11 Steps to choosing a short-term rental property

Written by realestateview.com.au in Investing

Purchasing a property specifically for short-term rentals is a great investing strategy for those who are trying to increase their rental yields. Higher rental yields can help you pay off your home loan much sooner, putting you in a better position to purchase more property and opportunity for other passive income streams in the future.

Here are 11 tips from Shannon Holmes, a Melbourne Airbnb management expert and investment advisor at Quickstay, on how to choose the best short-term rental for your goals. 

1. Plan, Plan, Plan

Not everyone who tries to make money from Airbnb and other short-term rental websites is successful. A great deal of planning needs to happen to ensure this investment is a good one. You don’t simply buy any property you think is a good price. You need to figure out if it is likely to make a profitable return specifically in the short-term rental market. Otherwise, you might be better off renting it out longer-term through an agent. 

2. Know your end goal

What results are you looking to achieve through your investment?

Will the property be available for short-stay guests on a full-time basis or are you buying the property for a mix of staying yourself as well as listing on Airbnb on the other days? Does it need to be a new purchase to maximise depreciation benefits to improve your tax position?

You will need to consider these and be clear of your strategy from the onset, as it will greatly affect which property you end up investing in.

3. Know your numbers

Speak to a broker to understand your borrowing capacity and the funds required to purchase. They’ll help you map out whether this activity is likely to be profitable for you or not. 

4. Budget to furnish your property

Unlike traditional rental properties, short-term rentals must be furnished prior to listing, which should be considered when planning your budget. Whilst you don’t have to spend a lot to furnish a place properly, overall presentation and quality of furnishings can be more appealing to potential guests and can enable you to list a higher nightly rate. Remember, focus on furnishings that will be appealing to the short-term rental market, rather than relying on your own preferences to guide your judgement. Comfortable and functional is key, but some also focus on a particular theme or are designed for romantic getaways.

5. Know your market 

Ask yourself; does short-stay renting and Airbnb work in your ideal area? Research how many properties are already listed and what their nightly rates are. Is it an area close to the CBD or a local tourist attraction which would attract guests? You might think you want to do a full-time short-stay in your local neighbourhood, but is the demand great enough to ensure returns? 

6. Take the emotion out of purchasing 

Be open to purchasing in an area where the numbers make sense, this may even mean investing interstate. This is about making the most money possible, not acting on emotion or impulse.

7. Take the guesswork out of buying

Companies like Quickstay have a wealth of experience in property investment strategies and have strong relationships with other property and wealth creation experts – with access to data that can help source properties specifically for short-stay accommodation.

8. Research Airbnb Property Specifics 

When it comes to specific short-stay market research to assess the potential competition, we’ve broken it down even further into some clear steps to follow for where to start when it comes to your Airbnb research: 

How many Airbnb properties are there in that existing market? 

You want to find somewhere with demand, but not too much supply. It can be difficult to stand out and keep your occupancy rate high in a crowded market, especially if you don’t know what you’re doing.

Should you buy a 1 bedroom apartment or a 5 bedroom home?

Consider not only the number of properties listed but also the size of the properties and how this impacts occupancy rates. We suggest checking the calendars of a variety of properties and sizes to determine whether they have a large number of bookings or not. Is there a particularly popular number of rooms that do better than others? Or perhaps a gap in the market you could benefit from? Research your choice carefully, as the correct choice will likely be different from area to area. 

What nightly rates can you achieve in high season and low season?

Figuring out how much you may make per night in low and peak seasons is important to your overall short-stay investing strategy. Take a look at what average nightly rates are listed for other properties in their low season, as well as for peak times like the Easter and Christmas holiday periods. This will give you a good indication of what high and low range may be possible.

Is it in a location that’s desirable for holiday goers and/or working travellers?

This is important to understand. Part of creating wealth through Airbnb is ensuring your vacancy rate is low enough that you are making more money than traditional renting. If the area is only popular at certain times of the year, this may not be profitable. The trade-off in tourist areas is receiving higher nightly and occupancy rates during peak season, yet this could taper off to a lower rate and lower occupancy the rest of the year. This could still be a profitable option for you, but just do your maths and research to work out your risk appetite. An example of this is where a property could receive a full yearly rental income in just 4 months of the year but be quieter the other 8 months, just doing the odd weekend bookings and still giving you an attractive financial result. 

The above steps are a starting point to help you on your purchase journey. As with any investment decision, don’t jump in. Some short-stay clients are making anywhere up to $30k extra per year just from having their property professionally managed  Whilst the short-stay market has been lucrative for some property owners, it’s not a strategy that will suit all. Everyone has different financial goals and results they are trying to achieve, so make sure you speak to someone who not only understands property management but also understands property investing and wealth creation too.