The Australian real estate market is hot, despite some recent plateaus. In the past 30 years, housing prices have more than doubled. In some major cities, housing prices are now seven times higher than just a few decades ago.
Given these market conditions, many people are attracted to real estate because it is a proven way to build wealth.
However, it’s not as “set and forget” as many people hope. Yes, a rental property can generate a steady stream of income that will help pay back your loan and increase the overall value of your investment. But they require maintenance and management too.
Making Money From Your Investment
With the rapid increase in buying price for property in Australia, many investors are looking for opportunities to make additional money from their current investments.
Some real estate investors focus on renovating homes for a quick profit. Others want to own rental properties that generate passive income each month.
Whatever your approach, if you own a property that you don’t intend to live in, you need to decide on a strategy to generate revenue.
With recent trends showing growth in short-term rentals and vacation letting, it sparks a regular debate in property investment circles about short vs long-term approaches. There are benefits and costs of each.
Long-Term Rental Agreements
The most common way to rent out a property is with a long-term rental agreement of anywhere from a few months to a year. This is the traditional way of doing things, with sites like Domain and RealEstate.com.au available for investors to list their properties and find tenants.
The advantage of this type of agreement is the owner doesn’t have to deal with changing tenants all the time. Once the price and length of the agreement are signed off, the money keeps rolling in and the investor only has to deal with maintenance or management costs. This is attractive for some investors who are looking for stability with their rental income.
The downside of long-term rental agreements is their lack of flexibility. Let’s say the market rental value increases in your area but you are locked into a 12-month contract with tenants… this restricts your earning capacity.
In addition to limitations with your earnings, you are also in a position where you can’t make decisions if and when you need to. Say, for example, you hit a rough patch and need to move into your house to save money. You can’t just kick your tenants out!
Long-term agreements are a staple in the property market because they have been around forever, but society is changing the way they think.
Short-Term Rental Agreements
The interest in short-term rentals has grown significantly in recent years, sparked by Airbnb, Stayz and other vacation rental websites. What started out as a new way to have a holiday has become a creative way to rent out your investment property. In fact, many owners are adopting a short-term rental strategy in an attempt to increase their rental income.
A short-term rental strategy focuses on charging more per night for the property. Although it takes time to manage multiple tenants, most owners can increase their rental income substantially by adopting this strategy. This is especially true at certain times of the year if you own a property in an area that is popular during seasonal months. For example, if the property is near a vacation area, the summer months can provide a huge income boost.
Of course, there are challenges that come with a short-term rental strategy. It’s a bit like running a business because you are always looking to re-book tenants and fill vacancies. Not to mention there is more maintenance required, such as replacing amenities, cleaning fees, and creating a 5-star experience for your guests.
If you do go down the path of a short-term rental strategy the income can be very attractive. In some instances, owners have doubled their income in a short period of time. But unless you have time to focus on it every week, you may be better off hiring a short-term property management service like MaisonNets to handle bookings, amenities, and other bits and pieces.
If you can get the administrative side of things organised and locked down, the opportunities for reinvesting your additional income earned from short-term stays is exciting.
Finding tenants to fill your property vacancies on a short-term basis is now easier than ever. As a result, many real estate investors in Australia are starting to adopt a short-term strategy. Anyone who wants to increase their rental income should consider adopting this approach.
Want help managing your short-term property portfolio? Get in touch here.