choose to stay at your property.
Remember that there is more involved in selecting an ideal property location than focusing on a specific city. For example, you may be able to charge a higher rate if your rental property is located close to popular attractions in the city.
2. Research Multiple Booking Sites to Develop the Perfect Property Profile
Short-term rentals in Australia are usually marketed through several popular booking sites.
These booking sites allow you to create a customized listing with images and text. While it is important to have attractive images that showcase all of the highlights of the property, views, and location, you also need to create text that sells the property to the reader.
Read through property profiles on various booking sites, note the phrases that stand out to you, and think about the voice of the text as well. Try to understand the criteria that make some properties more appealing than others. You can even write down some phrases that you may want to incorporate in your own profile.
Spend ample time writing this profile, and ask family or friends to make suggestions before you post it.
3. Understand Regulations and Laws for Short-Term Rentals
Before you lease your property to your first tenant, you need to take a few steps to protect yourself.
First, you need to contact your insurance company to determine changes that may need to be made to your insurance policy.
Second, you need to research local laws regarding short-term rentals. These vary significantly based on your location in some cases. So, if you own a short-term rental in one area in Australia, do not assume that the regulations will be the same for investment properties that you buy in other markets throughout the country.
Some regulations may make it more desirable to invest in a property in a specific area. For example, recently in NSW and only weeks before the discussion paper on new holiday letting legislation was released, Fair Trading has modified its Strata Living handbook to warn strata committees and owners corporations that they can’t pass by-laws restricting holiday lets.
4. Research Occupancy Rates in the Area
Before you invest in a short-term rental property, you need to crunch the numbers to determine if the property could be profitable for you.
In order to accurately estimate the income that you may receive from the property, you need to know the occupancy rate in the market. It is not feasible to expect your property to be leased 100 percent of the time or even 90 percent of the time in most cases. Occupancy rates may also vary by the area of town where your rental property is located. Seasonality and local events that might affect occupancy and rates include concerts, games, special events (Grand Prix, Melbourne Cup, Riverfire Festival, etc). Therefore, look for the most focused occupancy rates that you can find.
5. Observe Seasonal Rental Rates for the Area
When researching occupancy rates, pay attention to seasonal fluctuations for touristy destinations, or main point of attractions such as close proximity to universities, hospitals or locations that have high activity of a fly-in/fly-out workforce.
For example, in many prime vacation areas throughout Australia, the summer months are a popular time for visitors to travel. During these times, occupancy rates may be so high that you can reasonably charge a higher rate for your rental properties.
During non-peak seasons, however, you may need to lower your rates to maintain a reasonable occupancy rate. The combination of the occupancy rates and rental rates per season must be taken into account when you estimate income potential for your short-term investment property.
6. Create an Expense Budget and Determine the Cash Flow You Need
When you estimate the income potential for your investment property, you may see dollar signs. However, all rental properties also have expenses that must be taken into account.
For example, you may need to pay for regular repairs and maintenance work, utilities, cleaning services after tenants vacate, replacements for items that are broken or damaged inside the unit, taxes, insurance, a mortgage payment and more.
Expenses can add up significantly, and it is critical that you include all applicable expenses in your estimate. You can then subtract your total expenses from your income estimate to determine what your net profit may be.
7. Understand How to Manage (or Outsource Management) of the Property
Short-term rental properties require a substantial amount of time and attention. Potential tenants may contact you for more information about the property and you will need to track and process these leases to avoid double-booking.
In addition, you will need to handle collecting funds, giving keys to the temporary tenants, be the main point of contact during their stay to answer/attend to any queries and issues, cleaning the property after they leave, managing your finances and more.
Many investors prefer to outsource these tasks to a short-term property manager. If you choose to do this, look for a skilled manager who has experience with short-term rentals in the specific market that you are investing in. Remember to factor the property manager’s fees into your expenses.
Also, be aware that no two short-term property managers are the same. The key to maintaining a steady ROI with your investment property is to work with an agency that has experience managing several booking platforms at once and minimising your vacancy rate.
Investing in a short-term rental property in Australia may be a profitable idea. But selecting the right property in a hot market is important. You may also see that some properties are more profitable for you to invest in than others.
Spend time analysing several options before making a decision about which property to invest in. It may be helpful to consult with a qualified short term rental property agency with a solid track record about investment properties so that you can make a more informed decision about which property to invest in.