How short-term rental markets are growing in the property investment landscape

From this problem, MadeComfy was born as a solution.

According to him, short-term leasing has recently taken the spotlight in Australia as the country welcomes more visitors every year.

"I think there's a balance of things... You've got people who want to live in Sydney and you've got people who want to come to Sydney as well. So accommodation is short- and long-term," Quirin explained.

"Now, if you look at visitor numbers: 2010, 2.6 million people visited Sydney [and in] 2016, 3.7 million people visited Sydney. Now, they have to stay somewhere, and this is where one recreation of the market comes in, this over demand of accommodation short-term.

"On the other hand, you've got people who want to live in Sydney, of course. But if you look at the value of properties in Sydney, that has been increasing over the last 10 years—[in] nine years, it doubled in value. Investors need to cover their mortgages... [and] to capture your yield in a way that you can finance your investment property, you need to be able to generate an income that makes it viable for you."

Quirin added there is currently a shortage of stock in both apartments and houses for people to stay both for the long-term and the short-term, which is something "the city has to deal with".

As this is a new addition to the property investment landscape, many people remain reluctant to get into short-term rental markets for reasons such as security, the upkeep of properties, transient population, and much more.

Quirin and his partner Sabrina talk about the pros and cons of getting into the short-term rental market and dispels some of the myths surrounding it:

How could "short-term people" be different from "long-term people"?

Quirin: One myth... is that short-term people are worse than long-term people.

Whenever you have people involved, things can happen. We get quite a few investors that say, "Over with long-term tenants, because those people trashed my place in six months. They didn't look after it. The agency didn't really do the inspections properly and I have to renovate my kitchen, my bathroom and I have to paint everything." Now, that's one side of the story.

I guess the press doesn't maybe write about that as much... if an Airbnb tenant has done something to a place because they're also humans and they had a party, or they did something that no one should have known about.

How does MadeComfy usually deal with so-called "people problems"?

Quirin: It all goes down to control and managing people and putting rules in place. Whilst on the long-term side, [there are] a lot of rules about how you have to behave and what you have to do on the short-term side of things, of course, if you are holidaying on the Bahamas and someone books your place—say there is one and then 10 people rock up—you, as the owner, can't do really much.

When we come in place... we do a lot of guest vetting. We make sure that people stay in properties that are designed for those people. We put rules in place, we make sure they know the rules, they know the consequences. We can enter property anytime... So if we have any kind of message that there's an overcrowding or there's noise, we can go, we can check if something is not right, we can evict... We can act much quicker and [ensure] that there's stability in the community.

What are other prejudices about short-term rental that you typically address?

Quirin: The one is higher wear and tear. People think [that there's] a higher wear and tear [on people renting on a] short-term. But we experience, in the last two years we've been doing... people stay three, four, five days... they are usually out because they come here to either work, or they come here to experience Sydney. So, they are less in your place.

The other one is the predictability of income—that is, of course, a big concern. What we do for that is that we provide people with a 12-month revenue prediction of what their net revenue is going to be, including fluctuations and increases in lower times in the year, so they have a clear understanding where that will be and that's based on previous facts—we describe the market. We know what happened in the last 12 months, and we know the demand and supply with statistical models that we have, how it's going to be in the next 12 months. [Those facts] often helps them to understand that there's maybe less of a risk on the revenue side than they think there is.

Do property investors get better cash flow if they use short-term rentals versus a long-term rental?

Sabrina: Yep... You have a completely different dynamic from long-term rental, because [in a] long-term rental, you have the same cash flow every month if you like. When you look into [a short]-term rental, the cash flow depends on the seasonality, the date. If you look within the month, the pricing changes depending on the day of the week, depending on the season as well.

As an overall exercise, we have, for a full-year period, noticed that the yield for our property investors has improved significantly. So we are talking about increases from 4 per cent to 6, 10 per cent. So if you look at a whole year exercise, effectively, the yield improves significantly.

Is short-term rental strategy a lot more time-intensive for the investor versus a longer-term rent play?

Sabrina: Not at all. I think if the property is managed for you, it's exactly like having a long-term rental, a long-term tenant... If someone is managing, your property is going to be exactly the same.

What should property investors consider when putting up a property for short-term rental?

Sabrina: [There] is supply and also seasonality. So obviously if the property is located close to the beach... [it] is going to have a high seasonality impact. For example, if your property's in Bondi or if your property's in Manly, you are going to have high demand in the hot months. But then in winter, the demand is going to drop significantly. So as a property investor, you need to be prepare[d] to face with the high- [and] low-season months.

How could investors maintain cash flow during "low-season months"?

Sabrina: As I was saying before, it also depends on the supply... [For example], Blacktown is an area that has [a] really low supply of short-term rental, so the occupancy rate is suspected to be high because it's not only for travellers. The short-term rental is not only used for traveller[s], but is also used for people that are effectively coming for work, for people that are renovating their properties, [and] also for people that want to be close to their family if they are coming to Sydney. So potentially, people that have famil[ies] in Blacktown are going to be using these properties available for short-term rental.

Tune in to Quirin Schwaighofer and Sabrina Bethunin's episode in The Smart Property Investment Show to know more about their insight into the key differences between short-term versus long-term rentals, as well as how property investors can ensure they’re getting the most out of their portfolio.

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