It’s a scenario that many have considered. You are enjoying your summer holiday by the beach, feeling oh, so relaxed, and soon scrolling to see if there are any good homes to buy.

With the rise of Airbnb and short-term rental accommodation, buying a beachside pad or city bolthole may at first glance seem to offer both an opportunity to invest and enjoy.

However, a recent survey of more than 850 property investors across Australia found that few were actually going ahead with this option.

Of those surveyed, 92.1 per cent reported they had no properties rented out short term, and only 1.7 per cent of investors who bought in the past 12 months intended to go into short-term lets.

The survey, conducted by the Property Investors Professionals of Australia, revealed that investors were worried about the risk and workloads of short-term accommodation.

Managing costs

“Many investors don’t calculate the costs of managing a short-stay, and often find the model is a false economy,” buyers’ advocate and PIPA chair Cate Bakos said.

“From furnishing costs to cleaners, laundry services, management firms, vacancy rates, damage/insurance, and strata regulations, the profits can be questionable when contrasted against a traditional long-term residential lease.”

Another major factor for investors is the volatility of the areas where holiday houses or short-term rentals are located.

“Some of the most popular short-term rentals which attract the highest demand from short-stayers are either located in holiday/coastal areas, or in high-density, inner-city areas,” Bakos said.

“The risks associated with owning these types of assets are diverse, and generally far higher than suburban/inner-urban traditional dwellings.

“Holiday hotspots often face market volatility, and in turn, capital growth patterns can be quite volatile also.”

If you are willing to put in time, your investment has a better chance of paying off. Photo: Pixabay

Look at locations closely

Bakos pointed to holiday hotspots being particularly sensitive to interest rates, including in 2022 when the RBA raised rates seven times.

“When interest rates increased sharply in 2022, price falls in coastal locations reacted inversely as many investors sold their holiday homes in response to heightened mortgage repayments,” she said.

For regional investors, who have spied a city apartment to use as a weekender and short-term let, there are other considerations.

“Inner-city dwellings, particularly high-rise, almost always have high outgoings, predominantly in the strata fees, and the outgoings considerably dent the anticipated profits from rent,” Bakos said.

“In addition, changing strata rules around short-stay tenants can threaten the best-laid plans for investors who strategised for a short-stay model.”

And it’s not only body corporates that can enforce strata rules for short-term rentals.

Cracking down

Brisbane is the latest city to announce plans to crack down on them.

Proposals included owners having to apply for development approval to operate as a short-term stay, and being charged annual fees.

In Sydney there is a 180-day annual cap on short-term lets in the city and suburbs.

For those still keen to invest in a holiday home, Bakos said there could be better returns for those willing to be heavily involved themselves.

Taking the plunge

“An investor who is dedicated to the model, and prepared to oversee the bookings/management will have a far better chance of success than an investor who idealises about a holiday house on the coast that they can double as an investment,” Bakos said.

“The investor needs to understand the outgoings, the seasonal cycles, and the associated taxes before assuming that a short-term rental model will work optimally for them.”

Picking an area that is well-serviced to cater for holiday lets is also important.

“Generally speaking, the short-stay arrangements that work well are in areas where consistent rental demand is high, and the required service providers are abundant,” Bakos said.

“Costs can blow out when service providers are limited; particularly when it comes to cleaning and laundry services.”

Republished from view.com.au