As investors seek higher returns, short-term rentals have become the go-to option in most parts of Australia. Sites like Airbnb are experiencing increased bookings, and the demand is only getting better. If you are also considering short-term rentals, this guide is for you. It explores the pros and cons of short-term rentals, and you can use it to weigh your options before entering the market.
Understanding Short-Term Rentals: What Makes Them Different?
Short-term rentals refer to properties rented out for short stays, usually from a few days to several weeks. In Australia, this sector has expanded rapidly, especially in cities that welcome tourists and business travellers.
In 2023 alone, vacation rentals in Australia brought in about USD 3.61 billion in revenue, which is predicted to grow to USD 5.45 billion by 2030. This is mostly because short-term rentals generate higher earnings than long-term leases. An Australian Airbnb host, for example, makes around AUD 48,500 per year, which, in most cases, outpaces traditional rental income. For property owners, this makes short-term rentals a more attractive option.
The Advantages of Short-Term Rentals
You will enjoy several financial and practical benefits when you lease your property as a short-term rental. Here are some of them:
Potential for Higher Income
As noted above, short-term rentals generate higher earnings compared to long-term leases. This is mostly because you can take advantage of:
- Higher nightly rates: You can charge per night, especially in high-demand tourist locations, to boost earnings. Here is a comparison of the rental income of a two-bedroom apartment in Sydney’s Bondi Beach:
| Rental Type | Monthly Income | Yearly Income |
| Long-term rental | $3,500 | $42,000 |
| Short-term rental | $5,625 | $67,500 |
- Seasonal Demand Boosts Income: You can raise rates to boost earnings during peak travel seasons. A property near a major event venue can fetch 20-50% higher prices during these periods.
- Dynamic Pricing Strategies: Unlike long-term rentals with fixed leases, you can adjust the rates of your short-term rental based on demand to maximise earnings throughout the year.
Need to know about the difference of short term & long term rental?
More Control of How You Want to Use Your Property
One of the biggest advantages of renting out your property as a short-term rental is flexibility. You get to decide when and how to list the property. For example, you can block out dates for personal use, meaning you can enjoy your home whenever you need it.
There is also the freedom to adjust rental terms based on market conditions. When the demand spikes during peak travel seasons, you can increase the nightly rates to maximise income. Similarly, during slower months, you can introduce discounts or adjust minimum stay requirements to attract clients.
The other form of flexibility you enjoy with short-term rentals is that you can easily switch to long-term leasing whenever you want. This is often an option if you realise that short-term leasing isn’t for you due to unforeseen issues such as changes in regulation.
Tax Perks That Can Save You Thousands
If your short-term rental is classified as a business, you may be eligible for small business tax deductions, which can provide additional financial relief.
Additionally, many expenses related to running a short-term rental are tax-deductible. You can claim mortgage interest, cost of cleaning services and even utilities as deductibles.
Less Wear & Tear on Your Property
Short-term rentals experience less daily use since guests stay for only a few nights or weeks. This reduces long-term strain on appliances, furniture, and flooring compared to a full-time tenant.
Frequent cleaning between stays also helps keep the property in good condition. If you carry out regular maintenance checks, you can fix small issues early and prevent costly repairs down the line.
More Social Networking Opportunities
Short-term rentals offer unique opportunities to connect with a wide range of guests, from tourists to business travellers. Building rapport with visitors can lead to positive reviews and valuable word-of-mouth recommendations.
Additionally, you can collaborate with local businesses such as tour operators, cafes, or event venues. These partnerships create a win-win situation: You market your property, and the guests enjoy exclusive deals.
The Disadvantages of Short-Term Rentals that You May Want to Watch Out
While short-term rentals offer attractive financial benefits, they also have unique drawbacks. Here are some of them:
Income Can Be Unpredictable
Unlike long-term leases that provide steady monthly rent, short-term rental income can fluctuate throughout the year. Peak seasons bring high demand and strong earnings, but off-seasons can lead to vacant weeks with little to no income.
Market competition is another factor that affects profitability. In popular tourist areas, an oversaturated rental market may require you to adjust the pricing. To navigate these challenges, you should set aside funds during high-earning months to cover potential slow periods.
Higher Responsibilities in Terms of Management and Maintenance
Managing a short-term rental requires hands-on involvement and constant attention. Guests expect quick responses to booking inquiries and questions, meaning delayed replies can lead to lost reservations or negative reviews.
Beyond communication, the workload is higher. After every stay, you need to clean, restock, and handle minor maintenance to keep the property in excellent condition.
More Utility and Operating Costs
Guests often use more water, electricity, and heating/cooling than long-term tenants. Frequent repairs and replacements also result in higher guest turnover, which leads to faster wear and tear on furniture and home essentials.
Does Your Neighborhood Even Allow It?
Before investing in short-term rentals, ensure you understand the local laws and regulations. Some cities, like Sydney, impose a 180-day cap on non-hosted short-term rental properties. Such rules limit the days you can rent out your home, and ignoring them could result in fines or forced delisting.
Many homeowners’ associations (HOAs) and apartment strata committees also have their restrictions. Some buildings or gated communities completely prohibit short-term rentals, while others require approval from the management.
Read more: The Benefits of Letting Out Your Property for Short-term Rent
Is Short-Term Rentals the Right Investment for You?
Investing in short-term rentals can be highly rewarding. However, it is not the right choice for every property owner. Success in this market depends on location and management commitment. Short-term rentals are ideal if:
- Your property is in a high-demand tourist or business hub.
- You enjoy hosting and creating memorable guest experiences.
However, this may not work if you prefer stable, long-term rental income without seasonal fluctuations. For expert guidance on managing a successful short-term rental, our team at L’Abode Accommodation offers full-service, hands-on property management services. Partner with us today to maximise your rental income.