Should I convert my short stay rental accommodation to a long-term rental?
Short-term or temporary rental accommodation is a popular property investment strategy in Western Australia.
With the boom of online booking platforms over the last decade making it easier than ever for holidaymakers to book short stay rental accommodation, the industry has evolved rapidly and brought many benefits as well as new challenges.
Community expectations have evolved along with this rapid change and regulation has needed to keep up.
As the West Australian State Government implements regulation and Local Councils set local policies, landlords and property investors may be looking to understand whether their short stay accommodation investment is the right approach going forward.
Making a decision around whether short stay accommodation is better suited for a long-term rental or whether it will deliver better outcomes for the investor is a complex question and have many variables.
Let’s pull it apart to get a better understanding.
What is short-term or temporary rental accommodation?
Short-term or temporary rental accommodation properties are defined as holiday homes, units or apartments and were usually built for residential purposes in residential areas. This includes properties in strata schemes.
In WA, properties used for short stay rental accommodation are seasonally popular over holiday periods and generally comprise family holiday homes, properties purchased with the intent of offering them as short stay accommodation, and/or residents letting spare rooms or ancillary accommodation such as granny flats.
Landlords and property investors generally offer their short stay accommodation via a third-party online booking platform or other booking mechanism, with the most ubiquitous being Airbnb.
There are many other online platforms and apps deployed in WA in addition to Airbnb, including:
- Stayz
- WA Home Stay
- Booking.com
- Home Away
- TripAdvisor
- Flipkey
- Home Exchange
- Tripping
- VRBO
- Couchsurfing
- OneFineStay
- Aura
- And many, many more!
With so many different short stay apps, each featuring unique set of terms and conditions, as well as the prolific rise of short stay accommodation coming to market and the subsequent impact this has had, it’s no wonder the WA State Government needed to implement better regulation.
What legislation or regulation affects short-term or temporary accommodation Western Australia?
In 2019, the Economics and Industry Standing Committee release the “Levelling the Playing Field – Managing the Rapid Rise of Short-Term Rentals in Western Australia”.
Its recommendations were adopted and the WA State Government announced its intention to regulate short-stay accommodation. The intention of the State Gov’t is to provide consistent and up to date guidance for local governments, industry, short-term rental accommodation operators as well as to the public.
A registration scheme is currently being considered and, if approved, will likely commence in 2021. Similar to regulation recently introduced in NSW, a registration scheme would require operators to address compliance requirements to receive a valid registration number which will need to be displayed. It is expected the State Gov’t will provide more details about this in time.
Despite these regulatory changes at State level, Local Government also fulfills a critical function in the regulating and management of short stay accommodation.
What is the role of Local Council in regulating short stay rental accommodation?
Each Local Council is responsible for establishing and managing any planning and regulatory requirements for short-stay rentals in its Local Government Area (LGA).
The reason for this approach is that it is believed Local Councils have a more efficient and flexible ability to act in response to local conditions and in accordance of the wishes of local communities.
The responses made by the State Gov’t to the “Levelling the Playing Field” Parliamentary Inquiry will not affect the existing role and responsibility of Local Government to regulate short-term rental accommodation. On the contrary, it’s believed these initiatives will complement existing local planning frameworks.
As a result of this approach, there is a disparity among Local Councils and each council has a unique set of short stay regulation which may have varying degrees of impact.
Examples of different Local Government Short-Term policies include:
What does this mean for landlords and property investors?
With each Local Government setting policy for its LGA, there is no standard regulation.
While the coming registration scheme and compliance regulation will be standardised, each Local Council sets policy locally. For landlords and property investors with investment properties in different LGAs, or even multiple properties in multiple LGAs, each property may be impacted by different policies.
This also complicates property investment decisions. For landlords and property investors looking to acquire for purposes of short stay lets, each prospective investment will need to be assessed in the context of the LGA it is located in. This introduces risk as the details of each LGA’s policies need to be appropriately understood in order to fully informed investment decisions. Any variances of policy between LGAs could have an impact on investment return.
Understanding the true cost of short stay rental properties
Offering a property for short term rental accommodation is obviously popular, but there are costs associated with this that are less known. Here are five additional costs associated with short stay rentals.
1) The potential cost of compliance
When the State Gov’t introduces a registration scheme, short stay rental accommodation will need to meet compliance and safety standards. For properties that fall short of this, there will be costs associated with bringing the property up to compliance and safety standards.
2) The cost of meeting Local Gov’t regulation
Each Local Council sets policy for short stay rentals. Abiding by these policies may incur costs for an investment property depending on which LGA it is located in.
3) Capital Gains Tax (CGT) implications
The implications of a short-term rental property for a landlord or property may result in the positive benefit of income and may have taxation perks resulting from claiming expenses and depreciation. On the other hand, the CGT implications can be hefty. If even if it’s just a room within a family home rented out or a granny flat on your property, it’s important to speak with a tax professional to understand the CGT implications.
4) Cleaning, wear and tear, utilities and management fees
Additional fees associated with short term stay accommodation are extensive and significantly reduce rental income. Other than cleaning, utilities, internet and management fees, one of the biggest hidden costs is the amount of wear and tear to an investment property over time, resulting in major remodelling requirements.
5) Seasonal factors and missed revenue opportunities
The most popular time for short stay accommodation bookings is seasonal. Obviously during summer and school holiday periods, as well as long weekends or during popular sporting or entertainment events. Off-season or periods when the property isn’t booked result in missed revenue opportunities.
What are the benefits of switching to long-term lease?
The regulation challenges and hidden costs associated with short stay accommodation may lead landlords and property investors to review their strategy.
In today’s market, switching a short stay rental to a long-term lease may be an attractive proposition for risk-averse investors.
Key benefits of switching a short stay rental to a long-term lease include:
1) A steady revenue stream
Moving a short stay property to long-term rental eliminates any seasonality issues a short stay accommodation experience. This means a steady and dependable revenue stream without the frequent cleaning, utilities and other costs reducing the rental income.
2) Avoid unacceptable risk
Short stay rental accommodation includes risks that may be deemed unacceptable by risk averse investors. Between coming State Gov’t regulation changes, the lack of standardisation for Local Council policy, the exposure to added wear and tear as well as other fees, the risks aren’t necessary. Long-term leases not only reduce risks in the short term, they also do so in the long term.
3) In-depth tenant profiling
A long-term rental lease gives you an opportunity to screen applicants (as opposed to un-vetted people booking on an app), complete credit checks, or performing background screenings that ensure top quality tenants who will take care of your properties just as expect.
4) Switching is easy
While a switch from short stay to long-term lease can seem like a challenging process, the reality is that changing property managers is incredibly easy and fast. In fact, when you choose HERE Property to take over the proactive management of your investment property, we take care of the entire changeover process for you. Find out how.
5) The right property manager takes a proactive approach
When you appoint the right Perth property manager to manage your property investment, you can rest assured that the focus is on long term capital growth along with an immediate yield The best property management services should contribute to the financial and lifestyle goals of every investor.
Should you consider switching your short stay property to a long-term rental?
Based on the challenges outlined here and the potential benefits for Landlords and property investors, it may be a good time to re-evaluate your short stay accommodation.
While everyone has unique long-term financial and lifestyle goals, and will be seeking different outcomes from their investment properties as part of a holistic strategy, having access to the right information to make an informed decision can make all the difference.
That’s why you should consider speaking to us to understand what your short stay accommodation is achieving for you and whether a switch to long-term rental would be beneficial to your unique circumstances.
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