Long term leases vs holiday lets: How should you lease your property?

Long term leases vs holiday lets: How should you lease your property?

Long term leases vs holiday lets: How should you lease your property?

POSTED BY John Ireland ON 18 Dec 2020

If you have an investment property in a popular holiday destination like Avalon Beach, it can be tempting to lease it on Airbnb or Stayz rather than looking for a long-term tenant. Before you do, it’s important to be aware of the pitfalls.

Here’s my advice for anyone considering offering their investment property as short-term holiday accommodation on an ongoing basis.

The appeal of holiday lets

Airbnb has managed to disrupt the hotel and holiday accommodation industries over the past few years, particularly in desirable areas such as Palm Beach, Clareville and Avalon Beach. The concept is very simple – you list either your entire property or just a part of it, even just one room. Holiday-makers and travellers looking for somewhere to stay can then lease it short-term, for any length of time from one night up to a month.

This concept has proved extremely popular with investment property owners who charge a premium while only leasing their property out a couple of nights a week. In some cities, this model is even being blamed for a shortage of rental properties, as so many investors have switched to short-term rentals.

If you have a Northern Beaches investment property, this approach has many benefits due to the appeal of the area for tourists. However, if you’re considering this route, there are a number of factors to be aware of.

Ongoing expenses

Tenants require more from holiday accommodation than they do from a long-term rental property.

For example, they won’t be bringing their own furniture. You will have to make sure your property is fully furnished and everything is in pristine condition if you want to avoid bad reviews online. This often means investing in quality bed linen, towels and kitchen appliances at the very least, as well as a generous supply of toilet paper!

You will be responsible for paying the gas and electricity costs on the property and your tenants will expect all the latest conveniences including wireless internet. As internet connection is sold on a contract basis, the bill will have to be paid all year round, not just on the days when your property is in use.

Finally, don’t forget that holiday accommodation websites charge a three percent service fee for listing your property, which will eat into your profits.

Time spent managing the property

Short-term tenancies often result in a lot more work for the owner than having your property occupied for longer periods of time. You’ll be responsible for a wide variety of duties, including:

  • Arranging the bookings
  • Responding to enquiries
  • Dropping off and collecting keys
  • Inspecting the property between tenancies
  • Cleaning, linen change and repairing any damage
  • Dealing with any complaints.
  • Always being contactable for any emergencies

This isn’t necessarily an exhaustive list – but it’s certainly an exhausting one to tackle, especially if you are welcoming new visitors every weekend.

Bad tenants

Many of the holiday accommodation websites have ratings systems which enable you to minimise the risk to a degree but short-term tenancies are always a gamble. The vast majority of your tenants are likely to be holiday-makers in the mood for a party! This situation always has the potential for disruption and damage.

There are numerous horror stories online from people who have rented out their properties as holiday accommodation. Some unfortunate property owners have had locked interior doors smashed and belongings stolen, including items of sentimental value. Incidents of prostitution, drug use and even attempted identity theft have also been reported by owners of properties.

Of course, extremes like these are very much in the minority. Most holiday tenancies go without a hitch but it’s worth being aware of the risks. You should also remember to check with your insurer as you may not be covered for damage caused by short term tenants.

Quiet periods

Investing in property is a long-term strategy. You need to be sure you’re getting sufficient rental value from it if it is to be an effective investment.

This means you have to work out how many weeks a year you would need to have your property leased by holiday tenants in order to make the same as you would from a long-term tenancy. Can you really let fill it consistently for that many weeks, every year for the next 20 years while you pay off the mortgage?

Remember that in desirable tourist areas such as Avalon Beach and the Northern Beaches, there is likely to be a lot more competition. This could make holiday letting a riskier strategy for you, particularly if you have an older property without those ocean views or walking distance to the beach.

Tax and capital gains

Before you consider listing your property for holiday letting, it’s also essential to talk to your accountant to find out how it will affect your tax and capital gains, as these could end up having a serious impact on profit when the time comes to sell the property. You don’t want to lose out in the long term.

Why choose a long-term tenant?

With more and more investment property owners gambling on the relatively new model of holiday letting, there’s a lot to be said for the security of choosing a long-term tenancy instead. It offers you more stability and is a lot less risky than having to manage a holiday rental property on your own.

A long-term tenant brings you in a guaranteed income each month, without the time-consuming nature of short-term letting with no lease and or reference checks.. You can simply hand over the responsibility to an experienced property manager and let your property do what it was intended to do – be a solid investment.

At One Agency Ireland Real Estate, we make it our responsibility to help you maximise the returns on your investment property for the long term. As highly experienced Avalon property managers, we understand the needs of investment property owners in the area and can work with you to find the best and safest solutions for a healthy and secure financial future.

We’re happy to answer any questions you may have about the pros and cons of DIY short term leasing. Contact us on 9918 7888 for more information.