Thinking About Short-Stay Leasing? Here Are A Few Things To Consider…
For some property investors, short-stay accommodation setups may seem attractive due to their potential for an immediate high rental return.
However, like any investment there are risks to be considered.
Whether you’re currently running short-stay accommodation in your investment property or contemplating the idea, below are a few factors to keep in mind.
With short-stay accommodation there is an increased nightly rate, that is for certain. It is important to consider, however, that having an inconsistent occupancy quickly negates the higher per-night charge, especially during non-event seasons in Melbourne or if you’re finding only weekend bookings are being received. Long-term tenancies, by comparison, offer a transparent cash flow as a result of an ongoing tenancy of a minimum of 12 months.
Another factor to be considered with short-stay leasing is that of performing a background check on the occupant. Short-stay accommodation setups deal with a large volume of occupants, and a thorough reference check is regularly not required as occupants are entering and leaving the property frequently. It would be a very time-consuming process to reference check each new occupant who wished to stay, though without such a background check being done, you are essentially letting a person that you know very little about stay in your property. To conceal their past actions at a previous property, an occupant may create a new profile so as to allow them to continue renting—and that’s pretty concerning!
MRE recommends a thorough background check to be done of every occupant staying at the property. Living by this rule of thumb, MRE’s administration team conducts a comprehensive reference check of the tenant’s rental and employment history. This in turn offers an owner peace of mind in knowing what sort of tenant will be occupying their property.
Monitoring Condition of Property and Attending to Maintenance Requests
With a regular changeover of tenants it can be time consuming to monitor the condition of the property whilst ensuring maintenance requests are attended to in a prompt manner.
If damage were to be noted after a few tenants have stayed over the course of a couple of weeks, it is difficult to discern when the damage occurred and recoup any costs incurred to rectify these damages. It may then fall into the responsibility of the owner to cover the costs of repairs, as the property would need to be presented in a good condition for the next short-stay stay.
When it comes to maintenance requests, these require prompt attention from the owner or someone on their behalf, in order to prevent the experience of the current or future tenants being affected. As tenants are paying on a per night basis, an issue that could affect the experience of the tenant may incite a negative review or alternatively request a refund.
For long-term leases, a thorough inspection of the property is conducted prior to the lease commencing, as well as after the tenant vacates, with a condition report recording the state of the property. Should any damage be found after the tenant has vacated, the condition report can be used as evidence to determine if the damage was present prior to the tenancy commencing, and therefore identifies who is responsible to rectify the damage.
In addition, routine inspections are regularly completed during the tenancy so as to note any issues that may have arisen. These issues are raised with the tenant and a follow up inspection is scheduled shortly after to confirm that the tenant has made the necessary rectification works.
Any maintenance requests that are reported by a tenant in a long-term tenancy are attended to by the Property Manager to ensure that these are repaired in a timely manner.
For short-stay accommodation there are additional setup costs that the owner is required to cover. The property needs to be furnished with the essentials for the tenant, including furniture, appliances, linen, cutlery and crockery. Although the cost of these will be depreciable over time, there will be fair wear and tear to these items and replacements will need to be made should any break or become faulty. Other added costs include utility and internet bills, as well as cleaning of the property in between tenants.
A long-term tenancy will more often than not attract tenants who will have their own furniture. The tenant is accountable to pay for their own utilities on a consumption basis, and it is also their responsibility to ensure the property is left in a clean and presentable condition when they vacate. This is all managed by the Property Manager, and ensures that the property is ready for the next tenant to move into without any effort or attention required from the owner.
Although short-stay accommodation appears attractive due to its potential for immediate high rental returns, factors such as the rental return achieved throughout the year, how and if tenants histories are checked, monitoring the condition of the property and attending to maintenance requests, on top of added costs, all need to be taken into consideration when comparing it with long-term leasing. Long-term leasing is hassle free for the owner, offers a transparent cash flow, and a measurable quality of tenants.
If you have any concerns regarding leasing out your property, please contact Melbourne Real Estate on 9829 2900.