Air B&B: Pros and cons you should consider before buying a short term holiday home

Anna Porter, founder of Suburbanite, said there is no doubt COVID-19 has increased the interest in the holiday home market.

“They’re now much further up people’s wish lists. It’s a solution for people who want to get out of the city on the weekends while doubling as an investment,” she said.

“But a holiday home isn’t going to perform as well as a traditional investment. In many cases though, buyers will sacrifice the investment performance to have a holiday home. You can’t always have both.”

Soul of Gerringong, a short stay rental, which is managed and owned by Simone Matthews. Picture: StegbarSource:Supplied

Ms Porter said many buyers are aware the COVID-induced influx in domestic tourism won’t last forever, but they are banking on long term changes to the short term market.

“Interest is coming off the back of the behavioural changes in our work environment,” she said. “People can work remotely now and businesses are fostering remote working.”

Investors keen to earn a living from short term rentals should study the market before diving in.

“It’s a business in its own right and it’s a lot of commitment. Not everyone is cut out for that,” Ms Porter said.

“You’ve got to manage bookings on the platforms; inquiries late at night and on weekends and be prepared to provide a high level of customer service. If you get a few bad reviews, you risk losing revenue.”

She said the next step is understanding how to price it.

“People fall down when they don’t understand how much supply and demand is in an area,” she said.

“The key is to figure out how much is already in the area, how well it rates and what vacancies are at certain times of the year.”

Holiday homes can be a great investment, but you need to put in the time to manage it.Source:Supplied

There are well-documented disaster stories so investors should read the fine print on rental platform policies, or consider bespoke insurance. But Ms Porter said there are additional obstacles.

“We often hear people haven’t kept receipts or tracked their revenue to submit to their accountant,” she said. “It’s still under the jurisdiction of the ATO as a taxable income and investment asset.”

The market is subject to government regulation and laws can change, with some councils restricting the number of days a property can be rented short term.

Owning a holiday home can be grand, but styling it can take it to another level. Picture: StegbarSource:Supplied

James Algar, a broker with Mortgage Choice, said lenders tend not to lend if they think an investor is going to be reliant on unpredictable rental income.

“The bank is saying, ‘If we end up owning this, we aren’t going to put it on a short term site for $1000 a week,” he said.

“We’ll put it on a long-term lease of $500 a week and use those calculations in our decision as to whether we’ll give you the money.”

Mr Algar said wannabe Airbnb landlords should also not rely on the fact a home has a great track record as a short term rental.

The kitchen at Soul of Gerringong short term rental property. Picture: StegbarSource:Supplied

“The banks are more interested in you and your ability to operate that asset the same way. Just because someone else did really well with it doesn’t matter because they might have 10 other properties.

“There are professional landlords who can say they’ve got three other Airbnbs with rental yields of 10 per cent or 5 per cent and they can leverage those,” he said.

When considering this kind of investment, Mr Algar said lenders might ask for a larger than typical deposit, a higher serviceability threshold over a shorter loan period, or a higher interest rate.

“Just make sure that you really understand all of the costs versus a traditional rental.”

Simone Matthews has recently ventured into the holiday home market.Source:Supplied

Simone Mathews and her husband Ben ventured into the holiday home market when her work as an interior designer fuelled her desire to share her skills with more than one client.

The founder of soulhome.com.au also runs the How-To Guide for Holiday Property Owners online which she said saw a dramatic increase in sign ups since COVID-19.

“People have realised the lifestyle balance welcomed with remote working, and are wanting to move or invest out of the cities,” she said.

But she said it takes more than just buying a house, decorating it, and waiting for the money to roll in.

“It takes a lot more planning, set up and marketing to make it happen.,” she said, adding that another falsehood is the idea a holiday home should be in a tourist hotspot.

“If you have a property in a lesser known area, you make your property the destination — the reason guests should travel there.”