There are a lot of differences between the long term and holiday rentals. And it's important to understand those, 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.
Airbnb - what are the pros?
1. Higher earnings
This has to be the number one reason investors are even considering holidays lettings. Short-term rentals 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. Unparallel 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 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.
Among other benefits there is also minimum paperwork when it comes to holiday rentals. You also get a choice to avoid difficult guests with negative reviews.
Long-term renting - what are the pros?
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 a peace of mind. You don't need to think about vacancy rates, seasonal fluctuations, 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.
Airbnb - what are the cons?
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 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 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
Short term accommodation is subject to GST. Not only does it mean that you may have to lose 15% of your profits, but you're likely to lose 15% of the capital gain made on the property when you sell it or change the property's use.
Short-term rentals 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 rentals 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)
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 - what are the cons?
1. Lower ROI
Traditional rentals have tended to provide lower earnings than vocational 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 effecting NZ landlords, full impacts of which are just impossible to gauge.
In the end, it is essential to consider the advantages and shortcomings of each investment option. There is no right and wrong answer, as every property and investor are different. You may even find that the optimal rental strategy for you is a combination of the two. Do your research but remember property investment should be a long term plan that provides an additional passive revenue stream that you ideally requires little time managing.
If you are looking for at ways to save money on property management, stay compliant and minimise time spent dealing with routine tasks try myRent management for free or get in touch with us today.
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.