Holidays rentals are a tempting alternative for property investors. Without a doubt sites like Bookabach and Airbnb are disrupting the traditional rental industry.

There are a lot of differences between long-term and holiday rentals. And it's important to understand them, do your research and weigh up all the pros and cons before you jump ship. Let's have a look at some advantages and disadvantages of both options.

Holiday accommodation - the positives

1. Higher earnings

This has to be the number one reason investors are even considering holiday lettings. Holiday accommodation can offer dramatically higher returns compared to traditional rentals. In some locations, a daily rate for a holiday home can be higher than a weekly rent in the same area.

2. flexibility

You can make the rental available when it's convenient for you. There are no locked-in long-term contracts. You can use the property for personal use without inconveniencing anyone. You determine the rules of who can stay, for how long and what they can use in the house. You can adjust a nightly rate based on the season, local events or general hype of the area.

3. Less wear and tear

You have more control of the property. Inspections are regular, and the property is professionally cleaned often. Small maintenance issues can be addressed promptly with ample opportunity to schedule repairs. Guests that are staying are less likely to spend time in the house and even less expected to rearrange furniture or redecorate.

Long-term renting - the positives

1. Stable income

Consistent, predictable earnings are the number one advantage of traditional renting. If you have a good tenant in your property, you have peace of mind. You don't need to think about vacancy rates, seasonal fluctuations, or deal with the hassle of check-in and outs. With people struggling to afford their own homes, there is a constant high demand for rental properties regardless of the location or time of the year.

2. Lower running costs

There is no need to furnish a rental property. Tenants cover energy, internet and even water bills. There are also no regular cleaning and linen service. If you're self-managing your rental, there are no property management or service charges.

3. Less admin

With long-term tenants, there is less worry about administrative tasks. Once the tenancy agreement is signed, and keys are exchanged, you don't need to worry about advertising, key drops, cleaning and constant guest interaction.

Holiday accommodation - the negatives

1. Location and Seasonality

Unfortunately, high returns on holiday rentals are not guaranteed. Both vacancy rates and the nightly tariffs depend on the property location. Location can be the biggest blessing and the biggest risk for property owners of holiday lets. To maximise returns location needs to be attractive all year round and not just during the summer or winter months. And even then you need to make sure your listing is different and unique enough compared to other properties in the area, to really do well.

2. High running costs

Holiday rentals require more financial commitment as the properties need to be furnished and equipped with all the amenities, including services such as television and Wi-Fi. Regular cleaning, maintenance and linen hire/service can come with a hefty price tag. You need to make sure you also cover all the monthly bills like water and energy.

3. Legal and tax implications

Holiday accommodation can be subject to GST if they go over the $60,000 annual threshold. We recommend speaking with your accountant before deciding to make your property available for holiday accommodation.

Holiday accommodation are not covered by the Residential Tenancies Act. This means that standard tenancy agreements don't apply. You need to make sure the contracts you use are enforceable, apply to your situation and have all the right conditions outlined.

With holiday accommodation you can only claim expenses if you declare your rental income in your tax return. Moreover, only expenses covering the time you rented out space can be claimed. If you're not renting out a whole place, you can just claim a proportion of your household expenses.

Furthermore, the holiday accommodation sector is facing severe challenges and possible restrictions in many parts of the NZ housing market. You should check your local council and body corporate rules on short-term accommodation as special conditions may apply to holiday rentals in your area (e.g. Queenstown Lakes District Council)

Contact your insurer as you may need to pay a higher premium or arrange extra cover as your usual house and contents insurance might not cover you while your property is rented out.

Long-term renting - the negatives

1. Lower ROI

Traditional rentals have tended to provide lower earnings than short-term rentals.

2. Loss of flexibility

Unfortunately, with long-term rentals, you can't simply change your mind, ask tenants to leave, move back in or use the property for a weekend here and there. You can't take advantage of seasonal peaks as rent is set at a specific rate throughout the tenancy.

3. Onerous regulations

There seems to be a never-ending list of new government regulations, bans and new bills being introduced affecting NZ landlords, the full impacts of which are just impossible to gauge.

Summary

In the end, each property is different - some will make more as a long term rental and some will be better off as holiday accommodation. The largely depends on the location and style of property. If you’re considering the option we’re happy to give you some free advice about your property.

Contact us and we’ll give you call.