Should I rent my property long term or as an AirBnB?
Short stay holiday accommodation through AirBnB is an increasingly attractive alternative for property investors. More and more properties are moving away from long-term residential tenancies favouring short term holiday accommodation.
There are a lot of differences between the long term and holiday accommodation and not every property is suitable for one or the other. In this article we look at the benefits and disadvantages of each strategy and help you to decide if it suits your particular property. Let's take a look at both options.
The benefits of long-term tenancies
1. Consistent growing income
Stable rental income is the number one advantage of long term tenants. In many cases, a good tenant will remain in the property for years. If you use a good property manager then they will steadily increase the rent each year to make sure you get the best return on investment. It gives you peace of mind and the investment is largely passive. Very little work required.
2. Lower running costs
There is are no operational expenses to run your rental. You don’t pay for gas, power, internet, or cleaning. You don’t have to provide any chattels or other furnishings for the property. Insurance is relatively cheap for a long term rental and the tenant provides a bond for any extraordinary costs. A good property manager will make sure the tenant looks after the property and all costs will be minimised.
3. Low 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.
The disadvantages of long term tenancies?
1. Lower ROI
Long term rentals tend to provide a lower more modest return on investment on average than full-time holiday accommodation. The non-deductibility of interest makes this even lower.
2. No flexibility
Once you have signed a residential tenancy agreement with a tenant you are largely locked in to a long term relationship. If the tenant pays the rent and does not breach their contract then they can only be removed due to a few reasons. You can't change your mind, ask tenants to leave, move back in or use the property for a weekend here and there. You also can't adjust your rates to take advantage of seasonal peaks.
3. Regulations
The government has made constant and regular changes to the Residential Tenancy Act and other regulations such as Healthy Homes Standards. These every changing complexities make it more difficult, expensive, and risky to have a long term rental. In saying that, a good property manager will mitigate this risk but not the reduced return.
The benefits of Airbnb
1. Higher earnings
Depending on a number of factors short-term accommodation can offer significantly higher returns compared to long term rentals. In some locations, a day rate for a holiday home can be higher than one weeks rent if it had been rented long term.
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
Holiday accommodation is not a place that people live in so one night short term is not equivalent to one day long term. In addition, holiday accommodation is generally not 100% occupied over the year. It all ads up to much less wear and tear. In addition, the property is regularly professionally cleaned and and maintenance issues addressed promptly.
Among other benefits is that there is less or no paperwork when it comes to holiday rentals.
The disadvantages of Airbnb
1. Location and Seasonality
Similar to hotels and motels the occupancy rates of holiday accommodation are subject to market forces, the location, and seasonal fluctuations. Both vacancy rates and the nightly rates depend on the property location and the buoyancy of the short term accommodation market. Location can be the biggest blessing and the biggest risk for property owners of holiday accommodation. To maximise returns location needs to be attractive all year around and not just during 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 operational 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. tax
Short term accommodation is subject to GST. 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 short-term rental industry 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)
In summary
There are positives and negatives to both long term residential and short term holiday accommodation. You have to weight up all these things before you choose. If you need help to decide then why contact us to have chat. We’re happy to help.